For a small tech startup, Buffer is unusually open about its finances. The San Francisco company, which provides social media analytics and scheduling services, has publicly chronicled its growth since late 2010, when it landed its first customers. "Nobody spoke about transparency then--you couldn't even buy a tea or coffee with that," says co-founder Leo Widrich.
With 64 employees and $7.8 million in annual sales as of this past fall, Buffer remains committed to its open book policy. It posts monthly revenue and subscriber figures online, as well as details about its processes for determining employee salary and stock options. The transparency has reaped some immediate benefits, including cost-cutting recommendations from readers of Buffer's blog. They encouraged the company to press its payment processor, Stripe, for a better deal last year, which resulted in annual savings of $25,000 to $50,000. "It has had a very meaningful, graspable effect on our bottom line," Widrich says.
With expert help, we've analyzed Buffer's average monthly spending as of October 2015. Compare and contrast your costs with our annotated guide to Buffer's finances below.
Buffer's revenue currently exceeds the company's costs, but it's putting everything back into the business. "We don't feel that accumulating a profit at this stage is the best thing to focus on," says Widrich. "We'd like to have revenue and company spending on the same trajectory, so we can be sure to put our money to the best use."
Comparison: Comparable businesses in the "data processing, hosting, and related services" industry bring in an annual average of $200,000 to $220,000 per employee, according to database ProfitCents. At just over $7.8 million in annual revenue, Buffer was averaging closer to $122,000 per worker this past fall, which the company needs to improve, says Carol Coughlin, founder of BottomLine Growth Strategies, a financial adviser to small and medium-size businesses. Her advice: Buffer should convert more nonpaying users to paid plans, and increase the costs of those plans by a few dollars per month. "The valuation for this kind of company is driven so much by subscriptions--recurring revenue is golden," she says.
Buffer's average monthly spending:
1. Salaries: $403,000. Salaries for its staff of 64, including base pay and payroll taxes, are by far the company's biggest monthly expense (69 percent). Buffer makes all salaries, and how it determines them, public; when it published that formula, its job applicant pool more than doubled.
Advice: Buffer may need to raise the $130,000 average salary it pays in San Francisco, where high-tech salaries run to $175,600 on average, according to investment firm JLL. From a retention standpoint, "to have everyone's name and salary out there is a little risky," Coughlin warns.
2. Software, Servers, and Hosting: $64,853. Because Buffer provides digital services, 11 percent of its monthly costs are for software, database hosting, analytics, and email marketing.
Advice: If you can promise your software vendors more business or a longer contract, you can usually negotiate for better rates. Buffer is considering an Amazon cloud computing service that offers discounts in exchange for one- or three-year contracts.
3. Taxes: $28,000. Buffer is registered as a C corporation; it pays taxes as a separate entity instead of on the personal tax returns of its owners, as S corporations and LLCs do.
Advice: Companies must generally be registered as C corporations to go public, and the status is preferable if you're offering stock options to employees (which Buffer does). If going public "is the goal, they're on the right track," says Gail Rosen, a CPA. "They're not worried about getting money out to the owners."
4. Credit Card Processing: $23,319. Buffer has negotiated several reductions from Stripe. While the standard charge is 2.9 percent plus 30 cents of every transaction, Stripe has lowered the percentage (though not the fixed 30-cent cost). About 4 percent of Buffer's revenue now goes to Stripe, down from more than 5 percent before.
Advice: "Whenever you grow by another $100,000 in monthly revenue, check in with your payment provider to see if it can lower fees, since you're creating more volume for it," Widrich says.
5. Employee Retreats: $19,267. With workers scattered across the world, Buffer schedules several all-staff retreats per year--in places like Reykjavik, Iceland. The July trip cost $152,065.
Advice: Most companies spend an average of 1 percent of revenue on business travel, according to the Global Business Travel Association. Buffer spends three times that amount, to good effect: It developed its business services suite in Thailand and brainstormed its video-sharing platform on the Iceland trip.
6. Equipment and Communications: $14,221. As Buffer has expanded from 25 employees to 64 (63 full time), so have costs for its (virtual) office supplies. The company covers computers and other home-office equipment, including monitors and stands, as well as employees' phone and internet services.
Advice: This spending seems appropriate right now. The company should be able to negotiate better group rates on phone and internet plans as it grows.
7. Marketing, Legal, and Accounting: $12,496. The company contracts with Foresight for accounting and payroll services and works with a legal team at Wilson Sonsini Goodrich & Rosati. It also plans to ramp up spending on marketing.
Advice: Start spending more. Most comparable companies spend twice as much as Buffer on marketing, according to ProfitCents. In-house legal and financial expertise also becomes critical as you grow, which Buffer realizes: It just hired its first full-time financial planner.
8. Co-Working Space: $9,558. Buffer closed its San Francisco office in October, since too few employees were using it. Instead, the startup covers co-working memberships for those who want them (an estimated 15 to 20 percent of people).
Advice: It's a smart move for now. But Marc Effron, president of Talent Strategy Group, warns that the company might need to reestablish a central workspace as it grows, to encourage more "face-to-face collaboration."
9. Insurance: $8,000. Only $250 is business insurance. Buffer covers 100 percent of a Blue Cross plan for U.S. workers and 50 percent for spouses and dependents. Plans include dental and vision, and total costs per domestic employee come to about $400 to $500 a month. The company saves money on some employees located in countries that provide public health care.
Advice: No big changes needed. Buffer's done well at keeping health care costs down, in part by hiring employees who live abroad and thus cost less to cover.
10. Perks: $2,255. Buffer supplies every employee--and their immediate family members--with a free Amazon Kindle with unlimited books, and a free Jawbone wristband that tracks daily activity and sleep. But unlike many tech startups, it didn't provide meals at its former offices, because it didn't want to provide a perk to only some employees.
Advice: Freebies abound in Silicon Valley. But so far, Buffer has managed to offer a lot for little cost: "The Kindle books and activities are frankly a small expense in the scheme of things," says Coughlin.
Buffer's Bottom Line
- Monthly Costs: $584,969
- Monthly Revenue: $650,478
- Where It Comes From: Buffer offers basic services for free, and then sells subscriptions ranging from $10 to $300 or more per month
- Number of Registered Users: 2.8 million
- Monthly Active Users: 226,445
- Paying Customers: 46,116