---
title: "Do You Understand How to Allocate Capital?"
section: "Operational Excellence"
sectionId: "operational-excellence"
date: "2026-05"
---

## Break Your Spend Into Categories

Every pound your company spends should belong to a category, and those categories should be in proportion to what drives your business. Great founders know their spend breakdown without having to look it up.

## Typical Allocation Benchmarks

| Category | Typical Range | Notes |
|---|---|---|
| Salaries | 20–50% | Higher for high-margin businesses; lower for hardware |
| COGS | 20–60% | Varies widely by business model (see below) |
| Office space | Under 10% | Even less in a remote-first setup |
| Marketing | 2–5% | Early stage — should grow as you find channels that work |
| Other | Remainder | Legal, R&D, travel, equipment, software, taxes |

## Understanding COGS

COGS (Cost of Goods Sold) is the cost of actually delivering your product to the customer. It varies dramatically by type of business:

**Hardware — high COGS:**
Components and manufacturing, packaging, shipping and warehousing, import/export duties, and the personnel costs for sales, implementation, and customer service.

**Software — low COGS:**
Hosting and servers, plus personnel costs for sales and customer service. This is why software businesses can be so capital-efficient at scale.

## Office Space

Office space should be a small fraction of spend — especially now that remote and distributed teams are the norm. Every pound saved on office space is a pound that can go to talent, product, or runway.

## Other Spend to Track

- Professional fees (legal, accounting)
- R&D
- Travel and meals
- Equipment (hardware, desks)
- Software subscriptions
- Taxes and licences

The goal is not to cut every line — it is to make every line a deliberate decision. Unexamined spend grows quietly and compounds quickly.