Let’s Talk Profit | When $130k Per Year Isn’t Enough

Brian Hood (0:00)

This is the 6 Figure Creative Podcast, episode 336

Welcome to the 6 Figure Creative Podcast, where our mission is to help you turn your creative passions into a stable, reliable income. If you're in audio, video, design, photography, or really any other creative field, and you just want to learn from other successful creatives, you're in the right place. I was talking to a freelancer recently who had to pack up shop, move on to something else, because they weren't making enough money. They weren't making what they needed to make at least. And this is sad anytime I hear it. Typically, this is because people have a lack of clients, and their income's too low, and then they have to go get a day job or whatever. But this is not the case here. This freelancer was making $130,000 a year, and it wasn't enough to get what they needed to make to make ends meet personally. It's because he fell into the mistake that a lot of people fall into, and that is focusing on income while ignoring profit margins. There's a reason that episode 262 of this podcast is titled, Why $100,000 Per Year Is the New Minimum Wage for Freelancers? It's because of this exact same thing. If you don't focus on profit margins, and your income keeps going up, you'll end up not making what you want. And a lot of cases, and this is the case, I think in this person's position, they can make more from a day job, and in some cases, significantly more. So obviously, if $130,000 a year isn't enough to get by, not enough to survive off of, something is obviously wrong. In any business, it's not what you make that matters. The revenue number, the top line revenue number, is not really what matters. It's what you keep. So instead of just finding more ways to get more income as a freelancer, which is an important part of this, this episode, I want to dedicate to how do we actually keep more of it at the end of the day? Because if your business isn't sustainable, meaning your bank account shrinking every month, even if you see revenues going up, if it's not sustainable, it's going to suck your soul dry very quickly. It's not fun to be in a failing business. But if we can focus on increasing your profit margins, aka what do you actually make as a freelancer every year? If that number continues to go up and up and up and up and up, you'll quickly start to see your stress levels fall as that bank account rises. Because the last thing I want is anyone that I know making $130,000 a year and it not being enough to make ends meet. And before you ask, it wasn't a super expensive cost of living area. Wasn't like they were in New York or LA. And also it wasn't like they could just go to a corporate day job, making a quarter million a year or anything like that. It wasn't any crazy scenario like that. It was just literally his business was not profitable enough. This is your first time listening to the show. Hi, I'm Brian Hood. I'm the host of the show, the founder of 6 Figure Creative. And I created the show for other freelancers, specifically creative freelancers, who want to make more money from their creative skills without selling their souls. If that sounds like you, you're on the right spot. So let's get in this. Let's talk profitability. Let's talk about the old way versus the new way of profitability. Here's the old way. Income minus your expenses equals profit. So in this person's case, $130,000 minus whatever their expenses were equals what they get to keep at the end of the day. That's the old way of running a business. If you've heard this before, it's probably because you've read or heard of Profit First. And what's funny is I run my business off Profit First, which I'm going to talk about this episode. This entire episode is not about Profit First. We have other episodes on that. So don't tune this out if it's the one you've already heard before. And if you don't know what Profit First is, I will explain that to you. But I've been running my business off Profit First for a year, a year and a half at this point, and it's been going wonderfully. And what's funny is even with that, I started to outline a full episode on like expenses and incomes and all these things. And when I realized I was doing was literally mapping out this old profit model where I'm thinking, what's your income, what are your expenses, and this is your profit margin, how we can get these up. That's a flawed way of thinking. It took me a second to shake myself out of that when I was outlining this episode of what I wanted to talk about today, because the new and better way is the Profit First model. I'm putting new in air brackets. Profit First came out like so long ago, over a decade ago. So if you haven't heard about it by now, you're just not an entrepreneur, and that's okay. We're working on it. We'll get you there. But the quote new way, the decade old new way, which if you look at the grand scheme of how long business has been a thing, a decade is not very long, it's new. But the new way is income minus profit equals expenses. And that's the profit first methodology in a nutshell. You take your income as a business, so in this case, it would have been $130,000. You take out the profit you want to make, which in this case would have been about $75,000 or $80,000. And then what's left over is what you can run your business off of, which in his case was $50,000. If you can't run your business off what's left over, after you deduct your profit from the business, meaning profit is just how much do you actually keep as a business owner. In the freelance world, profit is just what we keep. In the big business world, it's more complicated than that. But in our world, after we take what we want to take from our business, if we can't run our business off the rest of it, then we've got to change something significant. So in this person's case that I'm referring to in this episode, and we'll probably refer to throughout this, it was $50,000 a year would have been left over if he ran his business off profit first. $50,000 a year, that's $4,100 a month and some change. But in his case, $4,100 a month wasn't enough. Not for his rent, not for his bills, and not for his assistant, and his assistant as well. So what do you do in this situation where you're making good money but you're not profiting enough? Or what do you do to prevent this so that as you make more money as a freelancer, you don't get in this predicament where your income's going up but you're not taking home more money? There's only one way to do it. You find a way to run your business off of that $50,000 a year, or that $4,100 a month in this specific example. In your example, the numbers are gonna be different. And there is no other way, period. That is it. You find a way to run your business off the amount you have once you take your income minus your profit. That's it. The reason this has been so popular over the last decade, the reason that Mike McCallowit's book has blown up and is like a big best seller in the business world. He's a well-respected author and consultant now, and he has many other great books. He's even been on this podcast before. The reason this works so wonderfully is because when you run your business the old way, where you take your incomes minus your expenses and your leftover profit, the equation is flawed because you start spending money you shouldn't spend because many freelancers think, when I'm making great money, I can just spend it on what I want. I want to buy that gear. I want to buy that new device. I want to buy that new thing, that new software, that new hardware. I want to upgrade to the better, fancier office. I want to get a dedicated studio for my thing. I want to redecorate. I want to refurnish things. And so as you spend more and more and more, your profit margins get squeezed down significantly, and you don't find out about it until later, right? When you're looking at your bank account and realizing, how did I make so little money? And then you're trying to search things down in retrospect where you can't do anything about it. The reason the other way works better, where you're taking your income minus your profit, is because when you have a pool of money leftover and you say, this is what I have to spend on my business, I cannot spend any more than this, you start behaving differently. You start to actually have to follow a budget, which by the way, budgets don't have to be crazy. It's just if you have $4,100 a month to live off of for your business and two grand of that goes to rent, a thousand of that goes to software, and the rest of it goes to other miscellaneous things, like if you're paying for a business coach like us, hey, or you're paying for software subscriptions, or you're paying for investing in new gear or whatever, you don't go off on these big spending sprees just because business is doing well right now. That's the profit first thing in a nutshell. We have a whole episode that breaks down this a bit more on episode 253 That's 6figurecreative.com/253.