Today we’re going to talk about money, but in a way that isn’t going to turn into a math lesson – I promise! I’ve got a free calculator that I’m going to share with you so that you don’t have to do the math yourself. I’ve talked with a lot of shop owners and makers and ask them what their numbers look like – and most of the time I hear crickets. That’s why today we’re going to talk about:
I also have a FREE calculator to help you figure out the math. Let’s get started!
The first step in defining what it will take to reach your revenue goal and take your business full-time is defining your minimum salary. I’d like you to sit down, go through your finances and what it would actually require for you to quit your day job tomorrow. If you don’t have money from your job or any other income that’s helping you and your budget, exactly how much money should you make? That’s what we’re going to start with so that you know you’re secure and safe, have money to pay rent and put food on your table.
When I started my business I know that going through my bank statements helped me realize that I have stuff that I was paying for and never using – things like subscriptions online that I probably used once and forgot about. It was time to ask myself questions like ‘Do I need Netflix?’ (and the answer to that is YES!). The point is, determine how much money you need every month. It’s going to be different for everyone and will be dependent on many factors: partner income, kids…
The next step is to determine what are your fixed monthly expenses. These are expenses you have to pay every month to be able to run your business, even if you don’t make any sales. This could be utility bills, subscriptions like Shopify, coaching etc. You need to add all of that up to understand what you have to pay each month.
The next step is looking into the tax. How much money do you need to put aside for tax each month? Again, I can’t answer that one clearly as I’m in Australia and you might live somewhere else. That’s something you’ll have to figure out for yourself, but you need to know that from the beginning. That’s nothing worse than realizing at the end of the year you need to pay tax and having nothing in your savings account. That happened to me in the past and let me tell you it wasn’t a great time. So, be clear on how much you need to pay and write it down – usually, it’s a percentage of what you make, e.g. 20%, 30%.
Let’s say that the minimum salary you want to pay yourself for a month (personal) is $2000 and your overhead (fixed business expenses) is $500.
On top of that, you know you have to pay 20% in tax to your state/government.
To break-even (meaning you do not re-invest in your business or save money but have enough in revenue to pay yourself, cover your overhead, and put money aside for your tax) you would need to make a revenue of $3125.
20% of that amount will be set aside for tax. That’s $625.
$3125-$625=$2500 → Exactly what you need to pay yourself a $2000 salary and cover $500 of expenses.
→ You are breaking even.
Here is the calculator where you can just put your numbers and it will make the calculations for you automagically!
[free] handmade shop breaking even calculator
HOW MUCH MONEY YOU NEED TO MAKE TO BREAK-EVEN? HOW MANY SALES YOU NEED TO MAKE EACH MONTH TO TAKE YOUR BIZ FULL-TIME?
THIS CALCULATOR WILL DO THE MATH FOR YOU!
We’re not going to stop at just determining the goal. Let’s take it a step further and see if it’s achievable! To do that, we need to understand how many products you need to sell every month to reach that revenue goal.
Let’s say you earn $25 per product. Using the same example as above: to make $3125 in revenue from that product, you would need to sell 125 products: 125 x $25 (your profit per product) = $3125. Again, you can use the free calculator to just plug and play!
That means that you would have to create and sell 125 products per month. Now, what you have to ask yourself is:
How do you feel about selling 125 products per month? Is it a lot or are you feeling confident because they sell out pretty easily? The same in terms of time – how do you feel about creating that many products each month? If it takes 5 minutes to create your product that might be okay, but if it’s an hour-long project every time and you’re still working your day job it’s probably not realistic.
That’s it! You can get your calculator by signing up here.
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