I see a lot of talk about “how to make a 6-figure income”. This is not only in our industry but also outside. A lot of people are playing up to fantasies of becoming rich quickly. I used to be an auditor and thus have an insatiable urge to validate this with calculations… honest-to-god facts and figures.
This week, I’m going to share what it *REALLY* takes to make 6-figures. Here’s a hint: REAL hard WORK! No more, no less. But, read on for the nitty-gritty details.
The MATH behind 6 figures
Let’s go through some easy-peasy math first. I want you to really understand what 6 figures looks like from a small-business accounting angle. First, let’s have some assumptions for the example I’m going to give. The example business is a wedding planning firm that:
- Has been in business for about 3-4 years
- Is in a mid-sized metropolitan area
- The business has 3 packages that are priced at $2000, $4000, and $6000 ($4000 being the package that is sold most often)
- Does not have permanent staff members but has 2 event assistants as contractors (These event assistants are paid $150/event and are generally both hired for each partial or full planning client’s event)
- The business has $2500 in monthly expenses (which comes out to about $30,000 annually)
- The business is an LLP which means that the owner draws their own personal income from earnings (in layman’s terms: the owner takes a “draw” not a “salary” and typically this is taken after expenses are paid, from an accounting standpoint)
Now when most people talk about “6 figure income” they are referring to the sales made. (A sale being exactly what you charge your client.) This means that sales total at least $100,000.
Let’s move into the math. Using the average package of $4000, this business needs to do 25 events to achieve $100,000 ($4000 per event x 25 events = $100,000) VOILA! You now have your 6 figure income! NOT SO FAST! Let’s see what this looks like with your BOTTOM LINE:
Costs of Services Rendered – $7,500 (cost of labor: 2 assistants at $150/each for 25 events)
Profit Margin $92,500
Expenses – $30,000
Net Income $62,500 (BOTTOM LINE)
This Net Income is what you are left with as the owner of the business. THIS is what you actually draw as the owner of an LLP (or a sole proprietor.) THIS is your personal income: $62,500 – not the 6 figures of $100,000. Hell, it’s a really nice income, I think. But it’s NOT a 6-figure income.
All that matters in terms of your own income is the bottom line. What happens if this business’s expenses were $7500/month – or $90,000 for the year? (I know this is a LOT, but play along with me.) The bottom line would be $2500. That sure doesn’t look like 6-figures to me.
You see… making 6-figures in your sales doesn’t really matter. You have to examine your business as a whole. You have to look at your bottom line.
What do you think about this?
Read part 2 here… I’m going to do some more math and show what it takes to get $100,000 as your BOTTOM LINE! HINT: a LOT of HARD WORK.