How Sales Translate to Income - Part I

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Welcome to another issue of Passionate Income.

Today we’ll be discussing the actual take-home income entrepreneurs can expect from various types of business models.

While it’s easy to flex top-line revenue, anyone who’s been in the game for a while knows this metric is both easy to manipulate and highly misleading.

Further, understanding these numbers can give you massive insight into both how much you can make and how much you can sell a company for (assuming you can even sell it).

Let’s dive in.

Unless you’ve been living under a rock, odds are you’ve seen your fair share of Stripe screenshots in “online business” on social media.

While these attempts at social proof have their place, and (in some cases) serve to validate legitimate claims, they don’t tell the full story.

Mainly because top-line revenue (sales) tells you absolutely nothing about how much income someone takes home after expenses (let alone after taxes).

So, to help you cut through the guru BS, we thought we’d break down the net profit margins of today’s most popular online business models.

For each model, we’ll show the average net profit, the expenses involved in generating $100k per month, and how much take-home income someone would have if that business were to generate $100,000 per month (which we’ve chosen for the sake of using round numbers).

#1 - eCommerce

On the downside, e-commerce is a tough business to crack because it’s heavily dependent on managing cash flow (money quickly coming in and going back out). On the upside, if you launch a winning, mass-market product, you can literally build a 9-figure company.

Either way, here are the numbers most eCom stores do:

Avg. Net Profit: 10-20%

$100k Monthly Revenue Breakdown:
Inventory/Sourcing: $40k - $60k
Salary/Payroll: $5k - $15k
Marketing/Advertising: $15k - $25k
Payment Processing Fees: $2k - $5k
Website/Hosting: $1k - $5k
Fulfillment/Shipping: $10k - $20k

Approximate Take Home Income: $10k - $20k per month

#2 - Dropshipping

Drop-shipping is similar to e-commerce except you’re selling another brand’s products on your virtual store. And because of that, you get a smaller payout but do not have to deal with hiring anyone, sourcing products or logistics.

Avg. Net Profit: 10-30%

$100k Monthly Revenue Breakdown:
Inventory/Sourcing: $0
Marketing/Advertising: $40k - $60k
Payment Processing Fees: $2k - $5k
Website/Hosting: $1k - $5k
Fulfillment/Shipping: $10k - $20k

Approximate Take Home Income: $10k - $30k per month

*Notice how, despite the same level of top-line sales, the drop shipper’s take-home income is 2-6x higher than the e-commerce seller’s.

#3 - Freelancing

For this one we’re going to switch things up, because very few freelancers earn $10k per month let alone $100k.

Avg. Net Profit: 85-95%

$10k Monthly Revenue Breakdown:
Inventory/Sourcing: $0
Marketing/Advertising: $0 - $1k
Payment Processing Fees: $300
Website/Hosting: $25
Fulfillment/Shipping: $250
Approximate Take Home Income: $8,500 to $9,500 per month

On the surface, the freelancing model generates the most net profit / income.

Sadly, freelancing involves trading dollars for hours. And because of that, time constraints make it impossible for most freelancers to work with more than 3-5 clients at any given time (glass ceiling).

Meaning, if you want to generate big money or sell your company in the future, you’ll need to shift from freelancer to building an agency.

4 - Agency Model

As we’ve discussed in previous issues, the agency model (and service businesses in general) come with their own sets of Pros and Cons. Mainly as it relates to the ability to generate high-ticket sales quickly (positive) and the difficulty of getting clients and scaling a talent-based service (negative).

Either way, here are the numbers most agencies do:

Avg. Net Profit: 20-40%

$100k Monthly Revenue Breakdown:
Salary/Payroll: $15k - $35k
Marketing/Advertising: $10k - $20k
Payment Processing Fees: $3k
Website/Hosting: $100
Salesperson Commissions: $10k - $15k

Approximate Take Home Income: $20k - $40k

💡 Takeaway: If you're new to business, it can be easy to see a guru flexing Stripe screenshots and think that's how much income they're making. But in most companies, the owner takes home a literal fraction of their top-line sales.

So if you see yourself getting caught up in the hype, ask what someone's net profit margins are before blindly diving into their scheme.

I'll leave you with this quote…

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