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You’re Ready to Quit Your Day Job–But is Your Business Ready?

At Amazon and ecommerce events, the topic of leaving the “day job” often arises. Many entrepreneurs aspire to make this leap, while others who have already done so wonder if it was the right decision. It’s a common goal that sparks conversations and reflections among attendees.

Implementing the Profit First cash management system in your business provides a clear path to achieving your goal of leaving your “day job.” By reverse engineering your numbers and comparing them to benchmark figures, you can determine the salary needed to sustain your lifestyle. This chart from Profit First for Ecommerce Sellers can be used for the comparison.

revenue chart from book

For instance, let’s say you require a personal salary of $75,000. You can now figure the other numbers in the formula as if you know what your gross profit is. In this case, the gross profit is an approximate value for Real Revenue indicated in the chart. If your business is sound, these two numbers should be pretty close. If the numbers aren’t close, then t’s too soon for you to leave your day job. Instead, you need to begin making improvements to your business now to better prepare for that big day.

Below are the calculations we’re using for a business at the Gross Profit level of Column A in the chart above, in the range of $0-$250K.

insert chart

Using $75,000 as your needed salary / 50% from the chart = $150 ,000, which is the Real Revenue requirement shown in the chart’s range of $0-$250k. To sustain a healthy business, it is necessary to put back money for profit, taxes and operating costs based on the levels displayed in the chart.

150,000 * 5% = 7,500 Profit

150,000 * 50% = 75,000 Owners Pay

150,000 * 15% = 22,500 Taxes

150,000 * 30% = 45,000 Operating Expenses

 

So, how does your business compare to these numbers?

To double-check against your top line revenue or gross sales number, all you have to do is divide your real revenue number by your gross margin percentage.

150,000 / 30% = 500,000 Top line revenue or Total Sales

For a successful ecommerce business, maintaining a gross margin of around 30% is crucial to cover overhead expenses effectively. If your margin falls significantly below this benchmark, it’s essential to develop an action plan to increase it before fully relying on your ecommerce business as your primary revenue source.

The Profit First system provides clear benchmarks that help you identify areas for improvement and make your business more efficient. Before transitioning away from your day job, ensure that your ecommerce business is profitable enough to sustain your desired lifestyle. Implementing the Profit First approach will not only help you take a salary but also ensure consistent profitability, accelerating the growth of your ecommerce business.

If you’re interested in learning more about creating profitability in your business, check out my book, Profit First for Ecommerce Sellers. It’s available now at Amazon.com and other book retailers.

Post Author Cyndi Thomason

bookskeep

Cyndi Thomason is founder and president of bookskeep, a U.S.-based accounting, bookkeeping, and advisory firm for ecommerce sellers worldwide. She has a passion for data analysis and process development. She uses that passion to educate her clients and help them structure their businesses to maximize profits.

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