The problem with “six figures”

If you ask most expert-based business owners how much money they want to make in a year, you get “six figures,” or “$10,000, $20,000, or $30,000 a month,” or “$250,000 or $500,000 a year.”

After hearing this from literally thousands of people, it’s clear that most haven’t done the actual math. Is that the top-line revenue, before expenses and taxes? What they want to make after taxes? What they want to personally take home? Most people don’t know which it is. And if you personally want to take home $100,000 and you run your own business, you’re going to need to generate quite a bit more than $100,000 in a year.

How to find your Freedom Number

Start with your life. Add up all your actual household expenditures for the year. Include everything: rent or mortgage, groceries, kids’ education, and the bigger things like vacations, retirement savings, and house upgrades. This should be a life you would feel happy living without stressing, without working nights and weekends, and with the freedom and flexibility you crave.

Add the taxes. Divide that number by 0.7. (This quick-and-dirty formula assumes a 30% average tax rate and is meant for estimation purposes only.) If your personal number is $200,000, then $200,000 divided by 0.7 is approximately $286,000.

Add the business. Total up what it costs to run your business, including what you should be investing each year in marketing and skills. Say that’s $35,000. Now $35,000 plus $286,000 is $321,000.

All of a sudden, “I want to take home $200,000” means you need to generate $321,000 in revenue. Imagine hustling to get to $200,000 and finding out you’re only 60% of the way there.

It can go the other way, too

Often people say they want to make $30,000 a month, or $360,000 a year. Then they do the math and realize their Freedom Number is more like $175,000. It’s not that they can’t make more. But when they realize they only need $175,000 to live a comfortable life they’d be happy with, it relieves a lot of pressure to always keep making more.

Good, Better, Best

I have business owners sort all of their personal and business spending into three categories: needs, wants, and desires. That gives you a good, better, and best Freedom Number. You hit goal one, and then work toward each next goal as gravy on top, without carrying the stress of needing to hit it.

The 50/25/25 Rule to Profit and Freedom

Now that you know the number, how do you hit it? With a formula I developed and first shared in my book Badass Your Brand. When you sell your expertise and you want freedom and flexibility in your life, your numbers need to work like this:

• You generate all your revenue in 50% or fewer of your working hours.

• You dedicate at least 25% of your time to working on your business, so your pipeline stays full and you keep building long-term value.

• The other 25% of your working hours is flexible “freedom” time. It’s yours for the days you want to take off, or to reinvest in the business when you want to go faster.

To keep it simple, we calculate on 4-week months and 8-hour days. That gives you 960 hours a year, or an average of 80 hours a month, to work with paying clients. (It also builds in a secret bonus month of freedom.)

So if a common project takes you 80 hours to deliver and your Freedom Number is $321,000, that project needs to cost $26,750.

What if you’re charging $10,000?

Then more than doubling your rate may seem daunting. There are only two levers you can pull. You can increase the real, and perceived, value of what you deliver. And you can decrease the time it takes to deliver it. Do both, and everything changes.

That’s what the rest of the No BS Business Model is for: the Lead Product Method raises the value of your work before the project even starts, and Intensives cut the time it takes to deliver it.

A different kind of freedom number

You may have heard “freedom number” used in personal finance to mean the amount you’d need saved to stop working. Mine is a different thing. It’s a yearly revenue target for a business you want to keep running, tied to the life you want to be living while you run it.

Find yours

Use my calculator to work out your Freedom Number and what your main offer needs to cost.

FREEDOM CALCULATOR