The best way to take home more earnings

(2 min read) This is why every Creator should focus on growing revenue — instead of trying to cut costs and run as lean as possible.

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Let’s say you currently take home $50,000 as a Creator, but you want to take home $100,000.

How do you do that?

Your take-home pay is your profit. Profit has just two components:

Profit = Revenue - Costs

Profit is the difference between Revenue and the Cost of generating that revenue.

So there are only two ways, at a high level, to increase your profit (and, thus, your take-home pay):

  1. Increase Revenue

  2. Decrease Costs

If you pick one of those two variables and impact it in the right direction, your take-home earnings will grow.

But which one to choose? And how to impact it?

Cost is often the lowest-hanging variable, and a favorite of consultants and finance MBAs - hence all the layoffs happening across the economy right now.

I would suggest that in the majority of cases, especially for small businesses (read: Creators) it’s actually the least impactful.

Why? Costs have a floor - $0. You can’t spend less than $0.

Creators don’t tend to have a lot of costs (outliers like MrBeast notwithstanding). We have somewhat high one-time fixed costs (cameras, laptops, lighting setups, etc.) and then we have fairly low ongoing variable costs (software subscriptions, editor fees, accounting, etc.)

There isn’t really good data on average margins for content Creators, but for me it’s roughly 80%. That means I spend 20% of my revenue on operating - software, editing, etc. and keep the remaining 80%.

If I’m taking home $50,000, that means I generated $62,500 in revenue but spent $12,500.

If I want to make $100,000, cutting that $12,500 completely would only get me to $62,500. Also, in reality, I’d probably make a lot less revenue as well, because I really need (for example) my beehiiv subscription to send this email to you. If I canceled it to cut that cost, I’d no longer be able to send emails, and thus my newsletter ad revenue would go to $0.

Cost-cutting isn’t really a great strategy to meaningfully impact your business - at least, if you’re aiming to go from five- to six-figures of take-home earnings. 

Instead, you want to increase revenue - and to do that, you need to understand what revenue is.

Revenue = Price x Quantity

Revenue is the product of the Price of a good or service and the Quantity sold of that good or service.

The first thing to notice - there’s no mathematical floor or ceiling to revenue. Revenue can be infinite! (...Theoretically)

In the example where you generate $62,500 in revenue, spend 20% ($12,500) in costs, and keep 80% ($50,000) in profit:

  • You CANNOT get to $100,000 in profit by decreasing your costs from $12,500 to $0 - the maximum you can keep by cutting costs is $62,500 

  • You CAN get to $100,000 in profit by increasing your revenue from $62,500 to $125,000, spending 20%, and keeping $100,000

Especially for Creators, revenue growth is the best way to drive profit growth.

Now, there are only two ways to make more revenue:

  1. Increase how much of what you sell (Quantity)

  2. Increase the price of what you sell (Price)

Every revenue source has a Quantity and Price - even if it’s not obvious. For example:

  • Sponsorships - the number of sponsors is quantity, what you charge is price

  • Affiliates - the number of products purchased is quantity, what fans spend is price

  • Memberships - the number of subscribers is quantity, the monthly fee is price

  • Services - the number of clients is quantity, the hourly rate is price

At this point, you’re probably thinking, “This is interesting, but what can I actually do to increase Quantity and Price?”

That’s what we’ll talk about next week.

Thanks for reading!

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Written by Avi Gandhi, edited by Melody Song,
powered by TheFutureParty

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