How Much Does It Cost To Run A Digital Creator & Freelancing Business?
💸 Breaking down my monthly expenses
Given the number of subscribers I have been thinking about ways to create additional content. One thing that people seem to like a lot is breakdowns of financials of running a creator business. I’ve decided to walk through my expenses in this issue. This is a subscriber-only post (thank you all!) but if you feel like it would help someone, feel free to forward to 1 or 2 people.
I’d also love to hear what else you might want me to share. I plan to keep the Saturday post free forever, but would like to get in the habit of sharing a little more here, especially Q&A, financial reports, and other things that might make sense to share with a more intimate group.
What does it cost to run a creator / freelance digital business?
The information on how much it costs to run your own business is hard to understand and can vary widely. My natural tendency is to do almost everything myself and rely on outside services and help as little as possible. In the last year or two I’ve started to realize how this is probably not a good use of my time but I’m glad I took the approach in the first few years such that I had a good sense for how things work.
“Fixed” Costs - Hard To Adjust ~ $355 / month for 2020
These include things like web hosting, accounting, course platform fees, file storage, Zoom, cell phone and LLC fees. Most of these are necessary to run my business and I can’t really scale them up or down.
At the beginning (because I wasn’t consistently making a lot of money I erred on the side of trying to hack things together on my own and minimizing variable costs as much as possible. I hacked together my own e-mail workarounds for free e-mail, tried to mage use of free cloud services for storage and a few other things. It wasn’t worth it. I should have just dropped the $5-10 a month for these services and focused more on trying to make more money rather than minimize costs.
Flexible Costs ~$883 / Month for 2020
I’m using the term “variable” In the first few months of 2020 I’ve spent more money on contract labor, hiring people to help me with digital advertising, and digital marketing. Both people I’ve worked with have been a lot of help and I’ve learned a ton from the experience. Also I used a tax accountant this year for the first time which saved me a lot of headaches from filing abroad and living in different places with my own business. Should have pulled the trigger on this the previous couple of years as well.
I am spreading these costs out over the year to make sense of them from an accounting standpoint but when my income dips I do tend to be a little more conservative (which I realize may seem a little silly over the long-term).
Cost of Revenue (Mostly Stripe) ~ 3-20%
My biggest cost is Strip which handles the backend for most of my income streams including direct billing from consulting projects. Depending on the source, Stripe will take anywhere from 2.9% and 30 cents to 4.4% and 30 cents. Other platforms also take a cut. Substack can turn out to be quite expensive because it treats all the payments as individual transactions so a $5 monthly subscription results in only $4.05 going directly to me.
Self-Employment Taxes ~ 15.3% Of Income
Once all the costs are taken out and deductions are factored in, I have to give Uncle Sam 15.3% of my income paid quarterly. This is for Social Security, Medicare and other parts of the social safety net. Full-time employees only see half of this because their employer pays the other half. One good thing is that you can deduct this half when you file year end taxes.
I’m going to leave out income tax because its a bit complicated and confusing given I have been living outside the US not to mention quite low or minimal because of how low my income after taxes, expenses and deductions has been.
Example Month - Revenue, Costs, & Income
My income has varied quite a bit but I wanted to put together an example income statement to show you how much money I get to keep. This exercise was pretty interesting for me because I often see headline numbers like “course sold for $429” but never know what that means for how much I get to keep.
I put together some example income streams I might see in a typical month (as my business stands right now) and what that means for costs and profit.
As you can see the gross margin is quite high, with me only having to pay about 7% for payment processing and transaction costs. This is pretty good compared to pre-internet businesses but it is also a large chunk of money for Stripe, which makes you realize why Stripe is probably going to be one of the most valuable companies on the planet.
My net income after my “fixed” and “flexible” costs is about 73% of Revenue which is also pretty good. If my revenue doubled tomorrow that net income percentage would rise at a minimal marginal costs since most of my costs don’t increase with scale. In fact I’m thinking a lot about where to invest to help me do the things I want to be doing which is to create, to write and to connect with people.
Have any questions?
Hit up the comments, I’m happy to answer questions!