Hey there, fellow business enthusiasts! Today, we’re diving into the meaty topic of “How do I Know if I’m Paying Myself Enough or Too Much?” If you’re a small business owner, or thinking about taking the plunge, this one’s for you.
Picture this: You’re running a bustling business, and you have a rockstar team. You’d go to the moon and back to keep them happy and motivated. But here’s a twist – who’s your most crucial employee? Surprise, surprise, it’s you!
In the hustle and bustle of managing a business, it’s easy to forget the importance of compensating yourself fairly. You’re the engine driving your venture, and if you don’t take care of yourself, burnout is lurking around the corner, ready to strike.
Now, before you start thinking you should place yourself on a pedestal, let’s clarify something. You can acknowledge your importance without thinking you’re superior to your team. It’s about recognizing your value within the business ecosystem.
So, how do you demonstrate your appreciation for the most crucial employee, yourself? It all starts with fair compensation. Just as you’d pay your star team members well, you should pay yourself at least as much. This not only ensures you get your fair share but also prevents you from falling into the trap of overworking.
Sometimes, running a business can feel a bit like it’s all about strict rules and zero tolerance for rule breakers. You think you’re following all the rules, doing everything right, and yet, you’re left feeling burntout and empty.
You’re putting in all the hours, but your take-home pay doesn’t reflect your efforts. So, what gives? Well, there are many factors at play, from wasteful expenses to inefficient systems. But fear not, the 3.3 Rule is here to save the day.
The 3.3 Rule is a game-changer. It’s about working efficiently and not endlessly. But it doesn’t stop there; it also guides you on determining your fair compensation.
Now, let’s talk about the difference between owner’s pay and owner’s benefit. Owner’s pay is what you pay yourself, but owner’s benefit goes beyond that. It includes personal expenses that you’re covering through your business. It’s about recognizing the true value you’re getting from your venture.
So, how much should you pay yourself? Well, that depends on your business’s size and profitability. Mike Michalowicz’s Profit First method can help you figure out the sweet spot. You’ll calculate your Gross Margin and use that to determine your Owner’s Benefit percentage.
This percentage isn’t static; it changes as your business grows. As you hire more team members and delegate tasks, you’ll find yourself working fewer hours, but earning more. It’s the magic of scaling up.
However, there’s a caveat. If you’re paying yourself more than your business can comfortably afford, you’re setting yourself up for trouble. We all want to avoid the ninja-like burnout that sneaks up on us when we least expect it.
In some cases, your Owner’s Benefit might be lower than it should be because you’re not valuing your contribution enough. You’re scraping by on the leftovers, and that’s not sustainable. But don’t worry; this book is full of exercises to help you improve your situation.
On the other hand, if you’ve hired too quickly and are paying someone to do work you could handle, it might be time to reevaluate your strategy.
As you implement the 3.3 System into your business, you’ll savor the taste of a healthy Owner’s Benefit. Once you get a taste, you’ll be left wanting more of it!
So, here’s your action item: Find your Gross Margin, calculate your ideal Owner’s Benefit percentage, and compare it to your actual earnings. This quick exercise will give you insights into your business’s financial health and motivate you to keep working the 3.3 System.