Don’t Confuse Revenue With Profits

Mexican FishermanI generated $100,000 from home in my underwear!” reads the headline. Immediately, you go ahead and click to see how, hopefully for free. But if not, maybe there’s some type of infoproduct you can buy for $99.

Revenue is sexy no doubt. Large headline numbers are used to suck you in. They trigger a “Me too wow!” emotion, and most of us fall for it. For growth companies, top line revenue is important to show the investor the company is heading in the right direction. However, for the consumer, revenue is a gimmick if you don’t highlight the net profit.

One of the greatest tricks in selling is to make something look so easy that any knucklehead can do it. Offer a 30 day money back guarantee, with processing fee of course, and a product that takes 100 days to complete to see results! By the time the consumer figures out what you’re selling is difficult to achieve or a piece of crap, you’ll have already taken their money and bought a nice trip to Maui thank you very much!

If your job is to sell the dream of making money online and following your glorious digital nomad lifestyle blogger, do us all a favor and be more transparent.

REVENUE DOESN’T COME CLOSE TO EQUALING PROFITS

There’s an old saying that it’s not how much you make, it’s what you keep. It’s easy to be lured into the fact that being an online entrepreneur is easy. The fact of the matter is, after you deduct costs and pay taxes, you’re often left with less than a third of what you started with!

In any business, a 33% net profit margin is a fantastic return. In fact, a 33% net profit margin blows doors off of great companies such as Google and Apple. It takes a lot of time, money, and effort to generate profits.

As a business owner, don’t lull yourself into stupid mode when you have a nice jump in revenue because you’ve got to watch your expenses. Cash flow is tantamount.

As a consumer don’t be mesmerized by proclamations of huge revenue figures, especially when costs are not reported. Your dignity is paramount.

To lifestyle bloggers, if you are writing about how everyone should quit their jobs and follow your path, great! Just highlight what your revenue, costs, operating profits, and net profits after tax are so readers can decide for themselves whether your journey is right for them.  We must compare your operating profits before taxes to our day job incomes before taxes.

Generating $60,000 online a year is solid, but if you’re only taking home $25,000 before taxes and saving no money, you might just misleading your readers and ruining their lives. Practically every full-time job in America pays $25,000 or more a year, and they come with healthcare benefits!

OPEN YOUR EYES

It’s important not to fall for gimmicks. When people try selling you the dream, know that you are already awake.  Question everything before you do anything drastic such as spending $299 on an info-product, or quitting your job just because someone says so.  The worst is when someone makes you feel bad about having a job, and rubbing it in your face how good their lives are.

On Untemplater, I pen a fiery post entitled, “Quit Your Job And Die Alone. You’ll learn about four examples of online entrepreneurs who are relatively popular in their respective niches who still can’t save enough for their family, get a mortgage to buy a house, or quit their jobs even though that’s what they’re advocating.

If they can’t do it, what chance do you have?  Bust open some popcorn and grab a drink, because the post is a long one.  If you’ve ever had aspirations of quitting your job to be an entrepreneur online, you won’t want to miss this one!

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Photo: Mexican Fisherman for the ladies.  Don’t get too excited.  Isla Mujeres, 2010.  SD.

Regards,

Sam

Sam started Financial Samurai in 2009 during the depths of the financial crisis as a way to make sense of chaos. After 13 years working on Wall Street, Sam decided to retire in 2012 to utilize everything he learned in business school to focus on online entrepreneurship.

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Comments

  1. says

    You can get almost everything you need to know about blogging on the internet for free so there is no need to pay for a course. I am curious to see your post at Untemplater so will be headed there next, but you are right that most people selling the dream only want your money.

  2. says

    great point Sam. I’d like to further add to this…

    you also see/hear netpreneurs boast their profits online without presenting the other side of the equation, which is the time and effort spent online. sure, one can make a living online constantly blogging/writing. but what happens when the author stops producing content?

    what if the income less expenses was divided by the time/effort invested. what is the true ROI? is one better flipping burgers instead? it’s all relative and one must understand the full picture to make prudent decisions/choices.

    there are many models to generate income online, and it helps to understand each holistically and not simply get caught up at the surface level.

    • says

      It’s scary to calculate the true ROI given the time we spend busting our ass. That said, it’s truly a labor of love and I don’t mind slaving away for the first 5 years of I know it will pay off down the line.

  3. says

    Looking forward to reading that post on Untemplater, I’ll head over there today. I can already say that my initial thoughts are that it’s important for people in general to think critically, and be cautious when others are selling a dream. Logically thinking through all aspects, such as risks, time invested, opportunity costs, etc – can help one make sound decisions. Much moreso than getting caught up in hype and keeping up with the online Jonses, so to speak.

  4. says

    Sam,

    I totally agree with BOTH of your posts. I work closely with the Real Estate investment industry and a lot of what people say about living off “online income” is often also touted about living off “investment income”. The reality is you CAN do it, but more times than not. Most people have nowhere near what they need annually to do this. Even if they did, doing so would kill the golden goose.
    AG

  5. says

    Good read, thanks. This line of thinking is so pervasive elsewhere as well. I remember reading an article last week on Yahoo’s quarterly results. I’m paraphrasing but the headline said something to the effect of “Yahoo disappoints investors as profits increase despite lower revenues”.

    Granted, I am not popping champagne corks over lower revenues, but disappointed no. Profits are why you are in the game…..

  6. Solomon says

    There’s a right way to do things, and a wrong way. Transaprency about making money telling others how to make money is key. Otherwise, it’s all nonsense.

    Really enjoyed the post on Untemplater.

  7. says

    Tax takes a huge chunk out of the revenue when you’re working for yourself. That’s why it’s so tempting to cheat on Tax. Quitting your job takes a lot of preparation and you’re right about how much less people will make. You have to be ready financially before taking a 90% pay cut.

      • says

        This is so true Sam! My partner and I are actually looking at putting more effort into our web design business as opposed to building more blogging sites (as many on Yakezie are doing). We just found that our profit-per hour was much higher in that field. The taxes are just killing us right now, but we have been pouring energy into growing our network, we really need to hire someone to guide us through the incorporation process because our marginal tax rates are killing us at the moment.

  8. says

    About to go over and check out that post. And taxes are kind of a huge thing. I feel like I’m beating a dead horse here, but independent contracting and being self employed seem glorious until April 15.

  9. says

    One of the best personality characteristics a person can develop and have is a healthy amount of skepticism.

    If someone makes some outrageous claims, there’s gotta be a catch. If it’s too good to be true, it probably isn’t, right? I say no, if it’s too good to be true, do more research and then decide!

  10. says

    This is not much different from the infomercials that promise get rich quick schemes. Anything worthwhile takes time and effort. There is no easy way to get there, but people keep trying. It reminds me of all the diet books that are out there. All the diets that are advertised, you still have to change your eating habits to keep the weight off. A profitable business requires a lot of effort to make and keep it profitable. Online or brick & mortar, you still need to put in the effort.

  11. says

    I was just talking with my husband about this. A former coworker was talking about his great 2 million in revenue last year, but his profit market was like 5 percent or something ridiculous like that. Sounded like a lot of work for little return in my opinion.

  12. says

    Can we at least agree it is kind of ironic that the post went up on Untemplater considering how the site started?

    Seriously though, that was one of the best posts I have read in a long time – when I read the stories you linked to I couldn’t believe Baker only took home $20K…and almost seemed alright with that return.

    • says

      Somewhat. I was either going to publish it on Yakezie or Untemplatet. Yakezie has a queue of posts already, and I’ve already talked about job quitting last week.

      Untemplater is the perfect avenue for such a post IMO.

      At least a baker doesn’t have to pay a lot of taxes!

  13. says

    Good post. I only recently crossed the “profit not revenue” line when it came to blogging — and the profit comes from freelance opportunities, not actual blog income so maybe it doesn’t even count. I’ll probably never make $60,000 online but what a great point that there’s taxes + insurance + etc. to consider before anyone goes bragging about their income.

      • says

        Maybe, but it’s not worth it too me yet. I really like my full-time job and I’m not ready to pull 60 hour weeks again so blogging 20-30hrs per week is out! We’ll see what the future holds though!

  14. says

    You hit the nail on the head. Without looking at all the expenses the picture is incomplete and can be quite misleading. It still amazes me how many public companies cook their books too and think they can get away with it forever. Transparncy is becoming more and more important and that’s a good thing for investors. If it sounds too good to be true, it usually is. Afterall it costs money to make money!

  15. says

    Yes, I could easily have a 10 million dollar revenue business by the end of the month if I sold Ferraris at half what they cost to produce. And I wouldn’t even need to pay taxes because of that great $11 million loss I could carry forward. That’s right folks, you too can have a $10 million dollar business to the rich and famous, and do it without needing to pay taxes! Just send $499 and a self-addressed stamped envelope to…

  16. says

    Good post.

    Online income can be good supplement income if one is really passionate about their topic (because income per hour is often not too high), but as a full time gig, one should be very skeptical.

  17. says

    Sam,

    One of the greatest source of misguidance is when you hear our politicians talk about taxing the rich – so called average Joe making $250,000. They are insinuating not the net income but rather gross revenue Joe’s business garners. These politicians are definitely harping on the ignorance of public.

  18. Kathryn C says

    Timely post. Groupon?!
    The CEO posts videos in his underwear doing yoga, according to the WSJ article today. I’m tempted to send him your post. And thanks for making me never want to look at a speedo again.

  19. says

    Came from the Untemplater post – loved it. I mean, it does fit my site name.

    I’d say that many bloggers can eventually get to $25,000 after tax (and before ‘benefits’) eventually. The problem? You’re working just as much as a day job, without any of the perks that come with that job. Corporate America – you’ve got it easy. Plus, I’m bullish on corporate incomes (at least in Silicon Valley!).

  20. Darwin's Money says

    Nice pic!

    Yeah, so I like the income, healthcare, other bennies and stability a salaried job brings me and use all the income from blogging for 529, IRA and fun stuff; works for me! I think I’d be pretty stressed if I had to live month to month worrying about the next google panda update.

  21. says

    I think MLM people are worse than the lifestyle bloggers. I had a friend on my Facebook time line literally argue with me about working over joining his team. Once I asked them to prove they made money they got real quiet and left me alone.

  22. says

    Nice article Sam. I worked at a business brokerage firm and saw all types of investors (experienced to inexperienced)… what the individual focused on (revenue or bottomline) was a dead-giveaway.

  23. says

    In reality, it’s difficult to verify on the internet. Like other commenters mentioned, think about your hourly rate and how dependent you are about your own personal labor. I think very few people really make a significant amount of money online.

  24. says

    I think this is one of the most useful and true posts that I’ve read. People are much to tempted by get rich quick schemes. It is almost as bad as with lose weight fast…

    Its also nice to have some real numbers about income vs revenue in the blogging world.

  25. says

    The one thing I’ve figured out after 6 years of online work is that there are no shortcuts leading to steady income. Oh and also that you need to work your a** off if you plan on making a substantial amount of money online. I guess that’s two, oh well so be it :)

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