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Do you know your break-even point?

Posted by Ilise Benun on

You know what cashflow is, right?

Money in and money out. That should be simple enough.

But it’s not that simple, especially when you’re self-employed because, when it comes to money in, by nature our income is unpredictable, more like a roller coaster.

As for money out, with the decrease in the use of cash and the increase in technology for payment, it’s harder and harder to get a handle (literally) on what exactly you’re spending.

Then there’s this phenomenon I’ve noticed: many self-employed creative professionals don’t exactly know how much they need to bring in each month in order to make ends meet.

It always surprises me to hear that confession, often in hushed tones, when I speak to a new prospect or client who wants to grow their business.

But it’s true, many just don’t know. They may have a vague idea, but vagueness is particularly unhelpful when it comes to money.

I’ve also noticed that when work slows down, attention to cash flow gets even more fuzzy, and that’s when the exact opposite should be the case!

Why that is, I can’t speculate. But I do know one thing: cashflow is really not all that coBook cover my Money Book CPGMmplicated! At least it shouldn’t be.

I tried to simplify it in my book, The Creative Professionals Guide to Money, and I’m simplifying it even further in the new pricing course I’m working on for AWAI. (More about that soon.)

That’s why I was eager to interview Dianna Huff, a marketing consultant who targets industrial manufacturers (that’s a great niche!). Dianna recently wrote “Cashflow for Freelancers,” because she couldn’t find a resource that addressed the specific roller coaster cashflow that she experiences — and you too, probably, since that is the nature of being self employed, even if you have retainer clients and/or a big gorilla client (who can disappear at any moment — I’ve heard all sorts of stories!)

So here’s a little excerpt from my podcast/interview with Dianna. In it, she  recommends tracking 3 important metrics to take control of your cashflow.

  1. Your break even point: the minimum you must earn every month to cover your basic fixed expenses, both business and personal.
  2. Your income: the actual “cash” you receive as it’s deposited (fees for work plus any passive income you earn). This way, on the 15th of the month, if you’re not half way there, you can do some extra marketing to get there.
  3. Sales booked: This is not cash received. It’s proposals awarded or projects agreed to, which will help you anticipate how much you can expect your “income” (see #2) to be in the near future.

Listen to the podcast here or subscribe via iTunes.

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