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Ep. 2 How much do I need to make in sales in order to pay myself? {Sales to Salary Calculator}

I’m excited to dive into today’s episode because this topic is something I’m very passionate about and it’s a topic that is crucial to all retail business owners: paying yourself. It’s something many entrepreneurs, especially women, tend to neglect as they pour all their time, energy, and profits back into their business. But today, we’re answering a key question: How much do I need to make in annual sales in order to pay myself?

Retail business owners, especially with brick and mortar stores, often underestimate how quickly margins can be eaten up by expenses and overhead. However, it is absolutely possible to have a profitable retail business that PAYS you too!

In episode 2 of the Savvy Shopkeeper Retail podcast, I want retailers to have eyes wide open about this topic. If you have a salary goal as a retail store owner, use my sales-to-salary calculator to determine what you may need to generate in retail sales in order to hit your goal.

Why Paying Yourself Matters

The intent of this episode is to motivate you to not neglect the numbers in your business. Today, we’re going to answer the question “How much do I need to make in annual sales in order to pay myself?” (I also included a link below to my Sales-to-Salary Calculator if you want to check it out while you listen to the podcast.)

I know women retail business owners want to pay themselves but most of them don’t. So at what point do you stop investing in your business and start paying yourself? How much do I pay myself? and How can I afford to pay myself? are questions I hear all the time.

My opinion is you start paying yourself from day one. If you don’t start compensating yourself for your time it becomes really easy to put this off, particularly for women. Women want to take care of everything and everyone else first. You feel like you need to reinvest, you need to pay employees, you need a new piece of equipment, you need to pay a subcontractor, and this can lead to neglect. And what we’re neglecting is compensating ourselves.

Compensate Yourself – You Deserve it!

I recommend creating a healthy habit around compensating yourself, even if it’s just 1% of your gross sales. Don’t get me wrong you definitely need to reinvest in your business but who says you have to reinvest everything? I wrote a blog post in December of 2018 titled 5 Reasons to Pay Yourself NOW and a quick recap of those 5 reasons are:

  1. You work hard and you deserve it
  2. Paying yourself is an incentive
  3. Tax advantages
  4. It’s a good habit
  5. Takes you off the hamster wheel

Start Small, But Start Now

I know the math, the numbers, the formulas and the equations can really scare some shopkeepers. I recommend that you, or someone else more qualified than you, should do the bookkeeping monthly. This is a crucial step to begin finding out just how much you need to make in sales in order to pay yourself. Depending on a shopkeeper’s business model, the percentage of sales that will go towards what you pay yourself will vary and how you determine it could be based on your profit and loss statement or other factors an accountant might use. And maybe it’s not a percentage. Maybe it’s a set amount that you’re paying yourself every month but for today’s episode we’re going with percentage. So what do I mean by this? 

We all have cost of goods and we know we all have operating expenses, right? Here’s a really simple example: a more experienced retailer could spend 50% on their cost of goods 25% on their operating expenses and they could pay themselves 25%. 

I handle the bookkeeping for the home decor boutique I own with my sister and I am self-taught in bookkeeping and just a general kind of numbers geek. I knew early on that we would be bootstrapping our business and that we were going to be paying cash. We weren’t incurring any debt and we weren’t taking on any loans so I chose to start paying ourselves a small monthly amount or percentage. I made this decision so we can continue to reinvest in our business and as we grew, so did our percentage and pay. I want to share this experience so that you know you can start small. So let’s say we spent 50% on cost of goods, 25% on operating expenses, and then most likely 22% on reinvesting in our business, and then that last 3% is what we paid ourselves and that gradually increased over time. 

Avoid These Common Pitfalls

There are two practices that I don’t recommend when it comes to paying yourself. The first one is don’t pay yourself at random times. For example, you wait until the end of the month when “there’s money left” to pay yourself. I’m happy to hear you’re paying yourself but this means you’re not looking at your numbers consistently and you’re only paying yourself what you think you can pay yourself. 

The other practice is waiting until the end of the year when your accountant tells you you can take a draw. Again, this isn’t necessarily a bad move but I believe consistently paying yourself means you’re consistently keeping up with the bookkeeping, and you’re consistently looking at your numbers.

Poll Results

I recently ran a poll in the Savvy Shopkeeper Facebook group and I asked what members want to make in terms of their yearly salary. It was a way to get them to think how much they need to make in sales in order to pay themselves. I explained that this number would be enough to contribute to the household, pay the bills, and live life without incurring any new debt. 

I know this number is relative and every person’s situation is different but on average the goal was $50,000 and coincidentally, based on a Small Business Trends article in 2018, the median salary for a retail store owner is $55,000.

What you pay yourself could be referred to as an owner’s draw, a salary, or you could even be on your own payroll. Either way, this is something that you should discuss with your accountant. Now that we worked that out using  $50,000 as an example, you can now figure out the answer to “How much do I need to make in sales in one year in order to pay myself $50,000?”

I’m going to use two scenarios. I’m going to use the shopkeeper who pays themselves 10% of gross sales and a shopkeeper who wants to pay themselves 25% of gross sales.

Scenario 1: If they want to pay themselves $50,000 for a year they will need $500,000 in annual sales.

Scenario 2: The shopkeeper that pays themselves 25% a year needs to make $250,000 in sales a year in order to pay themselves $50,000 a year.

For some of you who might be hitting these sales goals easily I applaud you. But, there might be hundreds of people that will listen to this episode and these numbers will either terrify them or this will be a complete eye-opener. I will honestly say I wish this is something someone would have taught me and my sister when we started our journey!

Understanding Your Numbers and Cutting Your Expenses

As retail business owners we often get distracted with being creative or living out our dreams and we don’t think about reality. I don’t want you to feel discouraged, I want to educate you. In reality if you’re the shopkeeper that’s paying yourself 10% of gross sales means you’re only paying yourself 15k. Now that you know what you need to sell in order to hit your $50,000 salary goal, the plan is to start working towards your goal. 

Don’t feel defeated and don’t feel like it’s impossible. It’s going to take some time, it’s going to take some strategy, and it’s going to take some learning. I know many listeners are wondering how can you even begin to pay yourself when you have nothing left at the end of the month and when you have to pay for everything else in your business.

How much do I need to make in sales in order to pay myself

My Goal with the Savvy Shopkeeper Podcast

One of my goals with future episodes of this podcast is to teach you how to start making progress. I will go over what you should be looking at, where you can start making changes, and most importantly how to be profitable. This will take time and it won’t happen overnight but I have many episodes ahead. The podcast topics will vary but I will slowly chip away at this particular topic because no one except for me, and maybe a few others, would want to listen to back-to-back episodes of math and equations. 

One of the first tips I’ll give you to reach your goal is the least you’re paying for goods and the less you’re paying an operating expenses the more you can pay yourself and profit. Find a way to pay less for your goods whether it’s materials for the items that you’re making or whether it’s merchandise that you’re buying from a vendor to resell thats one thing you can definitely do and the other thing that you can do is start cutting your expenses. you’ll be surprised at what you can cut or what you can negotiate if you just sit down and really get critical about your expenses.

Formula for Success:

If you are ready for the formula so that you can calculate how much you need to sell to reach your salary goal, here’s the formula:

  1. Take your annual salary goal (e.g., $50,000).
  2. Divide that by the percentage of sales you plan to pay yourself (e.g., 10% or 25%).
  3. Multiply that by 100.

If you’re a visual person like me I’ve created a tool to help you. Sign up for the free Sales to Salary Calculator, plug in your salary goal and the percentage of sales that will go towards your pay – and that’s it! The calculator will tell you how much you’ll need to sell in a year in order to hit your salary goal. 

I, more than anyone, want you to hit that goal but the only way you can do that is to educate yourself and then move forward. Don’t move back, don’t become afraid, don’t be terrified. Let’s figure out how we can move you forward and let’s figure out how we can get you closer to that goal. 

Resources

Timestamps

  • [01:39] Why Paying Yourself Matters
  • [02:32] Compensate Yourself – You Deserve it!
  • [07:34] Avoid These Common Pitfalls
  • [09:35] Facebook Poll Results
  • [13:23] Understanding Your Numbers and Cutting Your Expenses
  • [15:47] Formula for Success

Connect With Kathy

Kathy Cruz is an Independent Retail Coach who helps store owners work smarter, profit more, and grow their brick and mortar businesses. 

Connect with Kathy and learn more here:

Website: www.savvyshopkeeper.com
Instagram: @savvyshopkeeper
Mastermind Group: Master Shopkeepers

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