For any early stage solo entrepreneur or creator, financial literacy isn’t just a skill but a necessity. It can be the difference between a hobby and building a thriving business. At Billsy, being small business owners ourselves, we get it. That’s why we’ve decided to break down the 5 key financial terms that you, as a solo entrepreneur, must know. We’ve also backed it by data and stats to underscore the importance of each.
1. Revenue: topline income excluding any expenses
What It Is: This is where it all starts. Revenue is the total income you earn from your creative content or business activities before any expenses are deducted. Planning to factor in the gestation period while you build out your revenue stream is important.
Why It Matters: Setting a revenue goal is a critical first step for planning your path towards financial independence. Most content creators don’t rely solely on their content creation activities for income. It usually takes them 4-6 months to start generating money. Setting realistic goals can help you plan your creator journey better.
By the Numbers: Some key stats from Influencer Marketing Hub’s Creator Earnings Benchmark Report 2023 to consider:
- 30% of creators reported earning their first dollar within 6 months.
- 50% of creators reported earning their first dollar within 12 months.
- Only 15% of creators reported earning a full-time income from their content creation activities.
Additionally, another data point to consider from a survey by Influencer Marketing Hub – 57% of influencers cite brand collaborations as their primary source of income. Hence it’s important for creators to start thinking about adjacent revenue streams as they build their creator business.
2. Profit: what you earn after deducting costs
What It Is: Profit is what remains after all your business expenses are paid. During the early stages of setting up your business, differentiating between personal & business expenses can be tricky as the line is quite blurred. Hence, we at Billsy, make it easy for you to track all your expenses from one place. Regularly auditing them can help you stay on top of your expenses and ensure that unnecessary expenses don’t eat into your profits.
Why It Matters: When tracking profit margin, it’s important that you set aside some to ensure that you’re continuously re-investing in growing your business too. We understand that this can be tricky, especially during the early stages of setting up a business, however, planning for it would help you hit your goals faster.
By the Numbers: Small Business Trends found that the average small business profit margin in the U.S. is about 7-10%. For creators, Patreon data shows earnings ranging from $500 to $30,000 a month, indicating diverse profit margins based on audience and engagement.
3. Cash Flow: the movement of money in and out
What It Is: Cash flow is the net amount of cash moving in and out of your business. The most important thing about managing cash flow is “timing”. Timing of the cash flow can determine whether your business sinks or stays afloat. And the easiest way to ensure this is to simply start with tracking all your expenses.
Why It Matters: Positive cash flow ensures you can cover all your expenses and invest in growth opportunities. While, negative cash flow can lead to financial strain, regardless of your revenue or profit. As a rule of thumb, try to make sure that you get paid (i.e. avoid having pending receivables) and try to get a longer payment timeline on your payables. To ensure a positive cashflow, try to make sure that the amount of receivables exceeds the amount of payables in any given month.
By the Numbers: A study by the U.S. Bank states that 82% of business failures are due to poor cash flow management. For digital creators, irregular payment cycles on platforms like YouTube and Twitch can cause cash flow challenges.
4. Return on Investment (ROI): the efficiency of an investment
What It Is: ROI measures the profitability of your investments, whether it’s in marketing, new equipment, or educational resources.
Why It Matters: Understanding ROI helps you make informed decisions about where to invest your money for the greatest return.
By the Numbers: Nielsen reports an average marketing ROI of $1.09 for every dollar spent. For creators, this means that strategic investments in advertising or equipment can significantly impact audience growth and revenue.
5. Break-Even Point: when income equals expenses
What It Is: The break-even point is when your total revenue equals your total costs. At this point, you’re not making a profit, but you’re not incurring a loss either.
Why It Matters: Knowing your break-even point is essential for pricing your products or services and setting initial financial targets.
By the Numbers: The U.S. Small Business Administration notes that most startups take 2-3 years to reach their break-even point. On YouTube, creators typically need thousands of views to start generating substantial ad revenue, making the break-even point a crucial metric for financial planning.
Conclusion
Financial knowledge is a powerful tool for creators. Understanding these five key terms—revenue, profit, cash flow, ROI, and the break-even point—can transform how you approach your creative business. Armed with this information, you can make smarter decisions, strategize effectively, and set yourself on the path to financial freedom.
