E-Commerce Owner Pay Model 💰

How's it going?

My name is Joey, founder of agent, cfo.

We're a CFO firm specialized in the ecom space.

What I'm going to walk you through here is our Ecom owner pay model.

This answers perhaps one of the most difficult questions I see so many ecom guys, struggle with.

And that is how much can you safely pay yourself every single month?

Because what you don't want to do is either not pay yourself and just try and reinvest everything into the business and, and then just suffer personally.

But you also don't want to be taking out so much that you either put a business at risk or you hurt your own growth.

So what we have here is a simple model where we have just a few inputs.

It will walk you exactly through your available distributions, including like anything you need to set aside for taxes, for additional working capital if you're growing, and it also affects your cash balance.

So I'm going to walk you through this.

But a very quick note to start, and that is on our philosophy when it comes to setting your own pay, and that is that we believe you need to look at this from two sides.

The first side is your actual fixed monthly salary.

I believe every founder needs this salary so that they have something that just covers their living cost, yet it's still like optimized kind of for their personal tax rate.

but just something so that you don't have to worry about money on a monthly basis.

So whether that's 3k, 5k, 8k a month, you know, whatever you need to just live your life.

Take that out every month, you know, work that out.

Like how you can have this just in the business so that you don't have to worry.

Then the other part is your distributions.

I do not believe in randomly taking out big chunks out of the business whenever you feel like it.

I believe in a quarterly distribution where you can look at how the business performs.

You, you can look at the cash that you need for the coming quarter and then decide what you can safely take out.

That is exactly what this calculator will help you with.

So to walk you through it, first, you got step one, putting your numbers here.

We're interested in your performance over you know, the last last three months, but it asks you for, like your monthly performance if it is very volatile.

Just take the quarterly average for these numbers so your revenue, your landed cogs, any like, sales or marketing expenses you have, and your fixed opex.

Then if you're already paying yourself a fixed salary, you can put it in here.

Or you can put this to zero.

If you're not paying yourself, anything yet on a monthly basis.

then if you have that, you should put that here as well because of course we want to factor this in.

If you don't have any debt repayments, just put this to zero.

Then you got your tax rates.

Very important that you set, set money aside for this.

You don't want to be caught out, at the end of the year, then we move into the growth targets.

So this is a very important input because this is what trips most guys up.

and that is that if you're not growing right, then it's just your landed cost like all of your cogs that is just equal to the inventory you need to buy.

You know, if you're not growing, you don't have to invest more and more every month to buy the inventory unless if your prices are going up.

But we're assuming that prices are pretty flat here.

So if you're not growing, you do not need to set aside any additional working capital.

If you are growing, you do.

And so that is what this portion captures.

So let's say you want to grow by 20%, and you actually hold stock with a one to two month lead time.

If you, you can get your stock very quickly, it is like under four weeks.

If you have to place like your order and make the payment like three months in advance, you of course need a larger portion for working capital.

but most cases I see is between like one to two months.

and then if you hold stock you just say yes there and then what this does, it helps you set aside this additional portion.

and in here it explains how that works.

So right now if based on the quarter we have like 230k in our corks that we have to pay then now we want to grow by 20%.

That means we need, you know, based on a one month lead time, an additional 46k that we need to, to have available for this next order because we need to buy more inventory than what we had over the last quarter.

So that is what you capture in these points.

Then you can list your current cash balance and then just for an additional stat is like how many hours you roughly work per week.

So we can calculate your hourly rate as well.

if you have any question on these inputs, you can just either like chat with me on X or book a call with me and then I'll help you figure these out.

then once that's in place, you can follow the waterfall to really See, like, how this is now broken out.

So you can look at this from a quarterly view, which I recommend.

But if you want to look at it from a monthly view and potentially take a monthly distribution, you can also toggle that here.

for now, I'll keep it quarterly.

So this will show your total revenue over the quarter, minus all of your costs, you know, your salary that you already took and then your tax liability.

That's the first, first big point that you need to keep in mind.

And like, we recommend even having a separate bank account where you can just put this money into.

And then like, you know that that's just there.

Ideally, you're earning some interest on that money, but you set it aside so it's safe.

then any debt repayments and then this additional working capital, whatever is left, that is what you now have for your distribution, which again, we recommend to take out every quarter.

then next we can see these distributions.

So we first have the salary we took.

This is our 8k.

Then we have the distributions that are available after, you know, you've covered everything here at the end of the quarter.

And then we have this reserve check.

This is also a very important thing.

And I'll show you what happens if you don't have much cash in the bank right now.

Let's say you just have 50k in cash.

It will then flag this because what we like to make sure is that we don't take so much money out of the business that we're now at risk.

because that is what the reserve is supposed to be for.

you can decide to be very balanced at three months.

You, you can also be more aggressive at one month.

If you're growing quickly, I do believe you should be more aggressive and one month might be fine.

but in this case, if you just have 50k in the bank, I'll show you here, indeed, what, this reserve will now help you with.

Because if you think about it, the biggest risk you have to your growth goals is a payment hold.

If whatever your shopify payouts stop your stripes stops your wop stops, whatever like process you use.

If you don't get your payouts, you need to stop growing.

If you don't have a reserve, like, you can't afford your inventory, you can't afford your ad spend, you can't afford your team cost because there's no cash coming in.

And so that is why I believe your reserve should be based on your entire cost.

You know, both any new inventory, like your landed cost, your sales marketing Your fixer packs, all of that should be in here, including even any debt repayments.

And then it's like, you know, to be aggressive, still have one month, because then if you have any issues with your payouts, you know, you can still function for a full month.

And it will buy you time to either, like, find a way to get more funding or hopefully resolve any issues on your payouts.

if you want to be a lot more conservative, go to three months.

If you want to be custom, like, super conservative at six months, maybe you want to go to two months.

You know, you can.

You can change that here.

And then it will show you, like, you know, what the right buffer is for you.

and so when you are seeing a red view here, my recommendation is to not pay yourself out the full distribution, even though you earned it based on last quarter's performance.

The recommendation is like, hey, you know, maybe take out half of this.

You know, put some more money back into the business, into the reserve, until you.

You feel more comfortable here.

so, you know, if you're below 150k in the cash, in this case, you know, be.

Be mindful of the full distribution.

Like, even though the business was profitable and you can fund your upcoming growth for whatever reason, you don't have that much cash in the bank right now.

That's why you need to be careful.

if you have more than that, feel free.

And, like, everything is green, feel free to take the money out.

So that should hopefully help you figure out your distributions.

Then.

The last thing you can check is your hourly rate.

this is just based on the number of hours you work and then the distributions and salary that you're taking.

This is so important.

You know, you, as a founder, should not be doing work below your hourly rate.

Now, you should always strive to outsource anything you can for the number below your hourly rate.

What do you want to look at?

Is it like, what you're actually paying yourself or based on the full profits in the business?

You know, these.

You can be kind of like between this.

If you want to be conservative, use this number like what you actually paid yourself.

Use this number based on what the business generated.

But anything you can outsource for less than, you know, $130 in this case, you know, I encourage you to do so.

Make those investments because it will free up your time to focus on the tasks that have a higher hourly rate than you're currently earning.

So I hope that's useful.

If you have any question on this, again, you just can press here.

Book a call directly with me.

You can DM me on X.

Happy to chat.

And, keep crushing it.

I hope you do well.

Q4.

And, any questions, let me know.