“I made $X” is fake and misleading

We’ve all encountered them. The braggers, the bloaters, the flexers. They take on many different forms. But one thing unites them: the act of transparently sharing the amount of money they supposedly made.

And I say supposedly because it’s never the full picture. Don’t get me wrong. Anyone who can make money online is impressive. I’ve done it and many others have. But that doesn’t mean we can ignore reality. Otherwise, we’d see these people who earn $X amount live completely different lifestyles.

Let’s explore this distorted reality.

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Take second guesses

The following plain vanilla case is a screenshot of a YouTube video claiming to “make $1000+ from Shopify”:

In this example, there are total Sales of $1,742.50 over a timespan of 1 week — not bad. If you’re familiar with basic business jargon you will know that Sales ≠ Profit, which is probably almost non-existent here. Because in order to close 113 orders without an established name, you need to acquire customers — usually through paid ads. This results in thinning out your margins as you have to spend money to make money.

Sales or Revenue (mostly the same in digital business) is never what you retain, after summing up all operational costs. This is why most startups calculate their true bottom line via EBITDA — Earnings Before Interest, Taxes, Depreciation, and Amortisation. And trust me I have done a lot of cap tables & spreadsheets, where seemingly realistic numbers just don’t pan out.

I digress. Revenue is simply the total amount of income you generate before deducting all expenses. Expenses can take a variety of forms:

1. Website hosting
2. Domain registry
3. Shipping vendors
4. B2B subscriptions
5. Payment & Platform fees
6. Facebook Ads
7. Human capital

The accumulation of these deducted from the total Sales or Revenue leaves the profit margin. Technically, this is what people are “actually making” — normally around 10–30% in optimized cases. Then you still need to pay taxes, so deduct another ~25% and you have your Net profit. An example:

• Sales or Revenue » $1,742.50 accumulated.
• Profit margin » $1,742.50 x 30% = $522.75 made.
• Net profit » $522.75 — 25% = $392.06 retained.

Not much is left over. And that is a realistic scenario that does not even take interest or debt into account. Then, there are also cases like not selling out your stockpile or having a higher CAC (customer acquisition cost) than LTV (lifetime value) which lead to less profit. Read more here.

What matters

The point is: focusing on Sales/Revenue as a guiding north star for your business is simply not helpful to yourself, your customers, or your bottom line. It’s a vanity metric. However, focusing on increasing profit margins is.

90% of “transparency acts” have people sharing shallow revenue or sales numbers. Take that information and think of the following 3 hidden aspects:

• Total expenses → how much did they spend to acquire this revenue?
• Profit margin → how much are they truly making off the revenue?
• Net profit→ after being legally compliant what remains?

It’s not necessary to calculate this accurately, but it's helpful to get a general feeling of different business standards and industries. So you can ballpark good or bad business metrics and learn from others. E.g. fashion has a different average than educational digital products. Read more here.

The remaining 10% of “transparency acts” sharing the whole truth usually have some kind of Moat — be it personal brand, virality, or otherwise and equate to slim expenses/high-profit margins. Mimic their invaluable tactics.

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Going full circle

It’s time we standardize speaking of Sales/Revenue as what you accumulated, Profit margin as what you made, and Net profit as what you retained. This contributes to more accurate and healthy business talk.

At bootstrap.supply I and see a dashboard of my Sales every single day. But I never forget that the number I am seeing is not actually what lands in my pocket at the end of the day. Revenue ≠ Net profit for anyone.

Don’t believe everything you see or hear.

Take a closer look.

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Thank you so much for reading this far. Feel free to comment below and/or connect with me over Twitter — I talk a lot about product development, branding, and entrepreneurship.

I’ll see you around.