How to work out your target income

You might have noticed that I’m very focused on making sure that my clients make money. In fact, my strapline is

helping people to make more money and have more fun


But how much money? How can you tell what you should aim for?

And how much money you want your business to create is a fundamental part of your pricing strategy.

How to work out your target income

One of the exercises I get my business coaching clients to do is to work out their three levels of target income. The three levels are:

  • Survival income – what you need to live on with no luxuries and maybe a bit of belt-tightening while we get the business into shape
  • Good income – the amount you need to live a good life and feel financially secure
  • Success income – how much you want to earn, to feel completely secure and will allow you to fund the things that are meaningful to you

I’ve carried this exercise out myself and with dozens of clients. It’s amazing what comes out – everyone has different numbers for the different levels, and thinks about this in a different way.

 

The success income causes the most difficulty

Most people have real difficulty with getting to grips with their success income.

Of course, if you’ve come to get some business coaching because your business hasn’t been making anything like the money you need, let alone what you might wish for, talking about your dream income can be challenging. You might not want to even dare think about how life might be different if your business was successful and profitable.

I don’t want to be greedy

Some people also have problems doing this part of the exercise because they don’t want to feel that they’re being greedy. Our society is very good at telling most of us that we shouldn’t aspire to earn too much. While at the same time the media parades rich celebrities. Given that most of these rich celebrities seem to spend all their money on wasteful frippery, and to be complete idiots, no wonder that many of my clients claim not to want to become rich.

When I realised that there were these barriers to earning money in my clients heads (and of course in my own) I started to think about this a lot more.

Money doesn’t make you happy

Yes, this is true – money doesn’t make you happy, and there are lots of examples of super rich people who don’t seem to be at all happy.

But money is very useful indeed in stopping you being unhappy.

Money can help to prevent the unhappiness that comes from disappointing your kids when you can’t afford to buy them the things they need. Or the unhappiness that comes from ill health or not eating good food.

I know very few people who want money for its own sake – the whole point of having money is to be able to do things with it.

Take the money out of the equation

I took the actual money out of the equation for a while and gave my clients a list of things that they might want to do if they had more money. And I encouraged them to think of their own things they might want to do if they had some more money.

This worked way better than when I just asked people what their success income target was.

Here’s the list I use to suggest what you might want from your success income.

A long list of suggestions for what you might do with your success income

I’ve put together a very long list of all the things that might be on my wishlist, the ones that clients have shared with me. Plus a highly scientific methodology of getting my friends to do this exercise in the pub after a few beers.

Here are some creative ideas for things that you might want to be able to finance if your business were to create some more money for you.

Where you live

  • A bigger house
  • Uprgrade to a house with a garden
  • My own flat instead of sharing
  • A deposit to buy my own house
  • Build a loft extension in my house
  • Put solar panels on my house
  • Build a treehouse for the kids
  • Get my garden designed professionally and re-mad

Time off

  • A year off from work
  • A month’s holiday
  • A ten-day holiday, four times a year
  • My trip to Antarctica
  • Only work four days a week
  • Take every Monday off
  • A day off every Friday off
  • Leave work at 3:30 PM every day to pick up my kids

Making the world a better place

  • Be able to afford to give 10% of my profits to charity
  • Give 10% of my income to the church
  • Donate 10% of my income to political causes I believe in
  • Pay for my mum’s hip operation, so she doesn’t have to wait any longer
  • Buy my mum a new house
  • Set up a social enterprise
  • Set up a charity

Buy some nice things

  • To spend a thousand pounds a year on new clothes
  • Be able to help my dream holiday which costs… X amount
  • Buy an expensive guitar
  • Pay for my parents’ retirement home
  • A pedigree dog
  • Be able to buy a horse and afford to look after it
  • A fancy stereo
  • Buy a new car (insert here what kind of car, and the model, along with the price tag)
  • Not have to worry about how much I spend on books/music
  • Take my partner out for dinner at a Michelin starred restaurant
  • Treat my partner to a wonderful holiday to New York, flying business class
  • The fees for  my kids to go to private school
  • Pay for my kids’ university fees, so they don’t have to go into debt to study
  • Get a whole arm tattoo done by a top tattoo artist (one from a client)
  • All new sheets from the White Company, in their most expensive range
  • Buy a campervan

Give me financial security

  • Put 20K pa into an ISA
  • Pay 20 K pa into my pension
  • Make 50 K per year of additional voluntary contributions to a pension for the next five years
  • Pay off my mortgage
  • Afford a deposit on a rental property for my daughter who is going to university, so she has somewhere to live and I get a long-term asset
  • Afford private health insurance (approx. £110 per month in the UK)
  • Retire at the age of (insert your desired retirement age here
  • Buy a rental property, to give me an income in my old age

Self development and feeling good

  • Afford to get my hair professionally styled every week (£30)
  • undertake laser eye surgery (approx. 2K)
  • Afford hair implants (approx. 10k)
  • Be able to go back to university and finish the degree I didn’t complete

 

How to use this

Some of these will have you thinking, “yeah, I wouldn’t mind being able to afford that” and your eyes will light up. And others will make you roll your eyes in disgust because they are simply not for you. And if you ponder over this list for a little while, you’ll be able to come up with some even better ones that are completely yours.

Play with this list, try getting your partner to do the same exercise separately and see if you have similar or wildly different items on your list. Add in a few new things, even if they sound silly or farfetched at the moment.

And then work out what this would mean in financial terms. It might look a bit like this:

  • Employ a new person so I can take Fridays off (25k pa)
  • Get my garden remodelled (30k one-off cost)
  • Have 4 holidays per year (10k pa)
  • Save up for a deposit for 2 rental properties (200k in total, 20k pa for 10 years)

Or you might have

  • Build a loft extension in my house with a music recording studio (120k one-off cost)
  • Get private guitar lessons to improve my playing (£60 – 100 p/w)
  • Buy a guitar (3k) – (This person definitely had a clear vision of what he wanted to be spending his time and money on, and, no, this one isn’t my list)

 

Or here’s another version from one of my clients

  • Be able to pay me and my partner a regular 5k a month in dividends each
  • Take out enough to save for a deposit on two rental properties for our children to live in when they leave home and rent rooms to their friends (her children are 10 and 13 now)
  • Put 40k a year into a pension plan as we’re a bit late starting to pay into a pension at age 45

Sounds boring…but think how secure you’d feel if you could get to this kind of level of profit, and be able to plan for the future.

What to do when you have worked out your ultimate target income

Firstly, don’t worry that you haven’t reached it yet! It’s good to have a target in mind, even if your business isn’t producing anything like this kind of profit yet. We can work on getting you there, even if it takes a while to do that.

The important thing right now is to set your targets for your three different levels of income, and then work towards your success income.

Start thinking about whether it’s possible to get to that kind of post-tax profit with your current business model. If your business is just you, and you’re selling your time, you might have to think again about how you’re going to change things around to get to that level of income without having to work 25 hours a day. Are you going to take on more staff, change to a more scalable model, or drastically increase your prices? Or all three of these, in which case, which is first?

Do you need some help with that?

This is often where I start with my one to one coaching clients and is also one of the first parts of the Your Remarkable Business programme

And then, it’s time to start making those changes to bring you closer to that target income. At this point, we start talking about marketing, positioning and how to get you into action. How to find the extra resources you need, how to get you more productive so you can work for fewer hours but get more stuff done. And what order to do things in – there’s no point in starting with a social media campaign if you’re sending people to your website, but your website doesn’t explain what you do or doesn’t do a good enough job of selling what you do.

Shall we get started?

If you’re still far away from your ideal ultimate success income, or even your “okay, I can live on that” income, then maybe we should talk about what kind of help and support you need to get you there.

Is now a good time for us to have a coffee and cake to talk through how I can help?  Here’s how to schedule that session…

 

Photo credits to Gary Ullah, Chris Ballard, Rcubed, Steve Burham and Jean-François Renaud from Flickr on a Creative Commons licence

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The Joy of Business
Secrets of Business Success
Julia Chanteray