Net income is the most critical financial metric for your freelance business. It represents your actual profit, not just the revenue you invoice.
What is Net income?
Net income is your actual profit. It's the money you keep after subtracting all your business expenses from your total revenue. Think of it as your 'take-home' pay from your freelance business. It's the bottom line that truly matters for your finances.
Why is this important?
For freelancers, net income is everything. It determines your personal budget, savings, and tax bill. Focusing only on revenue is misleading because high costs can leave you with little profit. Tracking net income shows if your business is truly sustainable and profitable.
How does it work?
You calculate it with a simple formula: Total Revenue minus Business Expenses equals Net Income. Your revenue is all money earned from clients. Expenses include things like software subscriptions, home office costs, marketing, and taxes you set aside. The result is your real earnings.
Pros and cons
The main pro is clarity; it reveals your true financial health and helps with planning. A key con is that it requires diligent tracking of all expenses, which can be time-consuming. It can also be a sobering figure if your costs are higher than expected.
Conclusion
Always prioritize your net income over your gross revenue. It's the definitive measure of your freelance success. Regularly reviewing it helps you make smarter pricing and spending decisions for a healthier business.
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