How Much Should You Pay Yourself? A Simple Owner Compensation Formula
If you're a business owner, one question keeps you up at night: how much should I actually pay myself? Take too little and you can't cover personal expenses. Take too much and you starve your business of cash it needs to grow. The good news — there's a simple, repeatable formula to find your number. [Disclosure: this is not financial advise, consult your own professional for your own situation]
Step 1: Know Your Revenue
Start with your average monthly revenue over the last 3–6 months. Then project what you expect over the next 3–6 months. This gives you a realistic revenue baseline, not a hopeful guess.
Step 2: Subtract Operating Costs
List every recurring business expense — excluding your own pay. Subtract this from your monthly revenue. What's left is your monthly profit.
Step 3: Apply the 50% Rule
Take your monthly profit and multiply by 50%. That's a sustainable estimate of what your business can afford to pay you consistently. This is not your net pay, this is your gross + taxes. Highly profitable businesses may pay owners less than 50%; 50% should be treated as the ceiling or max amount, not the target. Overtime, aim to be 10-30% of profit to a more sustainable business.
Step 4: Protect the Other 50%
The remaining profit covers estimated taxes, owner draws, cash reserves, and unexpected expenses — the buffer that keeps your business stable during slow months and helps you weather the unexpected.
Why This Matters
If your calculated take-home pay isn't enough to cover your personal expenses, the fix isn't to overpay yourself — it's to grow revenue or cut costs, so profit (and your paycheck) can grow sustainably.
Revisit this calculation quarterly. As your business improves, so can your pay — without risking cash flow or long-term growth issues.
Not Sure Where to Start?
Pricing your own paycheck is one of the hardest parts of running a business. A fractional CFO can build this model for you, tailored to your numbers, tax obligations, and growth goals.