My Salary At Every Level of Business

So for years I didn't really know how to pay myself as a founder CEO and it nearly broke my business. Then one of my mentors said five simple words that completely changed how I think about money and how I think about owner pay. I'm going to tell you what those five words were in just a second. But first I want to show you exactly how I decide my own pay as a multi eight figure founder and how you can calculate yours in minutes and whether your company is at a million, 5 million, 10 million, whatever. I'll also cover how to make sure your company actually has the cash to pay you and when to know it's time to give yourself a raise. And yes, I'm going to share exactly how much I'm paying myself today. Now, if you don't know me, my name is Ryan Deiss. I've built and sold multiple eight figure companies in over two decades in business. But I've also made a lot of mistakes along the way. And when I started my first business, I treated pay kind of like a feeling. If I had a good month, I would splurge and I would take out maybe a little bit too much out of the business. And if it was a bad month, well, then I would panic and I would stop paying myself altogether. I thought that I was being noble by leaving everything in the business, but in reality it was just creating a whole lot of chaos. It was just creating a whole lot of fear. It was just kind of freaking everybody out, myself and my family included. I mean, one bad month and I was scared I wasn't even going to be able to buy groceries and make a mortgage payment. That's not good. And this shortsighted thinking, it wasn't just bad for me, it was even worse for the business because I never thought or acted strategically. It was just, how do I make enough money? How do we make enough sales just to get through this next month? Now, fortunately, I had a really good friend and mentor who hit me with five words that changed everything. He said, ryan, you need to start paying yourself a consistent salary because, and I quote, scared money doesn't scale. And he was right. When I finally started paying myself predictably and systematically, when I finally started paying myself a salary, everything changed. My decisions got sharper, my team calmed down because I calmed down. And the business finally started scaling on purpose rather than just my own panic. For years I thought getting paid last was noble. I thought it's just something that founders did. But in reality, it just kept me trapped in this feast or famine cycle that was bad for me and it was bad for my business. But once I built a system for paying myself like a real CEO, everything got better. So let's break down the five simple steps to creating an owner pay stack so that you can finally start paying yourself what you're worth without any guilt. Step one, Pay yourself a salary. That's right. Today you need to start paying yourself a salary if you are not doing it now. Early on, my salary was $6,000 a month. And I remember thinking, that's enough. And certainly it was. It was enough to cover my rent, it was enough to cover groceries. And as the company grew, I gave myself some bumps along the way. I remember bumping it to $10,000 a month. And I actually remember thinking, $10,000 a month. How could anyone ever need any more money than this? I mean, this is more money than I thought I would ever need in my entire life. Well, then life happened. More kids meant a bigger house, which meant a bigger mortgage. It also meant braces and private schools and soccer camps and Disney vacations. And you get the idea. The point is, a $10,000 a month salary was no longer cutting it. And I was right back into that same panic mode that I was in the first time that I talked to my mentor. That's when I talked to him again. And he said to me, ryan, it is not enough to pay yourself a salary. You need to pay yourself a fair salary for the job that you're actually doing. In other words, if you had to replace yourself tomorrow, what would it cost to do that? What would it cost to actually replace yourself? I never thought about it like that. At this point, I was the CEO of a successful and profitable mid seven figure business. But I had no idea what the market rate for a CEO in my industry, running a company of my size was. And when I pulled the number, I was shocked. I was paying myself about half of what I would pay somebody else to replace me. And that's when my mentor said, okay, you know what you need to do, right? You need to double your salary. And I remember thinking, okay, well that sounds good on paper, but there is no way, no freaking way. There is no way that we can do this. The company can't afford it. Plus, we need to keep the money in the business. It needs to stay in there for growth. And then he hit me with that line again. Scared money doesn't scale. And more than that, he asked me a question that I didn't have a good answer to. And it's the same question that I want to pose to you. Can you really say that your company and your customers are your number one priority when you're worried about paying your own bills? Well, I couldn't. And so I did it. I doubled my salary. And something kind of wild happened. The company didn't break. In fact, it grew. And the reason that it grew is because I was finally leading strategically from a place of confidence instead of from a place of fear. So how do you find it? How do you find your number? What should you be paying yourself? Well, first, you need to define what your actual job is today. Are you functioning as the head of sales? Are you functioning as a general manager? Are you functioning as a true CEO? What is your actual role? Then look up the market rate for that role. You can go to salary.com or glassdoor. Heck, just use chatgpt. And then finally pick a salary in the 50th to 65th percentile if you want to be conservative. And then just plan to review and adjust that quarterly. And I'm going to talk about how to go about giving yourself a raise and adjustment later on in this video. Now, here's some general founder CEO benchmarks that are broadly accurate as of this filming. If you're under a million in revenue, pay yourself for the actual job that you're doing. So if you're a general manager or a head of Ops or a VP of sales, if you're not actually functioning in the CEO role, then don't pay yourself a CEO salary. So at this point, maybe you're making 120,000 to $200,000 a year. If your business is doing between a million and ten million, well, now pay yourself market rate for a president or CEO based on your company size and industry. And typically that's going to be anywhere between 200,000 and $350,000 a year. And if you're north of $10 million a year in revenue, this is when I'd pay yourself at the hundredth percentile. Pay yourself market rate, and then maybe a little bit more. And this is typically going to be in the 400,000 to $600,000 range, plus bonuses and distributions. And that's important because at this stage, really, salary is less critical because your upside should come from distributions, it should come from equity, it should come from your ownership. Now, once you set your base, make sure it's enough to cover all of your living expenses and then tack on an additional 15% for personal savings and investing. Because in my experience, that's when most founders finally can exhale, when they can look out and say, okay, all my living expenses are covered. And then I got an extra little 15% to kind of play with. Now, cuts are required to in the business to be able to afford to pay you. That's fine, but start with the projects and the nice to haves. Don't cut salary. That is the owner's oxygen. That is your oxygen. The company needs to be able to fund its best people, and that includes you. All right, once you're paying yourself a salary, we can move on to step two of the owner stack, and that is to set aside for taxes. Look, the government is the only vendor that you have with missiles, so we want to make sure that we are paying them first. So here is the move. I want you to open a separate tax vault savings account, and I want you to transfer a fixed percentage of cash collected typically every Friday, maybe every other Friday. It's usually going to be 20 to 30%. But talk to your CPA. And then each quarter, if the vault, if the amount that you're saving, if that exceeds your projected tax bill by more than about 10%, you can sweep the extra into this distribution account that we're going to talk about later. This one habit is really, really, really important because the one area where you can really get stuck as a business owner are these surprise tax bills. So we want to get rid of surprises. We want to make sure that if a surprise tax bill comes up, that that doesn't mean that the government gets paid, but you don't. That's why we're going to make sure that we're saving for this ahead of time. Because we want to turn the surprise tax bills into just a routine line item. The peace of mind that it buys you it is worth far more than any interest that you would earn elsewhere. So just stick it into a cash account, stick it into a money market account. Just let it sit there. All right? We got the salary taken care of, we got the taxes taken care of. Now on to step three. We need to save. For emergencies. You should plan to keep at least three to six months of operating expenses in just some boring money market accounts. I'm not talking bitcoin, we're not talking index funds, cash. All right? This ensures that you and all the other key leaders in your company stay paid and motivated even during those unexpected slow periods. So if your revenue is predictable, so if you got some monthly recurring revenue, some subscription revenue, three months in an emergency fund is generally okay if revenue is more project based, if it's more seasonal, maybe you want to Stretch that to four to six months. The other thing that you could and I would say should do is secure an additional cash backed line of credit against that emergency fund. So once you got an emergency fund sitting there, you got some cash sitting there, you should be able to go to your bank and say, hey bank, I've got this cashier, will you give me a line of credit that is secured by the cash that I have? They'll typically say, yep, in that case, you effectively now have double the emergency fund because you got the cash plus the line of credit. What's nice about this is that when a downturn hits, when it rains, and this is the thing, emergencies happen, they just do. Stuff happens in business. It's not a question of if it's going to rain, it's it's gonna rain. So when that happens, you won't have to choose between payroll and specifically paying yourself because you're already covered. You're covered in the payroll, you're covered in the salary, but you're also covered by the savings. And if you think paying yourself is gonna starve the business, if you're thinking, at this point, I just can't afford it, wait, we're gonna cover that in step four. It is the system that keeps your cash growing and it keeps you getting paid. So let's talk about that now. Step four, let's build a distribution waterfall. Distributions should not be emotional, they should be policy. We don't just want to take out money when we think there's extra there. We don't just want to leave it in because we're unsure. We want to have a policy for distribution. So here's the process that we follow. Here's the process that we recommend that you follow. First, you need to define your minimum operating balance. This is the minimum amount that you're going to leave in your operating account. For us, that's typically one month's operating expenses. So we're going to leave one month's OpEx in our operating checking account. Then once a month we're going to sweep everything over that one month OPEX into the appropriate holding account. So first the tax vault is going to get theirs and then we're going to pay the government, they got the missiles. We're going to make sure that the emergency fund is topped off. And then we're going to make sure that we fund any other future investments that might be out there. The remainder, anything over that remainder, that minimum operating balance, anything over that amount is going to flow into a dedicated distribution account which as the Name suggests is a bank account where excess funds sit until they are sent out to owners and other stakeholders for us on a monthly or quarterly basis. Specifically, we distribute 80% of the distribution account quarterly and then we hold back the remaining 20% until the year end and at scale. This is where the bulk of your income should be generated as a business owner. And look as a bonus alignment tip. I'm going to suggest, and this is what we do, that you tie team bonuses to distributable cash. Not top line revenue, not even P and L profit. I'm talking tying team bonuses to how much cash is sitting in that distribution account. Because look, healthy businesses don't just create P and L profit. Healthy businesses throw off cash, not just revenue. Now look for a full system showing you how to set up all of these different accounts. Be sure to check out the 5 account cashflow waterfall system. It's another video that I did. I'll be sure to link down to that in the description. Step five. We want to install pauses and green lights. All right, so we talked about how much to pay yourself and how to make sure that there's always enough cash laying around so that you can afford to actually pay yourself. But when should you consider pausing those distributions and when should you greenlight raises? Well, here's how we do it. Now, as a general rule, we'll put a pause on distributions and we're definitely not going to consider anybody for raise, ourselves included if our cash Runway dips below two months. So going back to kind of like that emergency fund, certainly the emergency fund combined with our operating fund, if that gets below two months, this is a problem. We know that. Definitely no distributions, definitely no raises because we're going to have to use those funds to top off that emergency fund. We're also going to put a pause if we have two consecutive months below our profit target because that's a sign that cash is about to take a hit and we might need to start hoarding some of that cash or if debt usage is greater than 50% of our line of credit, because that's a sign that we're frankly using a little bit too much debt to cover overhead instead of requiring the business to cover its own bills or setting aside funds in those future investment accounts. So that's when we'll generally put a pause on things. Now, on the brighter side, we're going to greenlight distributions and we're going to consider leadership team member raises, including ourself. If our cash Runway is greater than three months and last quarter, we hit our Rule of 40 goal. Now, Rule of 40 is simply when your growth rate and your profitability combined is 40 or greater. So if you have a growth rate of 20% and a profitability of 20%, those combined are 40. Great. All that simply means is we got solid, consistent growth, we've got solid, consistent profitability. We really want to see both. Now, 40 is a general number. You could say you want it to be 45 or 50, but we like to say what is the rule of 40 number or the rule of 50 combination of growth and profit. In addition to that, we want to see that the trailing twelve month free cash flow, we want to make sure that it's going to cover any new salaries times 12 with a little bit of a cushion, typically a 1.5 cushion. So if we're going to make some new hires, we're going to. We want to make sure that as we're looking at the cash flow that's out there, that we're going to be able to meet all of our future planned obligations as well. Having rules around pauses and green lights, this is what removes the emotion. Because you're not hoping that it's safe to make a distribution. You know that it's safe and you've made decisions around it before. Things could potentially be emotional. And remember, fear is not a finance strategy. Real companies have rules for managing their cash flow and they have rules for making distributions. And these rules are what's going to ensure that you're rewarding based on performance, not just based on vibes. All right, let's walk through some examples and really make this thing real. So let's say you're company A and you're doing approximately a million dollars in revenue. In this case, the replace yourself cost might be $150,000 in revenue. But again, I want to make sure that we're always padding that by at least 15%. So when my company was doing around a million dollars a year, I was paying myself around $172,000 a year. So 150,000 plus 15%. Now, when you're at approximately that $5 million mark at this point, let's say market rate is 275,000. This is where for me, my salary was set at $316,000 per year, 275,000 plus 15%. And company C, let's say this one's doing approximately $10 million a year. Let's say market rate for this is $400,000 a year. This is when I'm going to. Again, we're going to look to pad it 15, 20%, around $480,000 a year. That is where for me, most of the companies, If I'm directly CEOing it, that is where my salary comes in at, at around $480,000 a year, just under half a million dollars a year. But again, my goal is not to make a lot of money based on salary. Where I want to generate the bulk of my income and where you should seek to generate it as well is from the distributions. Because when companies are able to do distributions, that's when companies are profitable. When companies are profitable, they're successful. That means they're generating that surplus value. It means they're doing their job. And if they're doing their job, it probably means you're doing your job as well. But at the same time along the way, you deserve to get paid. So that gives you a general sense of how my salary changes as business goes and maybe how you want to model yours as well. At the end of the day, look, the margins are going to vary, the numbers are going to vary a little bit, but the rule never fails. What are the replacement costs? Tack on 15% and then commit to making the numbers work. At the end of the day, you wouldn't expect somebody else to work for free. So stop expecting yourself to work for free either. It's just not fair to you, it's not fair to your family, and at the end of the day, it's not fair to your business. Most founders think that paying themselves well is selfish. It's not. It's not selfish. It's simply good stewardship. It is good stewardship of the resources of the business and in particular, it's good stewardship of, of the most valuable resource of that business, which in the beginning at least, is you. You are the single most valuable resource in your business. So when you pay yourself well, you are being a good steward of the most valuable resource in your business. Because look, when you're scared, you make short term decisions and short term decisions are what kill long term growth. But when you're mentally stable, your company can breathe. The point is, your business isn't stable until you are. So paying yourself well doesn't drain the business, it actually disciplines the business. Now if this helped. But you're thinking, Ryan, I don't even have enough cash right now to pay other people, much less myself. Don't worry. Like I said, I made another video breaking down our full 5 account cash flow waterfall system. It'll show you how to free up cash without starving growth and if you like this idea of getting paid a lot but the cash just isn't there, you're definitely going to want to go and watch that. Also, if you're wanting to build a business that both pays you and can scale without you, then be sure to subscribe to this channel, because that's kind of what I'm talking about all the time. All right. I hope you like this one, and I'll see you in the next one.