"Revenue" is Not "Profit"
Understanding the difference can make or break your side hustle
Gross Profit is what you charge your client. It's the number on the invoice, the amount that hits your bank account. It feels good to see that money come in.
Net Profit is what you actually keep after paying for everything: software subscriptions, materials, travel costs, and most importantly—taxes.
Many freelancers and side hustlers make the mistake of only looking at gross profit. They think "I made $5,000 this month!" without realizing that after expenses and taxes, they might only keep $3,000 or less.
When you work for yourself, you're responsible for paying both the employee and employer portions of Social Security and Medicare taxes. This is called self-employment tax, and it's approximately 15.3% of your net earnings.
On top of that, you still owe federal and state income taxes. Depending on your tax bracket, you could be paying 25-40% or more of your profit in total taxes.
If you don't account for this when pricing your services, you'll face a painful surprise at tax time.
When you don't calculate your true net profit and hourly rate, you risk:
- Working for less than minimum wage after all expenses
- Burning out because you're working too many hours for too little return
- Building an unsustainable business that can't grow or support you long-term
- Missing out on better opportunities because you're stuck in low-paying work
By calculating your real profit and hourly rate, you can make informed decisions about which projects to take, how to price your services, and whether your side hustle is truly worth your time.