Discover more from What Works
Getting Paid: A Different Way To Think About Profit & Wages
No matter where you go online today, you’re bombarded with messages about getting paid.
One quick YouTube search for “make money online” brought me to a video—actually, a series of videos all about the same thing—about the “laziest” way to make $100 per day. After a pitch for a webinar, the YouTuber started to explain the scheme. He said the laziest way to make money online is to sell things people are already looking to buy.
“Okay,” I thought, “that checks out…”
He switched to a screen capture of eBay. He suggested that someone might search for a “cherry bed frame.” So he popped that into the search field, and multiple listings appeared. The first page of listings was full of the same product. And when I say “same,” I mean they were indeed the same—the same photos, the same specs, and very similar prices—but from different sellers.
He clicked on a listing. There was a description of the product that read like it was straight out of a big box store. He copied the name of the product—let’s say, “Farmstead Twin Bed Frame - Cherry.” And then pasted the name into Google.
The first search result was for the Walmart website. So he clicked that. Again, the same photos and the same description appeared. But now the price was significantly lower. The eBay listings had all been about $300. The Walmart listing was around $220.
The YouTuber explained that you could identify products like this, copy the description and photos into an eBay listing, and then offer them for sale at a higher price. When one sells, you purchase it from Walmart and ship it to the customer. You pocket the difference.
My head swirled with ethical, economic, and values questions. I stopped the video.
On the one hand, I can’t go so far as to call this a tactic a scam. People are getting what they paid for. But on the other hand, this guy (and presumably at least a fraction of the 886,000 people who have watched the video) is taking advantage of people who decide to open up eBay to shop for a bed frame instead of googling first. He’s inserted himself and his scheme as a third or fourth layer of value production simply by copying and pasting and tacked on another $80 for the trouble.
I could spend a few thousand words breaking down all the problems with this scheme and the cultural context that convinces people this is an excellent way to bridge the gap between full-time work and the ever-increasing cost of living. But I’m not going to do that.
Instead, this scheme serves as an object lesson to demonstrate that “making money” (or making more money) is not the same as managing how you get paid via a small business or independent work. There are all sorts of ways to make money—lazy or not. But running a sound business or finding stability as a freelancer requires careful choices about how money and value flow. It’s easy to imagine that a “7-figure online course business” is code for a hefty savings account and investment portfolio. It’s easy to assume that making “$10k per month on Substack” means a couple of hours per day writing with the rest of the day free to drink Mai Tai’s on the beach.
But whether we’re talking online courses, paid newsletters, or eBay reselling, the numbers don’t tell the whole story.
So let’s talk about getting paid. Not the dollars or the cents, but the form and structure. Specifically, let’s talk about how you pay yourself and what that means for the way you work.
Small business owners and independent workers often lump all their money into one big pile. You get paid in various ways, and all that money goes into the same bank account. You pay expenses from that account and then allot what’s left over to your personal income. Voila! Money made. Income achieved.
Unfortunately, this conception of how money is made often leads to negative consequences, including overwork, desperation, and poor client service. Without a deeper understanding of the form and structure of how a business makes money and how you then get paid, you miss out on some incredible opportunities.
The structure of getting paid comes down to wages and profit.
Wages have a long history.
You can see standardized wages as far back as Ancient Egypt, Greece, and Rome—and even farther back to ancient Mesopotamia. Standardized wages were written into the Code of Hammurabi for things like shipbuilding, freight hauling, and chartering. The earliest wages weren’t paid by the hour—because standardized time hadn’t been invented yet. Instead, wages were paid by the day, by the week, or, often, by the number of goods produced. Regardless of how they were paid, wages have always been paid based on productive labor. You agree to work for some time or a specified production goal at an agreed-upon rate—more or less voluntarily, although often much less voluntarily.
Today, when you think “wage,” you probably think about the hourly way. Maybe you think “minimum wage” or “living wage.” With an hourly wage, you work a shift and get paid a set rate per hour, plus overtime beyond 40 hours per week. During that time, you’re subject to the productivity expectations of management.
Piece-rate wages still exist. Gig work is most often paid in a form of piece rate. The pay for the “piece” might be for a drive across town, an errand run, or a voiceover recording. But those tasks can still be seen as productive pieces that are paid based on completion rather than time spent working.
It can seem like the wage is something you left behind when you started a business or went freelance.
And to some extent, that’s true. But letting go of the idea of a wage entirely obscures the labor we do. We forget that we’re an owner and a worker. And the drive for profit will lead the owner in us to exploit the worker in us.
So what is profit then?
Profit is not just what’s left over after the bills are paid. Profit is the value generated above and beyond costs, with labor being one of the highest and most variable costs. I know, that probably sounds like a fancier way of saying “the leftover money.” But it’s not.
When we talk about what’s left over, we’re talking about an after-the-fact financial calculation. It’s useful, but it doesn’t tell us much about how profit is generated. We might have set a profit margin goal initially but that profit is realized in accounting.
On the other hand, when you consider profit as a function of the cost of labor, you start to see how profit is generated rather than discovered when you get your P&L report.
Karl Marx described how profit is generated in capitalism as money made from surplus labor.
According to The School of Life:
Marx insists that at its crudest, capitalism means paying a worker one price for doing something and then selling it to somebody else at a much higher price. He believed that capitalists shrink the wages of the laborers as much as possible in order to skim off a wider profit margin.
Imagine you’re working in a retail store.
Part of your job is helping customers pick out what they will purchase from the store. About three hours into your 8-hour shift, you’ve sold the number of goods that cover the costs of your labor for your shift, as well as the overhead associated with those goods. If you think of your daily wage as an equal exchange with the value you’re producing for your employer, you should be able to go home after you hit that mark, right?
But of course, that’s not how it works! After you’ve covered the cost of your labor for the day, you keep working. In this example, you perform an additional 5 hours of labor. All the goods you sell during that time are sold thanks to your surplus labor. And there’s the profit.
To simplify the math, let’s imagine you earn $10 per hour—so you make $80 for an 8-hour shift. You sell $80 worth of goods in the first 3 hours. But it only costs the company $30. If you keep selling at the same rate throughout your shift, the company earns more than $200, even though your labor power only costs $80.
Other overhead notwithstanding, that’s a $120 return on the value of your labor power.
Marx focused on surplus labor as the means of generating profit because his economic theory is based on understanding the relationship between capital and workers from the workers’ perspective.
A conventional economic view will take capital’s perspective and show how different forces can be leveraged to produce a greater profit. Both perspectives are helpful. But when we’re looking at more humane ways of understanding the 21st-century economy, I think we have to ensure that we’re accounting for all of the humans in the worker-capital relationship. And we need to treat those humans as equally valid in that relationship.
With that in mind, any means of generating profit for the company will be based on the surplus labor of workers.
Profit on its own is neutral.
A fair profit margin covers risk and future investment. Maintaining steady profit can create job security for workers and insulate them from economic bad weather.
But profit as an incentive gets into dicey territory. When an employer is motivated to increase profit regularly, it will look to increase the surplus labor of workers. Your sales quota goes from selling $80 worth of product every three hours to selling $100 worth every three hours. Not only is the company squeezing more value out of your time, but you may also suffer moral injury as you become a more aggressive salesperson.
Sure, the company could raise prices to increase profit. That would make your job easier! But raising prices is much riskier than increasing worker productivity or allowing wages to stagnate. When a company raises prices, it risks customers going to a competitor or deciding they don’t need what the company sells.
On the other hand, workers have become conditioned to accept ever-increasing productivity expectations and even stagnant wages. Plus, the stigma of not working in our culture is so significant that employers have a lot of power to make their jobs harder and less sustainable before workers quit.
As small business owners or, to a lesser extent, independent workers, we are both wage laborers and owners.
This distinction is critical in understanding the form and structure of how we get paid. Because until we fully define our wage and profit goals, we’re subject to self-exploitation. We’ll squeeze ourselves into greater productivity to increase our own surplus labor.
The economists and theorists who pioneered this analysis of labor value were big picture thinkers. They weren’t thinking of the craftspeople, consultants, or artists who sold the goods they produced. These proprietors have always existed, but, in many ways, they were outside of the capitalist framework. Today, however, even tiny businesses swim in the economic story that capitalism tells. As such, the context of big-picture economic theory can help us think about how we get paid more sustainably and humanely.
Here’s what this looks like in my own businesses:
My goal is to pay myself a salary that covers my needs. I determine my needs based on my values and personal priorities. So my salary and your salary might look different, as well as what constitutes our “needs.”
Because I’m in the US, my business is incorporated as an LLC but taxed as an S-Corp. That S-Corp status allows me to pay myself a wage (my salary) and then account for profit above and beyond my expenses, including my own labor. That means that twice a month, I run payroll from my business bank account and get a direct deposit into my personal bank account. I’m taxed on my salary the same way any employee would be taxed on their salary. I may or may not take profit distributions—taxed differently—throughout the year.
I think of my salary as the cost of the labor required to meet my needs. While that might not be precisely true, it helps me wrap my head around how I will spend my time.
I have options about how hard I work or what I choose to work on. As I’ve shared in previous episodes, right now, I’m choosing to work on low-profit projects because my salary is being paid through a select few other projects that cover my needs. I’m not stressed about money even though I will probably have just as many months in the red this year as months in the black! If I didn’t know the wage I needed to earn or have that wage as a goal for my money-making, I’d be stressed out about money and working on things I didn’t want to be working on. I’d be pushing myself to create more and more surplus labor. Yuck.
The same is true at YellowHouse.Media. Sean earns the same salary I earn but through that company—and they are separate LLCs, both being taxed as S-Corps. Our current client load pays that wage, plus our employees' wages. We also earn a profit, primarily as a vehicle for savings to support ourselves and our employees in case there’s a problem. We know the baseline number of clients we need to work with to make payroll, and so long as we’re at or above that number of clients, we don’t need to push for surplus labor. Sean can enjoy five or 6-hour days, and I don’t have to worry too much about the business's day-to-day operations. Without understanding the difference between our necessary wages and extra earnings in the form of profit, we’d probably work harder than we need to and push growth faster than is sustainable. The truth is that YellowHouse.Media could be generating a lot more revenue than it currently is. But we’ve decided to continue to grow slowly and prioritize working fewer hours.
In both of these examples, I essentially calculated an annual wage paid out every couple of weeks.
And I know that’s where things can get tricky for business owners and independent workers. We’re so familiar with hourly wages that when we start thinking about the value of our time, we immediately ask, “What should I be earning per hour?” And that question quickly becomes, “What should I charge per hour?” Having a ballpark hourly wage is helpful—but it’s not everything. And hourly wages make it more difficult to think creatively about our time precisely because most of us will instinctively manage ourselves to increase surplus labor, leading to unsustainable working conditions.
An annual wage—or salary—gives you the flexibility to think creatively about your working time while also considering the money you need to get through the year comfortably.
Beyond that, you can make intentional decisions about the profit you pursue. There might be some months or even years where you decide more profit isn’t worth doing the surplus labor. And there might be other months where you’re energized about creating something that will earn a profit—maybe even on an ongoing basis.
That leads me to the final thing I want to add some context to: passive income.
When small business owners and independent workers think of profit, they often think of passive income. And actual passive income is nice. Passive income is based on asset ownership: the rental property you own, the intellectual property you license, or the capital you invest.
Every quarter, I get a check from CreativeLive with my revenue share on the courses that have been watched or sold during the previous three months. I made an initial investment in those courses as labor, but I don’t do anything else to generate that money. The classes are assets that I am a partial owner of and, as such, earn money from their sale.
But what many people think of as passive income is actually leveraged income. And what’s being leveraged, to varying degrees, is your labor, the labor of anyone who works for you, and the free labor of your customers.
Tiffany Ferguson put it this way in her video, "The 'Cult' of Passive Income:"
Despite the messaging that emphasizes how easy and passive this is, the reality is that trying to pursue passive income actually requires a lot of time and energy, and often involves startup costs. So for the average working-class person who is exhausted, broke, and overworked already, this is not very feasible.
Consider the sale of a digital workbook.
How does that sale come about? A certain percentage of the people who visit your website will likely click to learn more about that workbook. Another portion of those people will purchase the workbook. Seems passive enough, right? But what generates the traffic? It could be search engine optimization—which is based on creating content for your website. That’s labor. Again, it could be social media based on the grind of creating content. It might be advertising—which is likely paid for through your work on other projects. It might be publicity—which is based on your labor earning publicity. Most likely, it’s a combination of all of those labor outputs.
Now, there is certainly the possibility that you launch a digital workbook and generate a word-of-mouth flywheel that genuinely makes that revenue passive. But more often than not, those sales require significant hidden labor primarily done by the creator.
If your goal is to sell that workbook 200 hundred times, how much work will you have to do to generate those sales?
How many hours will you labor to produce that “passive” result?
How do those 200 sales contribute to your wage or your profit?
Is that labor necessary to pay your wage—and if so, is it how you want to spend your time?
Or is that your own surplus labor you squeeze profit out of?
And what of the surplus labor your customers do as a result of paying for a workbook rather than a live course or a service?
As always, this is a purposely reductive example. It’s neither precise in economic terms nor tactical terms. But I hope you now have significantly more context for thinking about how your time and labor translate to your wage, profit, and business growth. From there, you can think critically about the choices you make in terms of your business model.
Use the distinction between wages and profit any time you start thinking about “making more money” and how to go about that.
Be precise. Do you need to make more money? Do you want to make more money? If you need to make more money, that’s a question of wages. It’s a hint that there’s something off in how you’ve calculated how you pay yourself in relation to the amount of work you do. If you want to make more money, that’s a question of profit. You can make an informed decision about what you’re willing to do to increase profit.
Just don’t resell cherry bed frames you bought at Walmart on eBay. Okay?