Humpy is a founding partner, not just an employee – so he gets his commissions and he also gets his profit-share of the partnership, that is… the cash it has at the end of the year left over after paying rent, food, insurance, phones, computers, sexual harassment suits, jet rental bills, and so on… that cash is distributed as a year end dividend and Humpy keeps his third.
Last year, Humpy sold roughly $15 million worth of body; that is, his “stable” of 25 clients generated about $15 million in billings for his agency, Loob, Lather and Friction, LLC. Humpy’s 10% commission (the rate set by law – 10% is the maximum an agency can charge – but they can charge less) generated $1.5 million in revenues for his firm.
Humpy doesn’t get to keep $1.5 million, however. Not even close. In the course of Humpy doing business, he incurred a ton of expenses – “doing lunch” and the myriad other favors he has to perform in the normal course of his business costs dough. In fact, he had almost $300,000 in expenses last year – so his net take was $1.2 million.
The partnership itself had almost a million bucks in profits as well so Humpy got his 300 grand from that distribution for a grand total of $1.5 million… pre-tax. He lives in California where state government generally taxes the successful mercilessly – after Federal and State taxes, Humpy ends up with $800,000 in his pocket. Not bad. Not bad at all.
But this was a banner year – last year he’d only grossed $450,000. And while it may seem like a ton of money to a teenager, Humpy is barely able to afford a 3 bedroom home in a decent neighborhood with this kind of money. So… it’s good. But Humpy’s room mate in college went on to do investment banking and makes per month what Humpy makes in a banner year. And that investment banker will be BETTER at age 50 than he is at 35; Humpy knows he won’t – in fact, his career will likely be over by then. So he’s saving his pennies. And after all the alimonies he’ll owe, it likely will in fact be pennies.