Glossary

Key terms and definitions used across Micro Business Math.

Break-Even Point: The revenue level at which total income exactly equals total expenses, meaning the business is neither making nor losing money. For micro businesses, reaching break-even quickly is critical because there is little capital to absorb extended losses.
Burn Rate: The rate at which a business spends money in excess of its income, typically measured monthly. Micro businesses must keep burn rate near zero since they rarely have outside funding to cover ongoing losses.
CAC (Customer Acquisition Cost): The total cost of marketing and sales efforts divided by the number of new customers acquired in that period. Keeping CAC low is essential for micro businesses that rely on organic growth and word-of-mouth rather than large ad budgets.
Cash Flow Statement: A financial report showing money coming in and going out of the business over a specific period. For micro businesses, this is often more important than a balance sheet because cash availability determines daily survival.
Client Retention Rate: The percentage of customers who continue doing business with you over a given period. For micro businesses, retaining existing clients is far cheaper than acquiring new ones and provides the stable revenue needed to stay lean.
COGS (Cost of Goods Sold): The direct costs attributable to producing the goods or services a business sells, such as materials and direct labor. Understanding COGS helps micro business owners set prices that actually cover what it costs to deliver their product.
DBA (Doing Business As): A registered trade name that allows a sole proprietor or LLC to operate under a different name than their legal name. Filing a DBA is one of the simplest and cheapest first steps for a micro business to establish a professional identity.
Effective Hourly Rate: Your actual take-home earnings divided by the total hours worked, including unpaid tasks like admin, marketing, and invoicing. Calculating this number reveals whether a micro business is truly profitable or if the owner is working for less than minimum wage.
Freemium Model: A pricing strategy that offers a basic product or service for free while charging for premium features or upgrades. It can help micro businesses build an audience quickly, but must be carefully structured so free users do not drain limited resources.
Gross Margin: The percentage of revenue remaining after subtracting the cost of goods sold, before overhead expenses. A healthy gross margin gives micro businesses room to cover operating costs and still turn a profit.
Invoice Factoring: Selling outstanding invoices to a third party at a discount in exchange for immediate cash. It can help micro businesses with cash flow gaps caused by clients who pay on 30, 60, or 90-day terms.
LLC (Limited Liability Company): A business structure that separates personal assets from business liabilities while offering flexible tax treatment. It is the most popular entity type for micro businesses because it is simple to set up and provides meaningful legal protection.
Markup vs Margin: Markup is the percentage added to cost to set a selling price, while margin is the percentage of the selling price that is profit. Confusing the two is a common micro business mistake that leads to underpricing and thin profits.
MRR (Monthly Recurring Revenue): The predictable, repeating revenue a business earns each month from subscriptions or retainer agreements. Building MRR is one of the fastest paths to financial stability for a micro business because it reduces reliance on one-time sales.
MVP (Minimum Viable Product): The simplest version of a product or service that can be launched to test market demand with minimal investment. For micro businesses with budgets under $100, the MVP approach prevents wasting money building something nobody wants.
Net Profit Margin: The percentage of revenue remaining after all expenses, including overhead and taxes, have been deducted. It is the bottom-line measure of whether a micro business is actually making money.
Overhead: Ongoing business expenses not directly tied to producing a specific product or service, such as software subscriptions, rent, or internet. Minimizing overhead is a core principle for micro businesses operating on tight budgets.
P&L Statement (Profit and Loss): A financial statement summarizing revenues, costs, and expenses over a period to show whether the business made or lost money. Even the smallest micro business should review a simple P&L monthly to catch problems early.
Pricing Model: The method a business uses to set prices, such as hourly, project-based, subscription, or value-based. Choosing the right pricing model is one of the highest-impact decisions a micro business owner makes.
QBI Deduction: The Qualified Business Income deduction that allows eligible self-employed individuals and small business owners to deduct up to 20% of their qualified business income on their personal tax return. It can significantly reduce the tax burden for micro business owners filing as sole proprietors or S-corps.
Recurring Revenue: Income that a business can reliably expect to receive on a regular basis, such as monthly subscriptions or maintenance contracts. It provides the financial predictability micro businesses need to plan expenses and growth.
Revenue: The total income generated by a business from its primary operations before any expenses are deducted. For micro businesses, tracking revenue separately from profit prevents the illusion that high sales equal healthy finances.
S-Corp Election: An IRS tax designation that allows an LLC or corporation to be taxed as an S-Corporation, potentially reducing self-employment taxes by splitting income between salary and distributions. It typically becomes beneficial for micro businesses earning above $40,000 to $50,000 in annual profit.
Scope Creep: The gradual expansion of a project beyond its original requirements, often without corresponding increases in budget or timeline. It is one of the most common profitability killers for micro businesses that offer services.
Sole Proprietorship: The simplest business structure where the owner and the business are legally the same entity with no formal registration required beyond local permits. It is how most micro businesses start, though it offers no personal liability protection.
Tax Deduction: A business expense that can be subtracted from gross income to reduce taxable income, such as home office costs, software, or mileage. Tracking deductions diligently can save a micro business owner hundreds or thousands of dollars in annual taxes.
Unit Economics: The direct revenues and costs associated with a single unit of your product or service, such as one client, one sale, or one subscription. Understanding unit economics tells a micro business owner whether scaling up will actually increase profit or amplify losses.
Value-Based Pricing: Setting prices based on the perceived value delivered to the customer rather than on the cost to produce or the time spent. It is one of the most effective pricing strategies for micro businesses because it decouples income from hours worked.
Variable Cost: An expense that fluctuates in direct proportion to the volume of goods or services produced, such as materials or payment processing fees. Micro businesses benefit from keeping costs variable rather than fixed to stay flexible during slow periods.
Working Capital: The cash available to cover day-to-day operating expenses, calculated as current assets minus current liabilities. For micro businesses, maintaining even a small working capital buffer is the difference between surviving a slow month and shutting down.