Your nights are filled with wonderful dreams of quitting your day job and making your side-hustle a full-time business. Or, perhaps you just long to make some extra cash to pay off bills or save for the future.
So, what does it take to turn your hobby into a business? The answer is simple, but the execution maybe not so much.
If you’re spending more money than you’re making to do your craft, it’s a hobby.
If you’re able to turn a profit, then it’s a business.
Pretty simple, right?
For all the people involved in businesses out there not turning a profit, maybe you have some quibbles about this. But, really, if you want to get serious about turning that hobby of yours into a business, then you’ll need to figure out how to make a return on your investment.
It’s all about the math. Simple grade school addition and subtraction, with a little division and percentages thrown in for good measure.
Add up all of your expenses. All of them. Don’t forget little things like shipping/fuel costs, taxes, selling fees. Subtract your earnings. Did you make more than you spent?
If your answer is a disappointing no, don’t lose heart. The next part is figuring out how you can make a profit.
Go back to your math. In our pretend business, let’s imagine that you’re making some Pretty Cool T-shirts and will sell them on Amazon.*
*Hey, friend! Loads of people are making t-shirts, so we wouldn’t recommend this necessarily as a go-to business idea (unless they have cool technology that can make you fly, or are edible and can feed you on the cheap), but the business model contains the right elements to make our illustration.
Let’s take our Pretty Cool T-shirts and first identify our gross expenses… how much money we’ve spent in total to get to the point that we can make our first shirt. With all the different supplies and equipment we needed to make at least 100 shirts, we dipped into our piggy bank and spent $1,482.
Let’s next break out the expenses to a per-shirt cost as best we can. With other fixed costs, such as the printer, heat press, hosting fees, etc., you can leave those costs out of the per shirt calculation, but be sure to include them when factoring your breakeven point. It will cost us $11.48 to make and ship each shirt. Shipping is expensive and makes up almost half of our costs here. We’re choosing to ship our Pretty Cool T-shirts using USPS Priority Flat Rate Mail, which comes with a free envelope.
Finally, let’s come up with how much we can charge for these Pretty Cool T-shirts. Based on our market assessment, we think customers will pay $16.99 along with $6.99 for shipping (or $23.98 with free shipping). This gives us about a 48% margin per shirt.
To get to your breakeven point, divide your gross expenses and earnings. With this example, we’ll break even at 62 shirts! If this seems like kind of a lot, consider that we purchased quite a bit of inventory and equipment and you’ll actually be making money beginning at shirt 63. If you sell all 100 shirts, that’s a profit of $916.
So is $916 (or whatever that number is for you) worth your time and effort. You’ll need to factor in how much time it takes you to make and ship each shirt, handle customer service and anything else that goes into running this fledgling business. Let’s say it takes you about 15 minutes to do what needs to be done for every shirt sold. That works out to about $36 per hour. Not too shabby.
Overtime as you level-up in experience and confidence with your business, you’ll naturally find ways to reduce expenses by buying in larger quantities and finding new sources, as well as improving and streamlining processes.