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Do you want to start a side hustle, but you’re not yet sure if you have enough money to commit?
Starting a side hustle can be a great way to begin your entrepreneurial journey, especially if you're working with a limited budget. Still, no matter what business you plan to start, the key is to first figure out your startup costs. That way, you have a clear idea of how much money you'll need to get started.
Here are 4 steps you can take to figure out your startup costs:
When starting a side hustle from home, service-based businesses (like freelancing) typically have lower startup costs than product-based businesses (like selling T-shirts).
Ask yourself:
Whether it’s doing hair, editing resumes, or organizing large trips, the possibilities are endless for what services you could sell to potential customers. Once you have an idea and have confidence that you can do it well, you should start researching the costs associated with starting that business.
Make a list of everything you would possibly need to run your business for one month, and write how much each item would cost. This might include equipment, supplies, marketing, software, or legal fees. The more accurate you are with your cost estimations, the better you can estimate profits, secure loans, and potentially save money through tax deductions.
How much money do you expect to make from your business? To find out what you should charge, it’s always good to start with research. Look up other people or companies that sell the same product or service as you—these are likely your competitors. How much do they charge? What level of experience do they have? Can you offer similar quality? Once you have a sense of the average cost for that product or service, you can choose what your pricing model will be.
When you’re just getting started, a common pricing model that many businesses use is called “Cost-plus Pricing”. With this pricing model, you take your monthly costs, and then you add the monthly profit that you want to make. Next, you divide that number by the number of sales you expect to make per month. That way, your profit is baked into the price of what you’re selling.
Here’s an example:
You sell your services as a hairstylist to people in your area. It costs you $100 dollars each month to run your business. You want to make a profit of $150 each month in order to keep your business running. The Cost-plus pricing model would then take your monthly costs ($100) and add it to your desired profit ($150) for a total of $250 each month. If you expect to have 10 customers each month, you would divide $250 by 10 and end up with $25. That means that, in order to cover your costs and make your desired profit, you would need to charge each customer at least $25 per service.
As a general rule of thumb, be realistic and conservative in your estimate of how many sales you will make per month, especially in the beginning.
Your break-even point is the point at which your income equals your expenses. This is an important number to know because it will help you to determine how much money you'll need to make to cover your costs. The Small Business Association (SBA) has a helpful calculator that can help you to determine your break-even costs. If the SBA calculator is too detailed for where your business is right now, you can quickly calculate your break-even point by dividing your total startup costs by your expected income.
Starting a side hustle can be exciting, especially when you realize you could make serious money doing something you already do, or you’re already good at! Keep that excitement going by completing the 4 steps above. It will help you to understand how realistic your business idea is, and can help you figure out what your next steps should be. You got this!
