It all seems so simple doesn’t it? You have your primary job that you rely on for income, but you also have a side hustle you believe has significant potential to earn you more money if you focused on it. How do you know when it’s time to make the switch and take your side-hustle full time?
There’s a lot to consider before taking this leap. Obviously, you should be comparing the wage from your primary job to the wage earned from your side hustle. Beyond that, you should thoroughly evaluate whether or not the total compensation is comparable. Many jobs that are considered side hustles such as ride-sharing, grocery delivery and online sales don’t offer the same benefits a full-time job may offer. And without those benefits, you may be at higher risk of financial setbacks if you need medical treatment and don’t have adequate coverage. But, if you’ve done the math, factored in the insurance and other benefits, and are still considering taking the leap, here are a few other indicators you should pay attention to.
What’s driving the side hustle income?
Income potential is likely the top reason you may be considering turning your side hustle into a full-time gig. Let’s say you earn $15 an hour at your full-time job but regularly earn $20 per hour at your side hustle. This seems obvious but you should also be paying attention to what may be driving your side hustle income. That way, you can better gauge the long-term sustainability and consistency of that income. For example, during the 2020 pandemic, as people were following stay-at-home orders and practicing social distancing; there was a huge uptick in at-home deliveries. Because of this, as a delivery driver, you’d likely experience a boom in deliveries and thus earn more income. But as states began to relax their orders and advances were made in the development of a vaccine, it’s natural to assume that people would be less inclined to order in.
Similarly, natural weather cycles and social activity patterns can be significant drivers of business. In warmer or dry seasons, people are more likely to head outdoors than they are in colder and wet seasons. These external forces can have a huge impact on the demand for your services. So, the better you can accurately identify and forecast them, the greater success you’ll have making the transition.
Cash is king and always will be
Another factor to consider before going full time is how much cash to keep on hand. Commonly accepted rules of thumb suggest you should have 3 to 6 months of cash on hand in the event of unexpected expenses. But those standard rules of thumb don’t quite account for starting a new business or transitioning a side hustle into a primary source of income. With that said, it’s best to set your sights on the higher end of that range so that you have as much flexibility as possible. By having six months of cash on hand, you give yourself a much longer runway to figure out the intricacies of your side hustle and you can absorb more of the inevitable hiccups you may experience along the way.
Transitioning a side hustle into a full-time job can also impact your monthly spending. For example, if your side hustle involves selling products online, you may need to purchase equipment, software and service subscriptions in order to maintain productivity. If your income is made online, the last thing you need is to have a weak internet connection or website that crashes frequently. By purchasing premium internet service or a business plan for a web host, you’ll be better prepared to keep your website. But you should know, these services are typically more expensive than base plans. This will impact your monthly budget and put more pressure on your side hustle to cover the additional cost.
Understanding growth potential
One of the key areas you need to examine as you’re looking to grow income from a side hustle is whether it’s scalable. Scalability is a business and economic term that evaluates whether or not the business can grow from its current state without incurring additional cost. For example, while you can choose to work for a ride-sharing company full time, the income you may earn is capped because there are only so many hours in the day you can reasonably expect to drive. Furthermore, the more you drive, the more wear and tear is put on your vehicle and the more fuel is required for your car.
But if your side hustle is selling products/services on the internet, your income potential is as high as your ability to find customers. So while you may be able to manage 5 trips in an hour as a driver, you can make unlimited sales online during that same period of time. Scalability is often the secret ingredient separating wildly successful products and services from the rest of the pack.
Profit vs. revenue
Earning the first check from a side hustle can be one of the most rewarding feelings in the world. But it’s important to pay attention to the details before centering your livelihood around those activities. Notably, it’s important to know the key differences between profit and revenue. Going back to the earlier example, let’s assume you earn $15 an hour but have recently started an online side hustle that earns you $200 a day. After working a full 8 hours at your job, it’s clear that your side hustle revenue is higher than your gross wage. But revenue shouldn’t be the indicator you pay attention to; profit is.
Your profit is what’s left over after you’ve produced the $200. This could be money spent on advertising, funds held for taxes, cost of equipment, software etc. After analyzing the profitability of your side hustle, you may determine that what you truly earned is significantly lower than your full-time job, even after taxes. Paying closer attention to the side hustle bottom line (profit) against your take home pay (wages earned after taxes and deductions) gives you a true comparison between the two.
Making the jump from side-hustler to full-time entrepreneur can be tempting. But it’s important to remember that you’re not just comparing earning potential. Sharpening your business IQ, understanding the broader business environment and investing in yourself are all keys to becoming your own boss.
Written by Rich & Regular of www.richandregular.com