This transcript was generated from the episode audio and may contain minor errors.
[Music]
Hello, hello, what's up? This is Chris Guillebeau, your host of Sada School School, bringing you the now bi-weekly classroom episode. We did these every week for the first half of the year, and now we're doing them, well, as I said, bi-weekly. That would be every other week. If you'd like to catch up on any previous lesson, just go to sidehustleschool.com/classroom.
This is a bit of an instructional series. It's a little bit different from the questions and answers that I handle the rest of the week and the case studies and stories that I tell, so we do two case studies a week. We do several questions and answers. Also a segment called Throwback Thursday, where we get some updates on somebody we featured long ago. But for 2020, I wanted to create this series on just some basics of starting out your side hustle.
They're all completely free. Just go to sidehustleschool.com/classroom. All right, so today we're gonna talk about forecasting your profit on the back of a napkin. Or I guess it could be the front of a napkin, right? Does it matter, back side of the napkin, front side of the napkin?
You be the judge, okay? But forecasting your profit using a simple process, I think that's the point. It doesn't have to be on an actual napkin. Forecasting your profit potential for any particular idea using this simple forecasting tool. So as we jump in, two important things to keep in mind.
First, your side hustle must have a clear plan to make money. If you've been listening for a while, you should know that. But we got lots of new folks. So when I talk about having a side hustle, I am talking about a money-making project, okay? It doesn't mean everything you do in life has to be for money, but that's what we're talking about here.
That's our focus, okay? So if you're thinking about different ideas and any one particular idea, you're not quite sure how it's gonna turn a profit. That's a good sign that it's not the best idea. At best, it needs to be much more developed. And it may just not be a good idea, okay?
If there's not a clear way to make money, not a good idea. Now second, if you're having a hard time choosing your idea, if you're one of those people that's like, I've got so many ideas. Well, we've talked a lot about this too. It helps to consider each of those ideas according to a few criteria. Now I've done a whole episode on this topic in the past.
I've also written about it in the side hustle book. It's called the decision-making matrix. And basically you're going to ask yourself some questions like how feasible is each idea? How excited am I about each idea or any particular idea? And then through that process, you're going to rank the ideas against one another.
Sometimes one idea emerges as a clear winner. And if not, you can usually eliminate at least some ideas. So you're better off at the end than you were when you started. Now, profit potential is another one of those criteria. In fact, I would say those are the three main ones.
Feasibility, how excited you are about it, and profit. We might even flip the order of those three a little bit, but let's call it the trifecta for now. Also on that classroom page is where you can access that previous lesson, which goes into this decision-making process in more detail. But today we're talking about how do you figure out which idea has the most profit potential? Because this is the factor, the criterion, let's say, that throws most people for a loop or causes them to say, well, I'm not sure how to figure that out.
Like, I don't know. Like, I haven't started my idea yet. How do I figure out which one of them has the most profit potential? How do I know what the profit potential is for any particular idea? Well, you don't know for sure.
That's an important point. You don't know for sure. But that's why you make a projection. A projection is an estimate. And by forecasting profit and expense with a simple estimate, you'll be able to make decisions for your hustle with far more confidence.
Now, there's one more free tool you can get if you're interested. I mentioned this because I don't want to just give a whole bunch of numbers here on a podcast. It can be hard if you are exercising or commuting, if anybody still commutes. It's hard to listen to a bunch of numbers and keep them straight in your head. So this spreadsheet that I use, the profit potential tool, which is not actually a napkin, although you could turn it into a napkin if you'd like, you can get that free as well at atsidustleschool.com when you join the email update list.
I think it's like the third or fourth update that goes out. It has a link to that profit potential spreadsheet. All of this stuff is free. And if you're developing a product or service and you'd like to do these kinds of estimates, it might be helpful. But if not, you can probably just figure it out yourself because what you want to do here is, well, first of all, understand that when I'm talking about profitability, it's very, very simple.
This is one of these things that people make far too complicated. It's like the word value, overly complicated. Profit, same thing. Profit is just your income minus your expenses, okay? So when we're doing a projection, it is your expected income minus your expected expenses.
That will equal then your projected profit, okay? So the way that you apply this is, you know, you're gonna make a spreadsheet or a napkin or a list or whatever, and you're going to add a series of variables. And let's say, for example, you're teaching an online class. Okay, so one variable is going to be the price that you sell this online class or course for. Another variable will be the number of students, okay?
And it's a projection, you don't know, but you're gonna say, okay, if I get five students, if I get 10 students, if I get 100 students, and then when you multiply those, you kind of get your expected income for that particular course, for that particular project. Now, you might want to look at multiple price points, which is something that a spreadsheet can be very helpful with because you can change any single variable to affect the net result of your projection, which is key, because you might be able to get the same number of students or even fewer students sometimes, but if you charge a higher price, you're actually going to be more profitable. Similarly, you might find you'll get more students at a lower price. So just playing around with these variables can be interesting because it shows you, oh, maybe I should pursue this project. Maybe, in fact, I don't even need to do the decision-making matrix because I can see clearly that this particular idea I have is, you know, way ahead of some other idea.
And so I just gave an example of an online course, but it could also be for a physical product. And there for that physical product, you want to think in particular about your expenses, okay? Because presumably it's going to cost you something to make, manufacture, acquire, import, however you get that physical product that is then passed on to a customer. You want to make sure you're including your expenses rather than just like, oh, here's the number of students times the price of the course. You want to make sure you clearly consider your expenses there.
But I can also be done on the same spreadsheet or napkin or however you like to work. Okay, I'm going to do a quick break for a sponsor. And then when we come back, your assignment for the week and also how to make a range of projections because as I said, a projection is an estimate. So how can we get it to be more accurate and precise or at least consider a few different scenarios? That's coming up after this quick message.
[Music]
So again, much of the time you don't know what your response is going to be until you actually launch. Right? You don't know what your response is going to be. You don't know how people will respond. But projections can still help.
They can often show you that, you know, one idea might not be good at all. Like even if it's a big success, you're not going to make much money. So sometimes that's helpful in eliminating something. I had a situation like that in my very early days. I had the idea to sell golf memberships for $1 a person.
And that went about as well as you might expect. A friend of mine looked at the idea and said, how are you going to make money at $1 customer? And I never really had a good answer. So that business entirely flopped. Okay?
So assuming you're smarter than me, which I am assuming, you're not going to make that mistake, but still a projection is just a projection. So it can be very helpful to make multiple projections. That's what we're coming to here. Make a range of projections. So what you do is you've got your original projection.
Then I like to make two others. And one is an optimistic projection. And another one is a conservative projection. The optimistic one is like, oh, if it does really well, then here's what I think could happen. The conservative one, of course, is like, well, actually, it did less well than I expected.
And if the conservative projection is still pretty good, then that's a good sign, right? And if the optimistic projection is really, really good, you know, and I think there's actually a possibility that that could happen, then that's also a good sign. And just to be clear, it's not three times as much work to do this. It's usually a very, very small amount of work. Once you've actually created that first projection, you often just change a single variable, like the number of people in the course or the number of people buying your product on Amazon or whatever it is.
So if you're out there and you're still weighing several ideas, you might want to do some quick profit calculations for each one. That will be your assignment for the week to create a simple profit potential estimate for at least one of your ideas. And don't worry about being super accurate. The goal here is to compare potential, to compare the profit potential of your various ideas, to see which one might be more worthwhile to pursue. Once again, you can read notes for this in every classroom episode this year at sidehustleschool.com/classroom.
And we are also now building out some small groups for the third way. We're also meeting online every other week. You can learn about that at moneytreebook.com/groups. That's moneytreebook.com/groups. This has been episode 1290.
Hope you'll continue to join me for the rest of the year. Hope you're holding up okay wherever you are in whatever part of the world you're in. I know it's some crazy times out there, but you're not alone. And let's all use this time as best as possible to create something and be in a better place for whatever is going to happen next. All right, thank you so much.
My name is Chris Guillebeau. This is "Side Hustle School." [Music]
- From the Onward Project.
