This transcript was generated from the episode audio and may contain minor errors.
You probably already know that being able to count on money that's coming in is better than the possibility of money coming in, especially when you're trying to get out of debt or replace one of your income streams or create some opportunity that you're not so dependent on your day job. Being able to count on money is much better than the possibility of money. That's why subscription services are so powerful. Anything you can do to create recurring revenue is always good. So today's listener has a question about this.
She is running the numbers on an idea. How does this look in a specific scenario where she's figuring out her pricing and she's thinking, okay, I've got this idea for a service or for an app. I think we'll hear from her in a moment. How many people might sign up? What does that all look like in terms of the bottom line?
How many subscribers do I need to actually make this worth it? It's not just about being profitable. It's about being worth it. And I'll explain a little bit more about that in my answer because there is a difference. So welcome to Side Hustle School.
So glad you're here. My name is Chris Guillebeau, your host. Thank you for tuning in today's question. I'm running the numbers on a subscription service. What do they mean is coming up in just 30 seconds.
Hey, Chris, this is Lisa from Denver and I've been listening to your show for a couple of years now. I'm getting ready to launch an app that will help people track the correlation between nutrition and productivity. Naturally, I'm using a subscription model since I like the idea of reoccurring revenue. If I price at $5 a month, that would be something close to $3 a month in profit after Apple takes its cut and I pay the hosting expenses. I don't know whether it would be really easy or incredibly difficult to build this to a sustainable level.
What do you think? On the other hand, I could see myself struggling with a handful of customers, each bringing in a net of $3 a month. But if it took off and I had 2000 customers at $3 net per month, that would be amazing. Thanks, Chris. Hey, Lisa, thank you for the question.
It's exciting to hear about your upcoming app. Now, as for the question, will it be incredibly difficult or will it be really easy or incredibly difficult? It's probably going to be somewhere in the middle. Most of these things are not really easy or impossible. There is a path, but the path requires work.
The path involves some degree of uncertainty. There's no way to project for sure if it's going to work. That's why you experiment. That's why you keep costs low. Follow the Side Hustle School model, et cetera.
I also want to remind Lisa and anybody else that we have a free spreadsheet. If you go to sidehustleschool.com/spreadsheet, you can get a resource that might help with your predictions and such. Again, nothing for sale there. But forecasts are difficult. We run into this fallacy and I've done it too, where you're like, "Oh, if I just...
All I need is 1% of this market and then I'll be richer than Elon Musk." All it takes is 1% of a million people or something and it never really works out that way. It never really works or at least it works on the spreadsheet, but it doesn't work in the real world. The challenge for this kind of thing when you're starting a subscription model, like a really low priced subscription model, which makes sense with an app because people don't want to pay $30 a month for an app or whatever. The challenge comes in when you have just a small number of customers paying a small amount of money, because then you have to support that and you have to keep investing in the product and you're not very motivated to do so if it's a really small amount. This is why growth rate matters so much.
I think growth rate actually matters more than what the actual number of subscribers are in the beginning because if you have three new people signing up every day at $5 each, then it's really slow. It's a small amount of money each day, but it's growth. If you did that every day, then in three months you'd have $1,300 coming in every month and hopefully it would continue to grow from there, double that three months later and so on. Most likely what will happen is by then something will have changed and the growth rate will have either increased or fallen off. Either way you have more information.
Hopefully you'll have figured out how to get more people in. Of course, at the same time, some will leave. As you go throughout that process, you're going to get information, but the key point is growth rate. If it stagnates at a really small number, that's when you need to make a more drastic change. You don't want to be stuck with seven customers a month paying the $5 and you get $3 of that because of Apple's commission and so on.
If it really stagnates at a small number, that's when you need to make a drastic change, possibly including putting the whole thing on pause and trying something else. To bring it full circle, Lisa isn't there yet. First, she needs to launch her service and see what's possible, so let's see what's possible. Let me know, Lisa, how things go with the app. I'd love to hear more about it and share it with our listeners.
Listeners, if you have a question, come to sidehustleschool.com/questions. We will continue to feature them throughout the year along with these case studies, along with updates from previously featured case studies, our new Failure Friday segment, and as they say, so much more. All right, I'm glad you're out there. Come back tomorrow. My name is Chris Guillebeau.
This is "Side Hustle School." From the Onward Project.
