This transcript was generated from the episode audio and may contain minor errors.
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Couple of days ago, we had a story about a cigar subscription service started by this young guy who was actually in college. And he went on to work at Google and ran this side hustle in his spare time as one does with a side hustle. Today, a listener question about how do you forecast profits for a proposed or planned subscription service? If you want to start a business like this, if you're interested in that revenue model, obviously with cigars, we're talking about physical products. We've had a number of other physical product subscriptions over the years that we've talked about Korean face masks, children's books, many other things.
But of course, a subscription can also be digital. Either way, when you're trying to start a subscription service, if you're interested in that kind of recurring revenue or you have sustainability, know how much you're getting paid each month because you have an idea of the listeners, customers, subscribers, et cetera, how do you actually run those numbers? How does it look in a specific scenario for somebody who wants to figure out their pricing, to figure out how many people might sign up and what it all looks like in terms of the bottom line? I think this is a very helpful thing to think about when you're considering this business model. So let's break it down.
Let's look at the numbers detailed question from Lisa and my answer coming right up. [Music]
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 2,000 customers at $3 net per month, that would be amazing. Thanks, Chris.
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A few years ago, I made a free spreadsheet for our listeners. I just went to look and see, is that actually still online? 'Cause it's been a while. But in fact, it is, sidehustleschool.com/spreadsheet. That will take you to a Dropbox file.
You should then download the file and add it to your Excel or Google spreadsheets, whatever you use. You can then customize it from there. So make sure you download the file rather than just trying to work with it at sidehustleschool.com/spreadsheet 'cause it won't work that way. But hopefully that'll be helpful to someone out there. Now let's consider this scenario here from our listener.
So forecasts are difficult just because there's always this fallacy of like, oh, there's a market of 100,000 people. I just need to capture 1% of that market. Then I've got 1,000 customers. And that model almost never works or it works on the spreadsheet, but then not in the real world. The challenge comes in, especially in this scenario here, when you have just a small number of customers paying a small amount of money.
You know, when she's talking about, what, pricing it at $5 a month? That'll be $3 a month in profit after Apple's cut hosting expenses, et cetera. Well, you're gonna have to have a lot of growth. If you have three new people signing up every day at $5 each, then you have $1,300 every month coming in after three months, but there's also the matter of people dropping out and unsubscribing and then it might stagnate. It might not just keep going at three new people a day.
So with this kind of forecast, Lisa asks, I don't know if it will be really easy or incredibly difficult. It probably will not be really easy, let's say that. It may be incredibly difficult. It might be feasible, but hard. And you're right, if it took off and you had 2,000 customers at $3 net a month, that would be incredible.
And that does happen sometimes, right? But I think more often these days, you're gonna see some initial growth and then it will stagnate. So I think, you know, the most important thing is, let's try to get the product or the service to market as soon as possible without spending so much time on the front end. That way we can do some more realistic forecasts once you have initial data. So it's fun to play around with projections and make your best guess and so on.
I do that too. But your better data, your more reliable data will come from an initial week or an initial month of having that app in the app store or whatever it is that the product might be. Lots of subscriptions out there these days. There is a matter of subscription fatigue, which is very real among consumers. But nevertheless, it's also a great business model.
Listeners, let me know what you think. If you wanna access some resources from the podcast, the community, the 3,000 plus episodes in the archives, they're all available at sidehustleschool.com. Of course, the new episodes out seven days a week every day. In fact, that is truly seven days a week. Get them wherever you get your podcasts.
My name is Chris Guillebeau. This is "Side Hustle School." [Music]
from The Onward Project.
