Did you know that almost half of working Americans report having a side hustle? That amounts to roughly 70 million people. To be clear, a side hustle is a way to make money alongside your main form of income. It can be a great way to try out entrepreneurship with less risk before you make the leap into full business ownership — if that’s your end goal.
Whether your side venture is a passion project or a pathway to a new career, you’ll need to keep good track of your side hustle income to understand whether you’re actually making or losing money.
Here are a few tips for running a successful side business, including how to calculate your break-even point.
Understand your work’s true cost
Whether you’re selling handmade goods, consulting, landscaping or doing something else, you need to know how much your work actually costs. Every business — even in its earliest stages — has fixed, variable and one-time costs. To understand what your side gig costs to operate each month, add up these expenses.
They will likely vary from month to month, depending on the kind of work you’re doing, but here are some general examples:
- One-time costs: website development or major tools/equipment
- Fixed/recurring costs: accounting software subscription or supply maintenance
- Variable costs/expenses: raw materials or shipping charges
Know your break-even point
To calculate your business’s break-even point, look at the revenue you’re bringing in, which will likely vary each month depending on how much product you’ve sold, services you’ve provided or hours you’ve worked. Once you have this ballpark revenue figure, subtract your expenses to get a clear picture of how your side hustle is doing financially.
For example, if your total expenses equal $600 a month and you’re making $1,000 a month, then you’re generating $400 in profit from the side work you’re doing. That’s great! From there, you’d need to continue to earn at least $600 a month to break even.
Because your expenses and earnings will fluctuate, you’ll need to track everything on a weekly or monthly basis over time to understand how things are trending. You can put this information into a spreadsheet or use accounting software that will run the numbers for you. Whatever method, the most important thing is to consistently track the financials associated with your side business.
Further, good record keeping can lower your annual overhead. One of the best benefits of side hustling is that certain expenses related to your business may be tax-deductible. If you run your side business out of your home, you may be able to take a home office deduction from your taxable income for part of your rent or mortgage and utilities.
Though you won’t immediately feel these savings every month, they’ll benefit you come tax time and potentially help you hold onto more of your income, which you can reinvest back into your business to help it grow.
Eliminate unnecessary expenses
As a side hustle entrepreneur, you may be tempted to spend excess money on fancy tools and gadgets, line up extra services or even outsource tasks before you have to. However, when you’re launching a side business, it’s important to only invest your time and money into things that will actually generate money and shorten your path to profitability.
Before you set out to make a purchase, ask yourself these questions:
- Do I really need this fancy option, or will something simpler and more affordable suffice?
- Have I shopped around to compare prices, or did I just go with a brand name I’m familiar with?
- Could I lower the cost of my raw materials by going with another supplier?
- Can I barter to get the services I need at a lower cost?
Fuel the success of your side hustle
A side gig provides an invaluable opportunity to explore your passions, expand your skills, grow your income and possibly launch a new career.
Closely tracking your financials, taking steps to reduce your expenses and finding ways to grow your average side hustle income can help you ensure that you’re at least breaking even and that your hard work really is paying off.