In this installment of the Dollars With Sense show, Paul Allen discusses aspects of transitioning from traditional employment into full-time involvement in a side business that proves to be lucrative and how to preserve profit margins in a side business. Paul is Australia’s Leading Authority on Supplier Margin, a sought-after presenter and author of the book Take Back Your Margin!
Paul: A side hustle is that hobby you do well that natural thing you are good at which you can see an opportunity to grow into a revenue stream or a business of some sort.
Dallas: So my school teacher for example, and I’ve got my – I was gonna say nine-to-five job probably saying nine to three thirty jobs, am I being cheap for saying that? I’ll say eight ’till six days. How’s that?
Dallas: So, I’ve got my eight to six job as a school teacher and at one minute past six iI starts doing a little bit of extra tuition of students from another school, of course.
Dallas: It’s not my own, I’ve ever really allowed teaching properly but from another region and it’s English and English teachers normally get let’s say $100 dollars an hour and I’m charging $50 an hour. What’s the trials and tribulations of doing something like that?
Paul: Well, there are many initial stages but it’s all about actually starting with the basics that’s laying a foundation, so how much time do you want to devote to this? How much cost are you going to incur in traveling to tutor or having people come to you and having a room set aside? The biggest part is knowing your cost to serve the customer and they could be as I said, travel or energy or rooms or materials.
You need to anchor down what it’s gonna cost you because if it’s $50 an hour or a $100 dollars, you need to have an eye on your margin from day one. So know your cost, Know your price and believe you can sell to that price and then have a margin in mind that you’re going to hold to all the way through.
Dallas: Thank you – – start with that foundation. So, let’s say that you’re a stationary salesperson then as your side hustle. So that there’s a product rather than a service involved. You’re buying your pins for a dollar and you’re selling them for two dollars. Is that enough those types of things?
Paul: Well, It’s good to actually look at it like this; you start beyond the money with your lifestyle and your time. How much time a week do you want to allocate to this side hustle?
If it’s only two hours a day, one day a week then you want to say well for that amount of time I spend what’s the minimum amount I want to make? So, before you do anything it’s about saying what is this truly worth to me? if it’s just a hobby and it’s gonna distract you and not bring enough income then you’ve got to work out if that’s truly a hustling it’s going to take you anywhere but start with saying, I want to do this because I want to make an extra $100 a week and then work it back if it’s a $100 a week and I’m only going to do two hours, one day a week, it has to be $50 profit, do you believe you can make that? How many customers would you need to see? Work it back and that’s what a business case is.
Dallas: These days, would have to set up a business as a sole trader, we may or may not depending on how much it was. We may need a website. It’s now going to cost us more money at the accountant. If it’s stationary, it’s how heavy the box is. It may very well be an insurance issue, personal insurance or may vary if I need a little bit more stock, it might be general insurance because I need to ensure that stuff.
Dallas: And whether it’s flammable, et cetera, et cetera. So there are lots of things involved in ascertaining how much is going to cost us for me to make that $100 a week.
Paul: That’s right. And those things are really great points to make because those things can destroy a business very quickly and this is why the most important thing to do is to do a test case or a test model to say do you believe with the founding principles of your business ie how much time you’re going to put into it? How much it’s going to cost to run? Do you believe that will give you enough customers and revenue to make the thing viable? Do not jump in too early. Gather friends together on a Saturday afternoon, put on a barbecue, feed them and say, here’s my model, here’s what I’m proposing. Give me feedback. Do you think that would work?
Testing first is so vital and big companies do that with all their products before they go to market taste case.
Dallas: The value proposition.
Paul: The value proposition, that’s very important. The principle is, are you gonna be an all-you-can-eat or you’re going to have tiered offerings? When I say this, I mean, some people start a side hustle and then suddenly they get some demand and they’re willing to do anything and they suddenly find those two hours, one day a week exploding into eight hours, three days a week. If you don’t lock down how much you’re willing to give at what price. You can find yourself drawn in many directions and that can compromise your lifestyle, your relationships, and your money. So the value proposition says, I’m gonna anchor what I do to this type of service in these times, at this price with the beliefs I’m going to make this margin. It’s about having a roadmap.
Dallas: Paul, in your travels doing this for a living. What are some of the things that you see happen, that if you like – traps for the unwary?
Paul: Yes, It’s a good question. Look, the big traps are people jump in too early without doing the due diligence. I mentioned the barbecue before without testing or researching enough about what they’re trying to convert from a hobby into a revenue stream. So, the principles again are, it’s testing and actually ascertaining whether this can really fly. I see about a third of people who kicked this off, make it work. They’ve done the research, that prepared their business plan they’d like and they go forward with it longer than 12 months but two-thirds will probably stumble or actually go back and reboot because they need to tweak the time or the cost and make sure they’re protecting their margin.
Dallas: Isn’t that fantastic? A third.
Paul: A third.
Dallas. ..that’s a lot.
Paul: It’s exciting! This is the way forward.
Dallas: Do you see that third turning to full-time work or third keeping it really strong so that’s all going.
Paul: The general principle is a third of the third actually converts over two to three years into if you like a business of their own.
Dallas: So, starting out in your idea of the side hustle part-time work, we need to ascertain; are we doing it to roll into a real business or are we going to keep it as a side hustle from the day one you’re suggesting that.
Paul: Have a vision of where you want to go I think. I mean, some people say, you know look I just want to try it, I want to test the waters. It’s a scary thing to do, to think about maybe leaving full-time employment to doing your own thing and you mentioned before all those are the costs and responsibilities that come with it. I find a lot of people just want to test the waters, give it 12months, see how it impacts the family, the golf, the football, other things they like doing just to get a feel for what that world would be like. People sometimes, find the grass isn’t greener on the other side. So, they go back to what they know but they never get tired of that little bit of extra in a company structure or some other format.
Dallas: And there’s nothing like being a bit of an entrepreneur but that puts a bit of bounce in your step.
Paul: I think so. I think it’s the Australian way, we, you know have some heroes in our past in the Aussie culture. Some we want to emulate, some we don’t but I think we all have that aspiration in some shape or form to do things on our terms.
Dallas: Paul, Thank you.
Paul: Thank you Dallas.
Dallas: I’ve just been talking to Paul Allen. If you’d like to know more about the side hustle. Whether or not you’ve got it set-up properly, go dollarswithsense.com.au, follow the appropriate prompts and we’ll pass your questions on to Paul.
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