Evaluating Side Hustles

I’m the kind of person that likes to dive head first into ventures, getting bored of things quickly and then moving on to the next thing. These include blogging, affiliate businesses (paid traffic & SEO for SaaS and eCommerce businesses), eCommerce businesses, digital courses, self-publishing books under various pseudonyms, trading arbitrage situations, and bought 2 online businesses. I’d like to think I’ve mellowed somewhat since I started hustling some 15+ years ago and share with you my thinking on evaluating opportunities generally.

Before getting started, have a think about these things:

  • How much capital you have available and your financial situation generally? Do you have income which covers your day to day expenses?
  • How much time you have available?
  • How hard you’re willing to work?
  • What opportunities you have available?
  • What skills and experience do you have? Where do you naturally excel? What do you get naturally drawn to?
  • How much risk are you willing to tolerate?

Real World Case Study

Let’s evaluate a specific case to make it a bit more concrete. I found an interesting case study from Authority Hacker where they built an affiliate SaaS site from scratch and solid it 18 months later for 6-figures (they don’t disclose exactly how much).

Since this is an area I have some experience with, I thought this would interesting to analyze and then decide evaluate whether it makes sense to do the same, given the opportunity cost, or the range of alternatives that you have available to you.

Here are the numbers they share:

MonthCommissionsContentLink BuildingHosting
Dec 17+$210-$2950-$530-$30-$3300
Jan 18+$921-$2950-$530-$30-$2,589
Feb 18+$971-$2950-$530-$30-$2,539
Mar 18+$2,113-$2950-$530-$30-$1,397
Apr 18+$3,373-$2950-$530-$30-$137
May 18+$4,291-$2950-$530-$30+$781
Jun 18+$8,374-$2950-$530-$30+$4,864
Jul 18+$10,822-$2950-$530-$30+$7312
Aug 18+$12,232-$2950-$530-$30+$8722
Sep 18+$13,926-$2950-$530-$30+$10,416
Oct 18+$12,736-$2950-$530-$30+9,226
Nov 18+$15,692-$2950-$530-$30+$12,182
Dec 18+$14,400-$2950-$530-$30+$10,890
2018+$100,061-$38,350-$6,890-$390+$54,431
Authority Hacker Figures

Analysis

Reality Check: Commissions & the 18 Month Time Line

Before we get started with the analysis, two things stand out.

Firstly, for a content site, it takes time to rank, get traffic, and then to convert that traffic on affiliate programs. So the $210 commission in the first month seems a bit odd to me. It could be the case that they used their existing network of relevant sites to drive traffic. If you truly starting from scratch, then this needs to be taken into account in our calculations so that it’s not 18 months but say 24 months, depending on your execution.

Secondly, even if the commission was actually earned in the first month, it’s rarely paid out the same month. The payout period is usually a few months. This might be a minor point but if your business relies on the cash flow to fund it, then the timing of the payments matter.

Calculations

Assuming that the figures provided are accurate, then it looks like it took about 6 months before it reached profitability.

With the commissions, you’d need to have about $10k in cash in order to sustain the business before it generated enough to pay for all the expenses.

Let’s assume that the business sold for $150k after brokerage fees (they used FEI International) plus the net profit of $64,393. That would total $214,393 and represent a 21x return on investment in 18 months.

Risks

Now we need to consider a few risks, starting with execution risk.

How much experience do you have in this field? If you have 0, then you may not see any return in the first 6 months. With content writing at $2,950, link building at $530, and hosting at $30, that’s $3,510 per month. Paying this for 6 months, that’s $21k, after which time you may decide to pull the plug. That’s a very possible scenario.

For example, you might have shitty content that doesn’t rank or doesn’t engage your audience. $530 for link building generally is very cheap and, for most people starting out, I doubt they can get someone effective at that rate.

On the other hand, if you’re very experienced, then this risk can be mitigated.

Maybe you’re a great writer and you choose do all of the content yourself, then have someone do the link building at $1-$2k a month. This would obviously change calculations.

Another risk is income risk.

You’re ultimately at the mercy of someone else that decides whether you get paid. I’ve had situations where 40% lifetime commission got changed to 10% including on existing referrals. I’ve also had businesses that simply deleted my account with commissions locked up inside and then never responding. These happen surprisingly often but generally are the exception.

I won’t bore you with detailing all of the possible risks.

Once you’ve taken your abilities and main risks into consideration, you can make a judgement call about your odds of success with the project.

You can say that there’s a 20% chance that you won’t get any revenue within 12 months and that there’s an 80% chance that you’ll get to $150k in revenue. The potential capital at risk is $42,120 (12 months x $3,510), unless you decide to pull the plug earlier. On a pure cost-benefit calculation, this still makes sense to pursue.

But how much do you want it?

Motivation and Willingness

Determination is the most important factor in deciding between success and failure.Paul Graham

Would you pursue this only for the money?

If you hate the idea of managing such a site and the only reason you’re doing it is for the money, it’s probably a good idea to reconsider. Is there something else you’re particularly good at or prefer to be doing?

But then again, maybe you’re driven and hungry for money. You’re willing to do what it takes, learn what you need to, and hustle hard. You don’t mind potentially taking on stress and staying up late. You’re motivated.

You may not have all the answers, and that’s fine. Learning about yourself is a lifelong journey. By simply going through the process of starting a company, you’ll learn a lot of these things about yourself.

So now it’s time to dive in, right?

Well, not so fast.

Opportunity Cost

You’ve got to marry the best person who is convenient to find that will have you. An investment is much the same sort of process — Charlie Munger

Consider what other opportunities are available to you?

Maybe a friend of yours has an interesting SaaS business and can’t afford to hire an SEO specialist at the moment. But she’s open to you working in exchange for equity. You’ve looked at the software and think it has huge potential. Plus you’ve got plenty of time and you can put your capital to work in the meantime by investing it elsewhere.

Depending on how much capital you have available, you might prefer to purchase a business that’s already got revenues established so you don’t need to deal with the hassle of trying to get things started. You decide this is an easy win because you see obvious opportunities for improvement. You find a content site for sale that has a ton of traffic but they only monetize the site through Google Adsense. By making a few tweaks like building an email list with a funnel and adding relevant affiliate links, you expect to see a 50% increase in revenues within a year.

You may decide that buying a business also carries too much risk of uncertainty and that you’d rather get side gigs as a consultant within your network and earn $100k a year instead of putting your money and time somewhere that might not work out.

Conclusion

With the massive amount of opportunities that have been unlocked thanks to the internet, I find that going through this exercise helps me with the decision making process. I hope that there’s something here for you too. Thanks for reading!

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