Updated: Jan 21
This is part two to help anyone looking to start their own side hustle, or specifically, looking to help their kids start their own side hustles. Click here for Part 1.
As a disclaimer, these posts were accurate at the time of publish, about 5 years ago. The costs and fees from sites like eBay are now meant to be directional and educational, not factually accurate today.
Chapter 5) Understanding Product Costs to Start your Side Hustle
Assigning costs to a product is critical but can be challenging at times. For example, how do you assign the cost of flour to your first batch of cupcakes when you only use a portion of the package?
In the last chapter we discussed the marketplace place costs and to make sure you fully understand every cent you are being charged by the marketplace companies like eBay and Etsy. In this chapter we will review your product costs. Depending on what you choose to sell, your product costs can vary greatly. For example, if you are just starting out and want to see if this is something you even want to do, you may opt to sell one of your personal items such as the clothes from your closet or some old toys or miscellaneous items lying around the house. On the other hand, you may need to buy the raw materials to assemble your product such as making cupcakes or handmade items like soap. Understanding the product cost is so important so you don't lose money every time you make a sale.
The Rooted & Refined Living Expert Tip:
"Tell a story with the product or service you are selling. It's not just a widget, but how can it help the person and how does it make them feel when they use it."
To keep things simple, I will use an example of making cupcakes with the ingredients of flour, sugar, and eggs. I know you need more ingredients to make cupcakes but for this example we are going to use just three. We are also going to make 5 batches of 12 cupcakes or 60 total cupcakes. To make 60 cupcakes we are going to need 2 pounds of flour, 2 pounds of sugar, and 6 eggs (I am making this up as I go and recognize that this is not how you make cupcakes). So off to the store we go to buy our ingredients and the costs are listed in the below chart.
Cost Item | Size | Cost per Purchase | Calculation for your reference |
Flour $5.00 | 5 Pound Bag | $1.00 per pound | $5.00 / 5 pounds = $1.00 per pound |
Sugar $3.00 | 10 Pound Bag | $.30 per pound | $3.00 / 10 pounds = $.30 Pound |
Eggs $3.00 | 12 Eggs per Carton | $.25 per Egg | $3.00 / 12 Eggs = $.25 per Egg |
Total $11.00 |
As we leave the store, the total costs were $11.00. Now we are going to figure out how much it is going to cost for our first 5 batches of cupcakes.
Item | Cost per purchase | Amount Needed to make 60 Cupcakes | Total Cost to make 60 Cupcakes | Calculation for your reference |
Flour | $1.00 per pound | 2 Pounds | $2.00 | $1.00 x 2 Pounds = $2.00 |
Sugar | $.30 per pound | 2 Pounds | $.60 | $.30 x 2 Pounds = $.60 |
Eggs | $.25 per Egg | 6 Eggs | $1.50 | $.25 x 6 Eggs = $1.50 |
Total | $3.10 |
As we have now purchased all our items and made all the calculations, it will cost $3.10 to make 60 cupcakes or just $.05 per cupcake. So, as we look to set our price for the cupcakes, we can sell each cupcake for $.25 and make a profit of $.20 per cupcake. When Matthew first started out selling his LEGO Storm Trooper minifigures, we didn't capture all the costs correctly. For his first 7 transactions, we initially thought he was making a good profit but soon realized we missed a cost of one of the components of his sale. This resulted in a profit of $.16 on $300 in sales. When we realized the error, he updated his selling price to make sure he was making money on each sale.
It was much easier with selling Michael's photography and understanding the costs of each printed photo. We went to a local photography store and printed out the photos and had each of them mated. The cost was about $12 per photo, and he sold them for $35 at the craft fairs, making a profit of $23 per photo.
Chapter 6) Keeping Your Costs to a Minimum
Underestimating startup costs is the single biggest reason small businesses fail. Get creative on spending money as you get started.
Shipping costs can be expensive but there are ways to mitigate the costs.
Family and friends will help if you ask. You will be surprised as to the lengths people will go to help others.
When it's time to start a business, you may be in the position where you can be one of the lucky ones where your only cost is your time and all of the materials or service-related costs are all free. Most of us are not in that position and even if you are on the opposite end of that situation where money is no object, managing costs should always be a focus. You may have heard small businesses burn through cash at a very fast rate, and more specifically, faster than you can bring in sales. Typically, the problem all entrepreneurs and small business owners underestimate is how fast their product will fly off the shelves and they will be a huge success. The reality is selling anything is hard and often harder that you may think. As a result, figuring out how you can save money from the moment you think of your idea, the better you will be.
Matthew has impressed me from the moment he started in that he was always looking to not spend money when he was selling his LEGO mini figures on eBay. I would watch him be relentless in only using as little shipping tape as he needed (even when it was my shipping tape and he wasn't paying for it). As he would pack the envelopes, he would reuse small clear bags he got from LEGO sets he bought for his personal use. If I was in his position at his age, I probably would have raided my parents Ziplock bag section and used those bags not thinking about the costs.
As Matthew started to sell larger sets, he needed to use shipping boxes. If you look to buy boxes at the store, a single box can run $1.00-$5.00 per box depending on the size. Those are costs he didn't want to spend and would leverage the shipping boxes we would get from Amazon or Target. At a point where this becomes a full time business, he may then need to buy boxes that show his brand or at the very least not someone else's. Until then, these are free boxes our family collects on a regular basis from all of our personal online ordering. Conversely, if you happen to be one of the few who doesn't order online, as we were running low at one point, I reached out on Facebook to one of the local town groups and asked for boxes. The offers came pouring in and we made arrangements to pick them up. We also asked family members and had to ultimately tell them to stop as we were getting too many too quickly and we did not have a place to store them.
We also got help from friends, specifically with Michael's photography business. Since he was selling at craft fairs, one of our college friends offered to make him shirts and a table cloth with his logo on it. She also noticed he loves wearing hats and he now has touch of nature logo hats as well. The offer was generous and unexpected and really appreciated by our entire family. Matthew also got shirts made for one of his LEGO events he participated in last year. It's fun to see their brand on merchandise. Again, do not underestimate your costs and try to find ways to mitigate or reduce your costs every step of the way.
Chapter 7) Choosing the Right Company Name
Pick a name that relates to your product or service. You want to make sure the customer can easily identify what you are selling.
Names can be changed over time. The original name of Yahoo was Jerry and David's Guide to the World Wide Web.
Picking a name for your company can be really easy or insanely difficult. For those of you who are old enough to remember the Yellow Pages, company names that started with the letter A were often picked first when someone was looking up the need for a service like a plumber. Many people would just pick the first name they saw and as a result "AA Affordable Plumbing" was coming to your house to fix your leaky sink. There are lots of different opinions on picking a company name. Some will say you should create a brand new name such as what Google did while others suggest picking a name that has symbolic meaning such as Nike. Other scenarios including how Starbucks got their name was from a character in the book Moby Dick.
Most likely you don't have the marketing dollars to build your brand so make it relevant to what you are selling or personal to you to make it more meaningful. For Matthew, he picked his name, Summerfield's Toys, after his favorite stuffed animal, Summerfield. With Michael, his business was selling nature photography and we tossed around a few names before picking touch of nature photography by michael fiore. He wanted all lowercase for the way it was printed on any documents. In the case of my family's former business, Fiore Brothers, the simplest idea is to just name it after you.
There are two other things to consider, uniqueness and is it available across all social platforms. For uniqueness, find out if the name is already taken. For example, picking the name Tony's Pizza, will be one of hundreds around the country and difficult to differentiate your pizza from someone else named Tony. The other recommendation is to google your proposed name on all of the major search engines as well as the major social media platforms like Facebook, Twitter and Instagram. You want to make sure nobody has your name already.
Chapter 8) Creating a Logo
Match a logo that fits your brand, product or service. It is also important to have it fit your personality.
Consider the future possibilities of your business growing. You do not want to be limited by your logo.
Leverage free sites or friends to help with logo creation. You might not be creative but someone you know might be.
Picking the right logo for your company can be daunting. Do you want it to be just words or a picture or something abstract or all of the above?. As well, do you want it to match your company name or limit it to just the one product or service you are selling?. There are lots of decisions to think about and hopefully this post will help offer some ideas to simplify the confusion. The first question you need to answer is to design the logo around your company name or the product. My preference is the company name as over time you may have more than one product or service. You also want it to fit your personality as well as your brand's personality. For example, if you are a very artistic person who is selling flowers, you may want lots of bright colors in your logo. When Matthew was deciding on a logo, he asked a friend in his class and she was nice enough to give him a few options. After just a few minor adjustments, his logo was ready to go. For Michael, he initially did not have one but as he started participating in more craft fairs, his sister Emma made him a big poster board with his name on it with a big tree. Over time, we combined a few free photos we saw on the internet and came up with the tree and camera logo.
Chapter 9) Getting Started with Social Media
Pick one or two social media sites to get started. Start where you may have lots of personal connections.
Using social media can be very beneficial but takes some work. Set the pages as a business that is linked to your personal account.
Just like everything in life, getting your social media site up and running and growing takes work, a lot of work. This post will cover some of the challenges we experienced in getting subscribers and followers and hope you have better success than we did. To give you an idea of how challenging it may be to grow your followers, here is a quick story. A few years back I taught a college level class on information systems and analytics at Bryant University in Smithfield, RI. The students' assignment was to work in groups of 4, pick something on campus to take pictures of, post on Instagram and grow their subscribers and user engagement (likes and comments). Many of the students thought this was an easy assignment as they had many personal Instagram followers. As they picked their theme, which included pictures of scenic campus pictures, sports, and even campus food, they quickly found it wasn't easy to grow followers. In the 6 weeks we ran the assignment, they got up to about 250 followers at the high end. One of the more popular sites was the pictures of the campus food, but while they got to an early and wide lead over the other groups, they struggled to grow once they hit 200.
The reason I created the assignment in the first place was based on the experience Matthew and Michael had with their sites. They both have Facebook and Instagram sites but topped out at about 175 subscribers on Instagram and 50 or so on Facebook. It was hard to gain users organically by just posting. After you get some friends and family to subscribe, getting actual followers is a lot of work and something I myself am not skilled at, nor are my kids if you will believe that. For a while I was posting pictures every day for both of them. Posting pictures for Michael was easy as I was pulling from his collection. However, after I went through the really good photos, it was hard to pick through the rest to post. After a while he lost some interest in taking photos and I got frustrated with the lack of subscriber growth. With Matthew, he took a few pictures that I used, and I took the rest from his personal collection. Same thing happened with Matthew's Instagram and Facebook pages where we couldn't get the subscribers to grow. My assumption is content is king and our pictures along with the hashtags just didn't connect with the audience to get the algorithm to work in their favor.
After all these experiences, they still post every once in awhile but not often. My advice to those who are starting a business is to keep trying, especially if you are dependent on social media to grow your following. Try different strategies like a few hashtags or lots of hashtags, but most of all, make sure the content (ie pictures) look great.
I hope these two posts gave you inspiration to start your own side hustle or help your child get started in their own business. Let me know if you have any questions and how it's going.