How to know if your side hustle is on the correct path.
One of the most valid and necessary questions when starting a side hustle and that we have probably all asked ourselves at some point in our lives is, “am I on the right track?”
As business owners, especially when we are starting, profits are not a completely valid parameter. That leaves us with limited options to know if we are doing well or need to work even more to keep growing.
In my experience working with different businesses, I have realized that there are specific parameters to determine the success of your business, and knowing what they are can help you make decisions quickly. These are some of them.
Active users give you valuable insight into the number of users engaging with your product or service. It typically takes two forms:
- Daily active users (DAU).
- Monthly active users (MAU).
“Total users” doesn’t tell you who’s using the product because there could be many exceptions. Also, the total of users includes typically people that don’t engage with you but just followed you (or bought you something once) to support you.
For example, when I was working on my Youtube channel, I left it with almost 1000 subscribers. But those thousand people were not active on my channel, so I couldn’t say, “if I upload this video, I will have 1000 views in a week,” or “if I launch this product, I will have 1000 sales.”
However, a specific number of people and comments were always present every time I uploaded a video, and some people always asked me to record something else they wanted to learn. Those are the ones that I followed the advice and new videos because they were the ones consuming my services.
Another example is the Facebook business metric model. Although they had billions of people on their platform, they always talk about “the monthly active user as a registered Facebook user who logged in and visited Facebook in the last 30 days as of the date of measurement,” because those are the users that will consume what they are going to launch.
Cash runway tells you how many months your company has before running out of cash. And it will help you make decisions based on the time you will have when periods of crisis come. You can know your runaway cash with the following formula:
Cash runway = Cash balance / monthly rate
Cash balance means how much money you have for your company, and the monthly rate is how much your company needs to keep running.
When I had the food vending machine business, I had around $5,000 cash balance when the pandemic began. Maintaining the machine was about $100 monthly, so my business’s cash runaway was = $5000 / $100. I had around 50 months in runaway without having to sell any product before going bankrupt with that business.
That made it possible for me to last 4 months without worrying about the uncertainty of the pandemic while deciding what was the best approach for my business, which in the end up selling.
Churn rate is the calculation of the customers that stop doing business with your company in a period. It also applies to the number of subscribers who cancel or don’t renew a subscription. The higher your churn rate, the more clients stop buying from your company.
This metric is important because you will know your business’s percentage of customer retention. So if you have many clients who came for the first time or a good percentage of monthly subscriptions, but they unsubscribe fast or don’t come back, it means your product has good marketing or a promising impact but fails to deliver what you say it will do.
That will help you improve your service or product and try to create something your customers are willing to keep paying for.
The retention rate is the opposite. Is the percentage of people who keep paying after their first purchase or how much time it has with the subscription.
Knowing who those people are and their interests will help you understand what you are doing well and what you need to keep selling.
For example, on Medium, I have some people who always comment on certain articles I write. I know they are here for my business and money lessons, so I know that if I want to keep them, I should keep posting those types of articles.
The monthly recurring revenue projection (MRR projection) is how much money you will have in the future annualized based on how much you are making now, the average monthly growth, and the net churn rate. The formula is:
MRR projection = (monthly actual revenue + average growth every month – net churn rate) * 12
For example, if you have a Patreon business with ten clients paying you $5 monthly (annually $600), and you grow three clients per month but lose 1, then your revenue projection will be $720. That’s a 20% increase.
This number is important for two reasons:
- It will help you understand if you need to make changes to your current business model to accomplish your goals.
- And it will help you know how well your business is doing now at a percentage level.
This exercise has helped me realize how much growth my business has had and how impactful it can be every month with the decisions I’m making now, regardless of how much money it’s making. Many people could say that a business growing from $600 to $720 is not that big, but a 20% is a good success rate.
The total addressable market is the revenue opportunity available for a product or service. It can help you determine the effort you need to put a business in line, prioritize specific products, and look for business opportunities.
For example, imagine you want to put a bakery store dedicated to weddings and parties. The industry research shows that there are 100k businesses around the country, where 5% lack the wedding and parties model (5% x 100k customers = 5000 potential customers).
I use this metric when I want to know if a niche is popular for the content I want to produce as a blogger, and it has helped me understand the best topics if I want to grow my audience.
Author: Desiree Peralta