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Updated on Friday, December 11, 2020
Making extra money from a side hustle can be extremely gratifying, especially if it’s something you love doing. It seems like it’s never been easier to pick up side gigs or monetize your hobbies; in 2019, there were 57 million freelancers in the U.S. who collectively earned $1.4 trillion, according to a survey from Freelancers Union and Upwork.
Make no mistake: Hobby-based businesses can become big undertakings. Juggernauts such as Facebook, Chanel and Microsoft all have roots in personal hobbies. The Panel Study of Entrepreneurial Dynamics II, a multiyear survey of nascent entrepreneurs, found that nearly 26% of budding U.S. entrepreneurs started their businesses from a hobby.
But turning your hobby into a business can get complicated, to the extent that it could kill your passion for it. It is, in the end, a commitment that requires hard work. With proper planning, you may be able to strike the right balance of success and satisfaction from monetizing your hobby.
Learn the essentials
We asked career experts and hobbyists-turned-business owners to share their advice and the lessons they learned about starting hobby-based businesses, to help you start off your endeavor right.
Do research, assess your goals
Benjamin Warnick, a professor of entrepreneurship and strategic management at Washington State University, told MagnifyMoney that once you add money into the equation, a hobby isn’t just about personal enjoyment anymore; it morphs into a business that needs to create value for customers.
“People aren’t going to pay you just to do something you enjoy,” Warnick said. “If you can find a way to identify what people value — [Ask yourself] ‘How can I make life better for them in some way and how can I tie my hobby to that?’ — then you are on to something.”
Anna Juhl, a former nurse manager, quit her job at age 52 to pursue her passion for cheese and travel, but she did so carefully. Juhl now runs a business called Cheese Journeys, offering cheese enthusiasts tours in European and American destinations. She didn’t act on impulse; she had a plan.
Juhl, who ran an artisan cheese shop and restaurant in Salt Lake City back in 2000 after working her full-time job as a nurse manager, did her homework before piloting a cheese-themed tour to Europe in 2013. She knew that food travels were on the rise. And she was confident that and her expertise in artisan cheese and love for food and travel would give her an edge in the market.
When her husband’s job led them to New York in 2007, it was a good opportunity for her to leave behind her previous career, and Juhl started brainstorming a cheese-travel business. During the first six months, she found herself spending hours reading up on food, travel and everything she needed to know about running the business. With help from industry experts in Europe, who coached her through the basic tour process, she launched a pilot England tour in 2013, 15 months after quitting her job.
Juhl said she was lucky that she was able to pilot the business with her own savings instead of taking out loans. She had to cover a considerable amount of money upfront, and she lost money in the first couple of tours. The fact that her husband has a good-paying finance job also helps, although Juhl admits that the switch to full-time entrepreneur was not without stress: She didn’t take a paycheck for a few years and any money she made was invested back into the business.
Then again, Juhl’s initial goal was not to make profit, she said; rather, her new business was a transition into retirement. She was prepared not to make a profit the first few years as she worked toward building a business that would allow her and her husband to travel while having a steady stream of income at retirement.
Looking back, Juhl said self-assessment really helped her focus in this midlife career shift.
“Know what you want from it, how much do you want to work and set your own goal so you build a business that meets your goals and not the expectation of somebody else’s.”
Indeed, entrepreneurship demands a big-time commitment. The word “passion” has its roots in Latin, meaning suffering, Warnick pointed out, so hobbyists need to ponder how much they are willing to sacrifice before launching their leisure-based business.
Start small, test it out
“Let’s say you are great at baking,” said Collamer. “What you may want to do is just on a very small scale, offer your brownies for sale during the holidays to some friends.”
A side hustle allows you to gauge the market interest and to test out pricing, she said. Once you have a taste of it, put a little more time into the work than you would on a hobby basis. If it doesn’t feel right, stop right there before you waste too much money or time on it.
“Keeping one foot in stable employment can really help ease the transition,” Warnick said. “So if you have alternative sources of income, especially in the early stage of the business, you can explore and then gradually scale up the business, instead of putting tons of money into it and then realizing it’s not going to work.”
You may be excellent at what you love to do, but a business is a business. When you try to commercialize your expertise, there is a lot more work that goes into the process than you would probably have expected.
“That’s everything from marketing your services to keeping your books to producing your products, to finding the cheapest materials, to keeping your office clean every day,” Collamer said. “You are doing it all.”
The business side of the hobby entrepreneurship — bookkeeping, accounting, digital marketing — can be really daunting.
“Curating, researching and building the tour, that was easy,” Juhl admitted, “Executing the tour, super fun. Doing all the other related business things can be challenging.”
Gianna Leo Falcon, a New York-based freelance photographer, told MagnifyMoney the learning curve was very steep for her, a person who’s not quite business-oriented.
Prior to becoming a professional photographer in 2015, Falcon did occasional freelance portraits and headshots. She recalls constant frustrations with clients who booked shoots but ended up not showing up. To protect herself, Falcon later learned to ask for down payments.
“I’m really an artist. I just want to show up and shoot,” she told MagnifyMoney. “Invoices and how to get paid online are really confusing. I’m navigating and learning that stuff as I go along.”
Outsource labor if needed
Experts say being your own boss not only requires possessing a variety of skills and knowledge of the business but also knowing your own strengths and when to outsource some of the labors you have no interest in or talent for.
“You don’t have to be able to do everything,” Warnick said. “So if you got the expertise in the domain of your hobby, maybe you could bring on someone who’s a little bit more of the business side who can help you commercialize the hobby.”
As Juhl’s business has grown, she hired a bookkeeper, a website developer and a publicist so she can focus on the centerpiece of the business — booking and executing the trips.
“It’s a personal relationship that I have with people who travel with me,” she said. “So I have to make sure that I’m available to do what my role is, really what I’m best at.”
Find your clients
For any business to succeed, you need to find people to buy your services. But where do you start? Here are a few ideas.
Find complementary service providers
A good place to start is networking with complimentary service providers, Collamer said.
For example, if you want to be a wedding photographer, find other people who offer wedding services, Collamer suggested.
“They are going to be thrilled to meet you,” she said. “Because if it’s someone who has a wedding venue and they meet with couples, you might become one of their preferred service providers and that becomes a steady stream of clients for you.”
Get involved in trade groups and associations
There are established associations and trade publications within almost every hobby, be it specialty foods or heavy machinery. Get involved with those communities because they might have information and resources you need to grow your business. Better yet, they may be able to refer you to potential clients.
“Don’t think you need to reinvent the wheel,” Collamer said. “There are lots of people who are already probably [having] successful businesses that are related to what you want to do that you can learn from.”
Juhl said she had a hard time finding customers when she started her cheese-travel business until the marketing and media support came in much later.
A year into the business, she realized that relying solely on word of mouth was not enough to attract customers; marketing should be a crucial piece of a business plan. Juhl eventually joined American Society of Travel Agents and other travel organizations so she could network and gain credibility. Through the association, she worked with agents who took on the responsibility of booking the international cheese tours. She sells the tours at an average $6,000 per person, and the travel agent charges a 5 to 10% commission. Soon after she started working with an agent, a group of semi-retired food and travel enthusiasts booked her trip.
In addition, she has hired people to help with website development, marketing and media relations.
Each year, she also budgets for a renting booth at large industry conferences where her potential guests attend. Those efforts come with thousands of dollars of additional travel expenses, booth rental fees, hotel, food and registration costs, which have become necessary overhead, and she has to include them into the monthly budget. But she said they are absolutely worth it.
In Falcon’s case, she is a full-time contractor for a wedding service that operates in several locations around the country and specializes in digital marketing. Falcon works as the company’s New York liaison and photographer. The firm brings her a steady stream of clients, which frees her up from the marketing piece of the puzzle. By booking clients for her, Falcon said the company takes a substantial cut from each project payment. Falcon said she could potentially earn more if she worked for herself, but she admits that booking is hard work, and she is grateful that someone else is doing it for her.
If you are looking to seriously grow your freelance gig and want your name out there, you may want to educate yourself about social media and digital marketing. That said, don’t get hung up if you are uninterested in this sort of things or simply don’t have time for them. It may be worthwhile to hire a marketing professional who specializes in your industry.
Find a place to sell your hobbies
Whatever service you offer, it’s critical to find an avenue where you can commercialize your hobby. Booming e-commerce makes it easier than ever to do so. Third-party platforms can relieve you of the hard work of finding buyers, but the trade-off is that they take a commission of what you earn.
For artists and crafters, if the idea of creating a website and learning digital strategies freezes you, marketplaces such as Etsy, Amazon and eBay may be a good fit.
The downside is that those places take a cut from your listings and transactions. For instance, Etsy charges a $0.20 listing fee for each item, a 5 % transaction fee on sales and a 3%, plus $0.25, payment processing fee.
Although the marketing task is off your hands when you sell your items through a marketplace, you also face competition from thousands of other sellers. Compared with the full control you would have over design, marketing and SEO with your own website, you have less freedom on those fronts with a third-party platform. You will be subject to those companies’ policies and rules.
If you have in-demand services to offer — anything from writing and web design to bookkeeping and accounting — third-party platforms like Upwork, Freelancer, TaskRabbit will be of help. Again, you have to somehow offset the time and effort saved from finding clients. The three services charge a 3 to 30% service/project fee.
And don’t forget the oldie but goodie Craigslist, where Falcon snagged her current contractor job.
Figure out your rates
It may be a bit strange to tie money into the things that you love to do, but knowing your market value is extremely important if you hope to profit off your passion.
The hobby community you are in is a great resource for you to find out the average fees. If you don’t feel comfortable asking about rates, there are tools available online to help you figure out the value of your time.
BeeWits, a project management software company, has released a freelance rates calculator. Similarly, this website by FINN.no, a Norwegian online marketplace for classified ads, helps users figure out how much their spare time is worth.
Writers and journalists may want to check out The Freelancer’s rates database, where freelancers can add what they’ve earned for certain projects for a variety of publishers.
Watch out for these common missteps
Assuming other people will enjoy your hobby as much as you do
“It’s easy to think, ‘Oh, I love yoga. Why wouldn’t everybody love yoga?” Warnick said.
Guess what? Others may not care for it. This is why you need to do your market research and figure out if there is demand for your passion.
Trying to do everything
Collamer said often when people try to do everything themselves, they end up spending too much time daunting over overwhelming tasks that they are uninterested in. But really, they should outsource labor when they are able to.
“The key of building any business is to know when you reached a level where you need to call in help to ensure that you don’t burn out and that you can manage all the aspects of what you do well,” Juhl said.
Not thinking like an entrepreneur
Your hobby might be something that you really enjoy today, but once you decide to commercialize it, be prepared to tackle the not-so-exciting work.
You need to educate yourself about everything from the zoning regulations in your particular town, business registration, marketing, taxes and everything else that comes with running a business, Collamer said. “It’s not all going to happen automatically.”
Going all in at the beginning
Before establishing yourself as an entrepreneur, it may not be wise to you quit your job and jump into your business all at once because it may not be a good fit for you.
Running a business is a big commitment, both in terms of your time and finances. Juhl and Falcon both had other streams of income or savings to support themselves while they built their hobby-based businesses. Juhl’s cheese tours weren’t profitable for the first couple of years. Falcon said it took her a good five years to solidify herself as a photographer while working other jobs.
Don’t forget about taxes
Running your hobby business may come with lots of uncertainties, but taxes are certain.
Mark Luscombe, principal analyst at Wolters Kluwer Tax & Accounting, told MagnifyMoney that people who made money off hobbies used to be able to deduct related expenses within certain limits, yet under the new tax law, expenses related to a hobby won’t be deductible at all. Luscombe said this makes it logical for taxpayers to treat a hobby as a business.
Luscombe urges freelancers or contractors to keep separate records of all the income and expenses related to the business. If part of your home is dedicated for business purposes, for instance, a home office or a kitchen exclusive for producing items for sale, you need to allocate the square footage used. That is, dividing the space used for the business by the total square footage of the house, and that would be the percentage of expenses, such as insurance and utilities, that you can allocate and deduct from your taxes.
Individuals earning less than $157,500 ($315,000 for married couples) are eligible for the fullest deduction. So if you’re going to make money off your hobby, Luscombe said this new benefit is another reason to try treat it as a business.
If you are running a business on your own, you’re most likely seen as a sole proprietorship owner for tax purposes. You will have to report business-related income and losses on a Schedule C (Form 1040) each year, Luscombe said.
If you made more than $600 from any particular client, you should expect to receive a Form 1099-MISC. Likewise, if you paid anyone at least $600, you will have to issue the same form. For more information on how the new tax law affects small-business owners, check out our guide on the topic.