Does Your Hobby Have Business Potential? Here's How to Tell Four things to think about before you turn your hobby into a business.

If you're like most people, you have at least one hobby that keeps you busy and helps you stay entertained outside of working hours. You might practice woodworking, paint abstract art, improve your flexibility with yoga or chart the patterns of stars in the night sky.

With your entrepreneurial mindset, it's tempting to think that there's some way to make money from this hobby, in addition to bringing you personal enjoyment. But does your hobby really have business potential?

You might be surprised to learn the answer.

Monetization options

For a business to be successful, it needs to have a way to make money. Even if you're pursuing this mostly because of your passion, you'll still need a stream of income to offset your costs and keep the business running.

Accordingly, you'll need some way to "monetize" your hobby. There are a few possible options here:

• Production. One of the most straightforward options for hobbies that involve physical production is selling the physical goods you create. You can sell your art, your crafts and your structures for a price that exceeds your costs. Thanks to the prevalence of online platforms, this is a highly popular option: There are 2.1 million sellers on Etsy alone.
• Viewership/readership. You can also make money just by attracting a sufficient readership or viewership. Producing blog content or regular video streams about your hobby can be your route to a steady audience; from there, you can monetize your practice with sponsorships, affiliate links and advertising.
• Education. Even if the other paths don't pan out, there may be a path to monetization by educating people on how to engage with your hobby. You can charge for lessons, private coaching sessions or group seminars; the only prerequisite is a sufficient skill level.

These are just a few ideas, and there might be more creative ways to monetize your hobby. However, the bottom line is that you'll need to find some reliable way to generate revenue. This is possible for nearly all hobbies but is more promising for some hobbies than others.

Once you learn that a revenue stream is possible, you'll need to consider whether it can be substantial enough to justify the business's existence.

Related: Is It a Hobby or a Business? 5 Things You Need to Know to Monetize Your Hobby.

Target demographics and consumer interest

Unfortunately, just because you're good at your hobby doesn't mean people will be interested in seeing you practice it (or in buying your products). Before you get too excited about your prospects, it's important to research your target demographics and gauge consumer interest. How many people would be interested in this hobby? How many people are buying products like the ones you're making? According to CB Insights, 42 percent of startups fail simply because there is no market need.

Later on, as you flesh out your business idea, you'll need to answer question like "Who are my target demographics?" and "How can I sell to them?"

Related: How to Turn a Hobby Into a Career -- Without Regrets

Competition analysis

You're not the only person who aspires to turn their hobby into a full-fledged business. Chances are, there are already hundreds, thousands or more people who do what you do and already make money from it. If you want a slice of the pie, you'll need some way to differentiate yourself from the competition. What is it that makes your brand unique? Would customers be willing to pay more for your approach, or would they favor your products over your competitors'? A thorough competitive analysis is required here.

Costs and profitability

Next, you'll need to think about your financial model. What are your expenses going to be, and what is your potential profitability? For some hobbies, like practicing yoga or playing music, the recurring costs are miniscule. For others, like woodworking or painting, you'll need to carefully calculate the costs of your supplies and the prices that customers would be willing to pay.

From there, you'll also want to chart the growth potential of your prospective business. In other words, what avenues do you have to increase your revenue over time while also reducing costs and minimizing the time you personally need to invest? Can you find a way to expand your business? Is that even an important goal for you?

Related: You Won't Survive as an Entrepreneur Treating Your Business Like a Hobby

The death of a hobby

Before you get too excited about the prospect of turning your hobby into a business, a word of warning: converting a hobby into a business might mean some loss of the enjoyment you gleaned from the hobby originally. Once you start to think of this task as a job, your relationship with the activity is going to change — and likely for the worse. Additionally, you might be forced to think about your hobby, or practice it in a different way, than you're used to. Some entrepreneurs aren't willing to make this transition.

Obviously, turning your hobby into a business is more complex than this article would suggest. You'll still need to put together a business plan, secure funding (if you need the initial capital) and establish a brand for yourself. But knowing that your hobby has potential as a business idea is the best possible start.

Related: 4 Ways to Know If You're Treating Your Company Like a Hobby or Like a Business