Passive Income
How to Earn More and Work Less
Do you want to continue working 50, 70, 100 hours a week the
rest of your life?
Good! Neither do I.
Do you want to be able to take time off whenever you want
to, without worrying about what's going to happen to your business?
So do I!
There's a saying in the corporate world: "Don't make
yourself irreplaceable. If you can't be replaced, you can't be promoted."
As an entrepreneur, this is still true in its own way. Let's think of
"being promoted" as earning more and working less. You can raise your
prices, but until you can remove yourself from being directly involved in doing
the work that generates the income, there's always going to be a limit to how
much you can earn, and it can only increase very slowly.
Passive income, on the other hand, is income that does not
require your direct involvement. Some kinds of passive income you may be
familiar with include owning rental property, royalties on an invention or
creative work, and network marketing. If you want to earn more, work less, and
have a decent retirement, you're going to have to start creating income streams
that do not require your direct involvement. Whether you're just starting your
business, or you've been running it a while, the sooner you start thinking
about how you are going to shift your business model to create more passive
income, the sooner you can achieve personal and financial freedom.
Let's look at two basic types of passive income, and a third
type of income that, while technically not passive, is a key strategy for
earning more and working less.
Residual Income
Residual income is revenue that occurs over time from work
done one time. Some examples include:
An insurance agent who gets commission every year when a
customer renews his policy
A network marketing or direct sales rep's income from her
direct customers when they reorder product every month
An aerobics instructor who produces a video and sells it at
the gyms where she teaches
A marketing consultant who creates a workbook and sells it
in e-book format on the Internet
A photographer who makes his photos available through a
stock photography
clearinghouse and gets paid a royalty whenever someone buys
one of his images
A restaurant or retail owner who has grown to the point of
hiring a trustworthy manager
As you can see, there are many different ways to generate
residual income across a wide variety of businesses. It may be recurring income
from the same customers, or the sales of a product to new customers. It may
require no personal involvement whatsoever, such as an e-book sold on a web
site, or it may require some personal interaction, such as the insurance agent
calling the customer to remind them about their renewal and ask them if they
want to change any of their coverage. Often, it's something that you can
delegate to an assistant.
Note that this is different from merely recurring income.
Recurring income may still require your involvement to earn the income, e.g., a
coach or consultant on a monthly retainer, or a caterer who delivers lunch
every Monday to the local school board. While this "active recurring
income" offers welcome stability, it also tends to tie you down, and you
still have limits on your earning capacity based on your own personal
production capacity.
Leveraged Income
Leveraged income leverages the work of other people to
create income for you. Some examples of leveraged income include:
An e-book author selling her e-book through affiliates who
promote the product
A network marketer who builds a downline and receives
commissions on the sales made by people in his downline
A general contractor who makes a profit margin on the work
done by sub-contractors
Franchising your business model to other entrepreneurs (the
ultimate leveraged income)
Again, there are many different models in many different
businesses. The key is that you are making money off of other people's labor,
rather than primarily your own. Note that leveraged income may or may not also be
residual income. When you combine them, that's even better.
Active Leveraged Income
This is a term I use to describe income that requires your
direct participation, but that you can make more money by having more people
involved. This generally involves a one-time event, such as:
A seminar or class
A conference or convention
Concerts and dance recitals
Raves and other parties
Although these require your direct participation, your
earning potential is much higher than if someone were just paying you a direct
hourly rate. Fill a room with 1,000 people paying $50 each and you can cover
your facility cost, promotional cost, and staffing fees and still have a nice
chunk of change left over.
Applying It
Now is the time to think about how to apply this in your
business. Can you create a product that people will buy over and over again?
Can you engage others to sell your product? How could you make money off the
work of others?
The sooner you answer these questions, the sooner you'll
have financial and personal freedom.
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