Are you standing in front of the door to wealth but can't find the key?
There are many keys on the key ring that can open the door to wealth, but you have to know which ones they are and how to use them correctly.
In this article, I'll talk about the "residual income" key, which many people have found is a way to get into the inner circles of the rich.
But I should probably explain what I mean by "residual income" before I go any further (also called passive or recurring income).
There may be more than one way to explain what "residual income" is, but I'll explain it this way:
"Residual income is money that keeps coming in even after the original work is done." In other words, it is the process of making a sale only once but getting paid many times over.
How is this possible? That is, how can you make one sale and get paid multiple times? Well, let's look at some common ways people make money that keeps coming in.
A policy of insurance. When you buy insurance, you usually pay premiums once a month, three times a year, or once a year. You made one purchase, but you continue to pay as long as you maintain you policy. You bring in a steady stream of money for the insurance company.
A contract to receive a service, like pest control, lawn care, or web hosting. You usually pay a monthly, quarterly, or annual fee for services like pest control, lawn care, or web hosting. As long as you keep using the service, you'll keep paying the fee. You give the service company a steady stream of money.
A membership to something like a club or a membership website. To stay a member, you must keep paying the membership fees. You give the membership entity a steady stream of money.
In all of the above cases, you only made one sale, but you keep paying the company over and over again.
"Linear income," on the other hand, is when a single payment is made for a single one-time purchase. For example, if you work by the hour, you trade one hour of work for an hourly pay rate. To get paid, you have to work every hour. If you stop working, you stop getting paid. Your income goes up and down.
But if you sell memberships to a website and members pay a monthly fee to join, you will keep getting their monthly fees as long as they stay a member. You made the sale once, but you keep getting money from it for a long time after the first sale. This is what "residual income" looks like.
Which would you rather have: an income that keeps coming in over time or a steady income?
In general, you should try to make money that keeps coming in even after you sell something. This is called a "residual income." If you work consistently to make a residual income, you will find that your income will keep growing as the amount of residual income grows.
For example, let's look at how selling a $29 ebook is different from selling a $29-a-month membership to a website. We'll say that both sellers started trying to sell on January 1 and kept at it for six months.
The seller makes $29 from each ebook sale, but they have to make another sale to make another $29. The seller should have some backend or follow-up products to sell to each customer in the future, but many don't. So every sale stands on its own. Let's also say that each sale costs $4 to make, including costs like Web hosting, merchant card fees, advertising, etc. Our merchant thus earns $25 net per sale. Let's say he makes 10 sales a month. That means he made 60 sales in six months. So, he has made $1,500 from 60 sales.
Now, let's see how the membership site could do.
Each membership costs $29 per month, and each sale costs the same $4, so the site owner makes the same $25 net from each initial sale. But he keeps getting $29 every month that the buyer stays a member, and there are no more sales costs for the following months. We'll also say that our membership site makes 10 sales a month and that each buyer stays a member for an average of 4 months before quitting. Let's look at the numbers now.
Month 1 is worth $250 for 10 sales.
Month 2: 10 sales for a total of $250 plus $290 in passive income
Month 3: 10 sales for $250 and $580 in passive income
Month 4: 10 sales for $250 and $870 in passive income
Month 5: 10 sales for $250 and $870 in income that keeps coming in.
Month 6: 10 sales for a total of $250 and $870 in recurring income
The total income for the six months is $4,980, and sales made in months 4, 5, and 6 will continue to bring in money.
Which would you rather have: $1,500 in straight-line income or $4,980 plus in sales income with a tail of residual income? The work to sell was the same.
As the above example shows, if your sales efforts stay the same, residual income can quickly pass linear income. So, keep an eye out for good ways to make residual income, because they could be the key to making more money.
