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By George Dodge
Are you standing at the door to wealth but can't seem to find
the right key?
There are many keys on the key ring that can unlock the door
to
wealth, but you have to know which ones they are and how to
use
them correctly.
In this article I'll focus on the "residual income" key that
many have discovered can be used to enter the inner sanctums
of
the wealthy.
But before I go too far, I should probably define what I mean
by "residual income," (also called passive or recurring
income).
While there are perhaps a number of definitions for "residual
income," I will be using the term here as follows:
"Residual income is income that continues to be earned after
the initial effort has come to an end." In other words, it can
be thought of as the process of making a sale one time but
getting paid over and over again.
How can this be? That is, how can you make one sale and get
paid over and over again? Well, let's take a look at some
common examples of residual income.
An insurance policy. When you buy an insurance policy, you
normally pay premiums monthly, quarterly or annually. You made
one purchase, but you continue to pay as long as you maintain
you policy. The insurance company earns a residual income from
you.
A service subscription such as a pest control, lawn
maintenance, or web hosting contract. When you purchase a pest
control, lawn maintenance, or web hosting service you normally
again pay a monthly, quarterly, or annual fee. As long as you
continue your service, you continue to pay the fee. The
service
company earns a residual income from you.
A membership subscription such as to a membership Website or a
club. To continue your membership, you much continue to pay
membership fees. The membership entity earns a residual income
from you.
In all of the above examples, the sale was made only one time,
but you continue to pay the company over and over again.
Residual income is distinguished from "linear income," where a
single payment for a single one time purchase is made. For
example, if you have an hourly job, you are exchanging one
hour
of your labor time for an hourly pay rate. You must work each
hour to get paid. If you stop working, you stop getting paid.
Your income is linear.
However, if you sell memberships to a Website and your members
pay a monthly fee to belong, then you continue to collect
their
monthly fees as long as they continue to remain a member. You
made the sale one time but continue to collect an income long
after the initial sales effort was completed. This is an
example of "residual income."
Which would you rather have, a residual income or a linear
income?
Generally, whenever possible, you should try to earn a
residual
income that will continue to grow over time as you make
individual sales. If you put in a consistent effort toward
earning a residual income, you will find that your income will
compound itself as the amount of residual income continues to
grow.
For example, let's take a look at the difference between
selling a $29. ebook and a membership to a Website with a $29
monthly fee. We'll assume that both sellers began their sales
effort on 1 January and continued the effort for six months.
With the sale of each ebook, the seller earns $29 but then has
to make another sale to earn another $29. Hopefully, the
seller
has some backend or follow on products to sell to each
customer
in the future, but many do not. So each sale stands alone.
Let's also assume that the cost to make each sale (including
Web hosting fees, merchant card fees, advertising, etc) come
to
$4 per sale. Our merchant thus earns $25 net per sale. We'll
assume that 10 sales are made per month so over the six month
period he made 60 sales. So for 60 sales, he has earned
$1,500.
Now, let's take a look at how the membership site might do.
Each membership sells for $29 per month and the cost to make
each sale is the same $4 per sale so the site owner earns the
same $25 net per initial sale. However, he continues to earn
the $29 each and every month that the buyer remains as a
member
and there is no sales cost for the subsequent months. We'll
also
assume that our membership site makes 10 sales per month and
that each buyer remains a member for 4 months on average
before
dropping their membership. Now lets take a look at the
numbers.
Month 1 = 10 sales for $250
Month 2 = 10 sales for $250 plus $290 residual income
Month 3 = 10 sales for $250 plus $580 residual income
Month 4 = 10 sales for $250 plus $870 residual income
Month 5 = 10 sales for $250 plus $870 residual income
Month 6 = 10 sales for $250 plus $870 residual income
The total income for the six months comes to $4,980 plus there
is still a continuing income that will come in from sales that
were made during months 4, 5 and 6.
Which would you rather have, the $1,500 made as linear income
or the $4,980 plus earned through sales with a residual income
tail? The sales effort was the same.
As you can see from the above example, residual income can
quickly surpass linear income if your sales effort remains
constant. So, keep on the lookout for good residual income
opportunities, they can be your key to opening the door to
increased wealth.
About The Author: George Dodge operates a number of Websites,
earning both linear and residual incomes. Visit
www.1st-Choice-Business.com to discover how easy it is
for you to earn a residual income too.
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