Residual Income: 3 Ways to Get Paid in Perpetuity

Residual Income Never Gets Old

Ooh, my little pretty one, my pretty one

When you gonna give me some time, Sharona

Ooh, you make my motor run, my motor run

Got it coming off o’ the line, Sharona

If you’re old enough, you now have an earworm that won’t quit. (You’re welcome.) If you’re not hearing The Knack in your head, give this a listen. Not only will you hear your parents’ summer soundtrack from 1979, but you’ll also get a prime example of residual income.

We’ll wait.

According to ThinkGrowth.org, “Legend has it that The Knack’s lead guitarist, Berton Averre, and lead singer, Doug Fieger, wrote the 1979 mega-hit “My Sharona” in just 15 minutes. They mixed it in just 15 minutes as well, after recording the majority of the song — including lead vocals — in a single take. That hastily put-together song would go on to sell a half-million copies in 13 days, making it the fastest debut single to earn Gold status since The Beatles’ “I Want to Hold Your Hand” back in 1964. What’s more, “My Sharona” claimed the top spot on the Billboard Hot 100 chart for six weeks straight, and was named Billboard’s #1 song of 1979.”

If you can imagine getting paid for about 30 minutes of work 30 years after you did the work, you now have a great example to give if someone asks you, “What is residual pay?” It beats the far more complicated explanation Investopedia gives to boil it down to this: Work once, get paid for a long, long time.

Income from a One-Hit Wonder Not in the Cards? Not to Worry.

Musicians and artists, go do what you do. For everyone else, let’s dig deeper.

First, we should probably clarify something upfront. What is the difference between residual income and passive income? We’re not talking about “money for nuthin’ and chicks for free” (also known as passive income). There’s work involved in residual income – in some cases, a lot of work. (Don’t worry – we’ll show you a way that’s hands-off, too.)

With the residual income vs. passive income question put to bed, another few little clarifications are in order.

  • If you landed here searching for “Residual income Chegg” or “Residual income quizlet” then no doubt, you’re in school. Probably taking a business course that’s boring your face off, in fact. Don’t let some dull professor convince you that building a wildly successful business is a fantasy – or that you’re automatically better off getting a “real” job than being an entrepreneur. Hang out here with us, keep an open mind, and you’ll learn how to build a business, invest the profits, and create the change you want to see in the world.
  • If you got here by searching for “Residual income network marketing,” that’s another story. You’re on the right track and asking a smart question. After all, that’s kind of the whole promise behind that business model – that one day you can stop and still have checks coming in. You might love the path to residual income you’ll find here – but MLMs aren’t our focus. You could certainly work your business and invest the proceeds to create a lasting income stream, though.
  • Finally, if you’re here because you searched for “Residual income real estate” or “Residual income mortgage” then you’ve got the idea, for sure! Keep reading if you’d like a digital alternative to nail-banging and toilet-plunging.

residual income stream

So, How Can I Make Residual Income Online?

The general idea is this:

  1. Find a group of people you’d like to help. Everyone’s on a journey in life. They want to achieve goals in their work life, family life, health, appearance, love life, leisure life and hobbies, financial life… you get the idea. Humans are always aiming for something. They always run into challenges along the way.
  2. Sell them great stuff. If you can help them over those hurdles, many will gladly buy the products, services, and information you offer. Take good care of them and build a solid connection with them, and they’ll keep buying from you – and tell anyone they know who’s on that same journey.

Easy, right? Well, simple, anyway. Let’s take a closer look at three ways to make this happen.

Residual Income Path #1: Build a Profit-Generating Website from Scratch

The ultimate DIY answer to the question, “How can I make residual income?” is to build a cash-flowing website from nothing. This can be a great way to monetize a hobby, passion, or skill. Of the three paths in this article, this one takes the most time and work – and it’s likely to be the slowest path to cash. But if you’ve got more time to invest than money and if you enjoy rolling up your sleeves and creating something out of thin air, this might be the best option for you.

You’ll never be “done” with the work; there’s always more to improve and optimize. But if you enjoy learning, experimenting, and can be patient, you might find this a rewarding way to bring in some nice residual income for the long-term.

Here’s your quick and dirty plan for getting started:

  1. Plan it.
  2. Build it.
  3. Monetize it.
  4. Tweak it.

Plan It.

This phase involves a lot of decision-making. Don’t get hung up here. It would be hard to make a mistake that can’t be fixed; but it’s way too easy to get stuck in the process of deciding. The best advice we can give is to choose and move.

Some decisions to make right now:

  • Who would you like to serve? Pick a group of people who have a circumstance, challenge, or interest in common with you. For example, maybe you play tennis, have a pet rat, or suffer from back pain. You’d know a lot about this topic, the path these people are one, and the challenges they face. You don’t have to know more than them; you just have to understand them and want to help by offering advice, products, and information that’ll help them along the way.
  • What will you sell? You could create your own products to sell, although that can be a bit of an undertaking. Or, you could drop ship or white label products someone else produces. You could even just promote someone else’s products as an affiliate and earn a commission on every sale a customer makes after clicking on your affiliate link.
  • Where will you set up shop? There are more options than ever. You could build a site of your own and sell there. Or, you could build a site and use Shopify to handle processing sales on your site. You could even start by selling on Amazon. Each option has its pros and cons, mostly about how much control you’ll have and how easy it is to get started.

If you’re leaning toward this business model and you’d like to cut your learning curve and speed up your timeline, you might find our course Million Dollar Brands will give you an extremely helpful head start.

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Build It.

The building phase of this business that’ll one day yield a nice ongoing paycheck is a bit involved. There’s building your audience, building your site or store, and building your product line.

  • Building your audience: Many aspiring entrepreneurs skip this step entirely, and it shows! They end up selling a mish-mash of products, struggle to get reviews, scramble to make more sales, and often resort to slashing their prices. That’s a stressful, sucky way to do business – and there’s a better way.By building an audience first, everything else is a lot easier. You can know with certainty whether your product will sell well – because your audience will tell you exactly what they want to buy from you. You can sell at premium prices – because they’ll help you find out which upgraded features they’d pay extra to have. You can get reviews easily – because they’ll be rooting for you to succeed and happily lend a hand by leaving reviews.Find and join Facebook groups related to your niche. Consider starting one of your own, too. Join in on the conversations your audience is already having and pay attention to what they say. Are they complaining about a problem you could solve for them with a great product? Anyone saying, “Someone ought to…” should set bells off in your brain because that’s one way your audience will tell you exactly what they want.After you’ve gotten a good handle on the conversations that are happening there, you should start sharing your plan for your business. Share your story, build a connection, talk about the problem your first product will solve as well as why and how you’re going to bring it to market. Answer members’ questions in there. Ask for feedback and encouragement. You never want to spam these groups – but when you can build an authentic connection with your audience, you’ll find them eager to support you.

    If you think about Oprah Winfrey’s relationship with the audience she’s built, you get the idea. She mentions a book, it becomes a bestseller. She raves about sea salt caramels, and they sell out. Her audience knows, likes, and trusts her – and that’s exactly the kind of relationship you want to have with the audience you build.

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  • Building your site or store: If you’re selling physical products, you might want to start out on Amazon. (You’ll want to bookmark this article on making $125K+ a month on Amazon). But you don’t want to ONLY sell on Amazon – getting an Amazon sale is not at all the same as acquiring customers of your own, which is where the real riches lie. So, you’ll want to build a website of your own as well. In order to sell products there, you’ll need to connect with a shopping cart service like Shopify. (Give this podcast episode with Garrett Akerson a listen – he and his wife built a business on Shopify that’s reached more than a million per month.) You don’t have to do all this building yourself – there are freelancers all over the globe who can help you. If you’re running lean, you might start on Fiverr.com to find very affordable help.
  • Build your product line. If you build your audience first, as recommended, you’ll get a huge head start on this task. You might want to start off by selling someone else’s product as an affiliate. Or, you could start by selling a private label product, which essentially means having a manufacturer put your brand’s label on a product they’re producing for other brands. Or, you can go the route of working with a manufacturer to create a prototype, testing it to see how it sells, and then rolling out production.

Monetize It.

While we recommend selling physical products, that’s not the only way you could monetize a website to create a sweet residual income stream. Among a myriad of strategies, you could also:

  • Sell advertising space on your site, either with AdSense (or other platforms like it).
  • Sell ad space directly to advertisers.
  • Put banner ads on your site to promote affiliate offers (see JVZoo, Commission Junction, or another of the many affiliate networks out there).
  • Sell digital products, like ebooks, courses, or software.
  • Offer consulting or coaching services.
  • Generate and sell leads to companies looking to grow their customer base. Look for Pay Per Click and Pay Per Call networks.

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Tweak It.

Building a business is anything but a “set it and forget it” deal. Like a stray cat you decided to start feeding, it requires constant attention. Google changes how it ranks your store. Amazon changes how it shows your products. Facebook changes who sees your posts. Competing products enter the marketplace. People’s tastes change, so you’ll need to test new products, too. There’s always something to improve and always developments you need to watch.

The business that coasts is the business that sinks. You will need to remain vigilant, on the lookout for what you can improve next. As long as you’re the one doing all this yourself, it’s anything but passive income. However, if you grow your business big enough to hire a team, you won’t have to do it all yourself. You’ll be able to sort of cherry pick the tasks you’re best at – and that you enjoy doing the most. Even with a team, though, you’ll need to run the business and that requires quite a bit of your attention and time.

At some point, if your build your business right, you might even be able to sell it for a very nice payday. It’s an extremely front-loaded proposition: lots of work now, potentially lots of upside later. If the terms of your sale don’t include an upfront cash-out, you might arrange to be paid over time. That’s where this could turn into residual income for you!

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Residual Income Path #2: Buy an Existing Profit-Generating Website and Grow It

Now, if building from scratch sounds like a whole lot of work, there are other options. You could buy an existing business someone else already did all the work to build. After you close on the deal, you’d take the reins and keep building. The biggest advantage to choosing this route is that the business would produce cashflow for you from the start. It would probably already have an audience, a site or storefront, and a product line that’s selling.

You can certainly find business owners who’d be interested in selling if you start searching and asking around. Or, you could go with a business broker who’d help you facilitate the sale. Or, if you want an option that’s in-between those routes, you could go to a site like Flippa.com, which is a marketplace for websites. There, you could buy a domain someone else is selling – or you could buy a full-fledged business to take over.

Either way, you’d still want to build your audience – even if you’re starting with a head start. There is no coasting!

With this model, your steps will include:

  • Buy it.
  • Build it bigger.
  • Tweak it.

residual income

Buy It.

Here’s how you’d go about finding and taking over a business someone else built:

  • Choose a niche – a group of people you want to serve. Just like if you were building a business from nothing, people are the place to start. In fact, even if the business you buy comes with a huge audience, you still can’t skip this step because in the end, acquiring new customers is the single most important task for a brand owner.
  • Look for the type of business you want to own. You’ll find a range of blogs and e-commerce businesses up for sale. Buying a business that sells physical inventory is a bit more complicated than one selling only digital products. Which type you should buy depends on what monetization plans you’ve got. You could certainly add new income streams to an existing business, but if you want to keep it simple, choose a business that’s already doing what you want it to do.
  • Go for a business with a proven, solid track record. There are crooks out there, of course. They’ll tell you their business is hitting certain numbers when the reality is, the only place they’re making that volume of sales is in their dreams. Look for a business that’s been around for at least two years.
  • Get familiar with multipliers. A business’ valuation is calculated by looking at the annual earnings times a multiplier. For example, a site’s price might be 1.4x annual earnings. It’s crucial to get the numbers for the past twelve months rather than the most recent three months; you want to get the full picture. You also need to know which costs are included in those numbers because some sellers will strip them out to make their business appear to be more profitable than it is.
  • Understand P/E. That’s Price to Earnings. This ratio will tell you how long you’d need to wait to make back your purchase price. A 1x P/E means that if nothing changes during a year in your earnings, you’d get your investment back in a year. Some buyers recommend looking for a P/E of .08 – 1.5x.
  • Do your due diligence. It’s completely up to you to do the research needed to ensure a wise buying decision. Once you find a site that looks like a good fit, you should ask the seller to add you to their Google Analytics so you can get an independent look at their website traffic. Check out the seller to find out anything you can about their prior sales (if there are any) and their reputation. Ask about a reserve price – even if you’re the highest bidder in an auction scenario, if the seller’s set a reserve price that’s higher than your bid, there won’t be a sale. Request a Skype or Zoom video call with the seller, too, if you can’t or don’t want to meet face-to-face. During that call, you’ll also want them to share their screen as they log into their payment processor (PayPal, Square, Stripe, whatever they’re using) so you can see their earnings with your own eyes.
  • Insist on an escrow sale. This is a provision that allows you to truly pop the hood and see what’s going on for yourself before the sale is finalized. You’ll pay the final sale price, Flippa will hold it, and if you’re happy with what you bought, a few days later, the sale will go through and the seller will get paid.
  • Be patient. It may take going through this process several times before you find and close on a great business.

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Build and Tweak It

From the time ownership transfers to you, the route to residual income checks is the same as if you built the site from scratch. You’ve got to build and tweak if you want the business to grow.

While you’ll skip the initial building phase, you still have to focus on growing your audience and your product offerings. The benefit of your head start is that you’ll have revenue coming in from the beginning, and you can reinvest it to grow.

What you do NOT want to do is coast. If you don’t actively grow your business and audience, sales will start to drop off. If the original owner built a strong audience, you may find that some of them disappear because they don’t know you. Handling that transition is just as important in an online business as it would be if your favorite local restaurant changed ownership. It’ll take some work to make that change smoothly without losing your customers.

But that transition also provides an excellent opportunity for conversation with your audience. You might want to survey them to find out more about them, what they want, and what they’ve loved (or not loved!) about the brand. Even better than a survey, if you can actually speak to your inherited customers on the phone, you’ll find it’s a lot easier to get better information while also building goodwill.

Assuming the business survives the transfer process, you just gave yourself a quantum leap forward. After you reach the break-even point where you’ve made your investment back, just keep growing. Reinvest your profits into the business if you’re after residual income. Remember, you’ll most likely need to sell in order to reap the rewards of a big paycheck after putting your time and money into it on the front end.

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Residual Income Path #3: Write a Check, Get a Bigger Check

Paths #1 and #2 can eventually produce residual income after you’ve poured sweat equity into the business – if all goes well. But there’s a third way, and it’s actually true passive income rather than residual. With this path, you literally write a check today, get paid every month, and then collect an even bigger check if and when you decide to sell. Even better, you don’t do any of the work. Best of all, it’s all guaranteed.

We recommend (and Ryan personally uses) The Income Store. Ken and Kerri Courtright have created a remarkable company with their online business building skills. While they certainly could do this just for themselves, they understand the power of cooperation. By partnering with other entrepreneurs, they can create even better results for everyone involved.

How Does This Work?

This path is best compared to rental real estate. Some real estate investors buy a piece of property, rehab it, and rent it out. As nice as those rent payments might be, the eventuality of running out to unclog toilets in the middle of the night on Christmas would temper anyone’s enthusiasm for this business model. That’s why property management companies are a popular alternative for investors.

In the same way, though it’s an intangible asset, The Income Store finds a promising property, keeps the toilets working, and collects the rent for its clients. When it comes time to sell, they split the proceeds 50/50. The client has none of the headaches of running the website, enjoys truly hands-off income, and rests easy knowing that if anything were to go wrong with the site, they are 100% protected.

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An Iron-Clad Guarantee

It doesn’t take long for online entrepreneurs to run smack into a hard truth: Stuff happens. Bad stuff – the kind of bad stuff that can wipe out a website or transform it from a cash cow to a dead dog overnight. Between algorithm changes, ever-shifting best practices for advertising, and hackers, the online landscape bears an uncanny resemblance to a minefield.

That’s why, beginning in 2012, The Income Store adopted a policy wherein their clients enjoy an iron-clad guarantee. Once you buy a website through them, an agreed-upon monthly revenue figure is locked in and guaranteed. As an example, let’s say this amount is three thousand per month, and for some reason the website failed to meet that requirement, The Income Store will either build or buy another domain to achieve revenue equal to or greater than the originally designated amount.

Another pitfall potential clients might worry about, is what happens if The Income Store goes under. It’s a reasonable fear, alleviated by how the website is registered. It goes under the client’s name, including the associated AdSense account. It’s YOUR website in every way – except that you don’t ever have to work on it.

So, How Does the Process Work?

The whole process starts with a conversation with The Income Store team to discuss your income goals, interests, and values. While you won’t be working on the site at all, you may have other sites you’d like to leverage through cross-promotion for sales and traffic. Totally optional, of course. Some clients request sites that align with their personal interests. For example, if you love to travel, you might want a travel-focused site that would allow you to take trips you can write off as a business expense.

The team identifies site options, chooses the one they feel most confident will work well for you, and buys it. They get to work optimizing it and building it into a cash machine. They handle all of the day-to-day management with the goal of allowing the client to lock in a passive, ongoing income and the chance to eventually sell for a substantial profit.

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Who Buys Income This Way?

About one-third of The Income Store’s clients fund their purchase via self-directed IRA. In fact, seven of the country’s ten largest IRA companies currently work with them.

The next segment of clients is made up of people who’ve had an “uh-oh moment.” They’ve met with an advisor who showed them a breakdown of what they’ve managed to save thus far and where they need to be. They get a harsh wake-up call: unless they do something, retirement will never be a real option. They then have to figure out how they’re going to make up for all the ground they lost, and when they research alternative investments and unique growth strategies, they find The Income Store.

The third group of clients is made up of the people who are always active and always looking for the next big thing. What exactly constitutes the “thing” itself changes with the times. A decade ago, many of the best investments were found in the real estate sector. A few years later, day-trading became cool. Today, it’s the prospect of becoming an internet entrepreneur that entices opportunity seekers.

Passive Income Is Even Better than Residual Income

Getting into internet entrepreneurship comes with its fair share of hurdles. This is especially true if you haven’t had much prior exposure. But it doesn’t need to be all or nothing. Giving up the work and decision-making, in exchange for a passive, ongoing revenue stream, is now not only just plausible. It’s downright profitable, with the kind of flexibility and liquidity that other investments simply do not offer.

Depending on who you ask, generating money with automated cash-flowing websites might be considered one of the most overlooked opportunities in the world. Many people asking, “How does residual income work?” are too cautious to break the mold and venture beyond the established norms of the past. This might help them hold onto more of their capital in the short term, but it’s a trend that is sure to turn around as the numbers continue to support the new wave of thinking. The profits are too compelling, and the potential benefits (including potential tax savings – ask your tax strategist) make it an avenue well worth further exploration.

If this hands-free option sounds enticing, check out Ken and Kerri’s site. Incomestore.com features a wealth of tutorials and instructional videos, as well as background on the company itself. You’ll also find loads of success stories. In fact, you may discover someone with a very similar background to yours who’s now enjoying the fruits of their purchase.

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Wrapping It Up

You’ve just learned three different ways to create a residual – or even passive – income stream online. They vary wildly when it comes to how much work you’ll need to do to start and grow the business. They all present opportunities for building wealth for the long-term. They also all work best if you engage a very smart tax strategist so you get maximum tax benefits. You’ll want to ask your tax expert everything from, “Is residual income taxable?” to “Can I deduct the purchase price of this site?” because the tax code is nothing if not complicated.

Best of all, this doesn’t have to be a one-hit wonder for you! Once you’ve built your first residual or passive income stream, there’s nothing to keep you from doing it again and again.

So, which path sounds like the best one for you?