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.
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.
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.
The general idea is this:
Easy, right? Well, simple, anyway. Let’s take a closer look at three ways to make this happen.
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:
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:
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.
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.
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.
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:
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!
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:
Here’s how you’d go about finding and taking over a business someone else built:
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.
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.
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.
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.
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.
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.
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?