You probably started your business because there’s something you like to do and people told you that you have a knack for it. Your initial success as an entrepreneur can give you a heady feeling, a lot like learning to ride a two-wheeler: Hey, I can actually do this! Look, there’s even some money in the bank. Wheee!
After a while, you develop new ambitions. The initial thrill of supporting yourself can eventually become a grind once you realize how much money goes to your landlord, taxes, and all the other necessary underpinnings of your operation. The freedom to create, to set your own schedule, to decide what clients you want to serve are all unbeatable aspects of self-employment, but you’ll also want to take a vacation or carve out time to devote to developing new aspects of your business. If you’re lashed to the wheel, busy producing income and “minding the store” in some sense, your time becomes an inestimably precious commodity.
You can raise your fees, but you’ll inevitably hit a ceiling in the amount of income you can produce. With a conventional business model you will only be able to increase your income slowly. If you’re running a business because you want financial independence, you’re much more likely to reach your goals if you have a source, or multiple sources, of passive revenue.
If your business is new, now is the perfect time to start applying this idea. If you’ve been in business for years, this is also the perfect time! When you become curious about how passive income is possible, for you, you’re thinking like a real entrepreneur.
This concept is associated with get rich quick schemes, but can legitimately serve as a pillar of your business model once you figure out how to apply the concept to your setting and talents. The advantage it offers is that when you’re receiving income through passive sources, you generate more money than is possible through your own time and efforts.
One simple way to earn passively is to rent out space within your home or business. This will require some maintenance and upkeep on your part but if you price the rent within market rates it can be worthwhile in proportion to your time invested.
Setting up a business model around recurring payments can be a labor-free way to make money; for example, your insurance agent receives a commission every time you renew your policy, but doesn’t have to sell it to you over and over.
A wellness instructor delivers a talk, records it, and sells the DVD wherever she does her next training. Over time she is earning money repeatedly from the one time she gave a talk.
You can also leverage your time and skills so other people are generating income for you. Hiring associates into a professional firm, developing affiliate relationships or a general contractor keeping a profit margin on sub-contracted elements of a job are all ways to create passive income. A franchise is the most fully developed example of this possibility.
Passive income is a vital element of a sustainable business plan. It’s not a dream, a myth or a scam. How can you innovate and expand on your current business so a small source of passive revenue is built in this year? It could help you plan next summer’s vacation!