Residual Income Formula:
Business Ideas for Generating a Consistent Flow of Income
When starting a business, smart entrepreneurs think about how they can generate the most amount of income
with the least amount of work and cost.
A simple way to achieve this is to sell more products or services to a smaller amount of customers. This
way, you can cut down on the time, money and effort it takes to locate customers. For example, instead of
finding 100 customers to buy a $50 product, wouldn't it be easier to find 50 customers and sell them a $100
product?
Of course, you may be thinking, "It will probably be more difficult to sell a $100 item than one that sells
for half that price." That's where the residual income model comes in.
What is Residual Income?
In terms of running a business or earning money, residual income is revenue that is generated over and over
again on a regular basis, typically from the same customer. For example, a magazine reader can subscribe to the
publication year after year - a woman can pay for a manicure every week - or a homeowner can hire a lawn care
service to maintain his yard on a regular basis.
With investing, residual income is thought of a "passive income" where no additional effort is required to
earn the residual income month after month or year after year. However, with most businesses, the income is not
passive, as there is effort required to produce each magazine, paint nails or mow a lawn.
That said, being able to secure a repeat client who will pay over and over takes a lot less time and effort
(and can be much more profitable) than a one-time customer. You can sell the same products over and over again
to the same buyers, and as long as they like your product or service, you can expect them to repeat the
process. This is why many business owners try to incorporate a residual income model into their companies.
The Residual Income Model:
There is actually more than one way that you can generate residual income in your business. Here are the two
main ones:
1. One way is to sell a consumable product that people need to purchase
over and over, like shampoo or dog food or cleaning products.
2. The second way is to offer a service that consumers will need on a
regular basis, like phone service, a haircut or a house cleaning.
However, you aren't limited to these two models.
3. For example, companies that sell computers can turn a one-time buyer
into a repeat customer by offering computer accessories or repair service.
4. There are even companies selling non-consumable items that can get
repeat shoppers because they target the "hobbyist" niche. Hobbyists often continue to buy and upgrade as
they get more involved in a hobby.
For instance, a gardener may buy 2 bags of soil one year. Even the soil is a re-usable product instead of a
consumable, the following year he may buy more soil because he enjoys gardening and wants to plant more. A
guitar enthusiast will usually have more than one guitar, and although guitars are not consumable (as far as I
know) musicians often want to upgrade equipment. A snowboarder will continually want to latest equipment and
gear to help her excel at the sport.
The goal is to offer your customers a high-value product and an easy and enjoyable shopping experience that
will bring shoppers back over and over to spend money with you. Once you have decided on the product or service
that you will offer, put together a marketing strategy that will attract
your first repeat customers.
How to Earn Even More Residual Income:
There are ways you can get customers to buy even more from you. By setting up a mailing list, you can keep
in contact with buyers, reminding them business events, special sales or coupons. This can be very simple to
do, and extremely cheap if you do your marketing by email.
You can also set up a referral partnership with your clients. For instance, if a customer refers a new
client to you, they can receive a free service or discounted product. Some businesses use referral marketing as their only source of advertising. This means they don't have to do
the selling themselves and they don't have to pay money for ads. Genius!
