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Residual Income…what is it?

We all know what income is…money we get paid for work we do.   Most of us earn active income.

Do you know that residual income is passive income…money worked for once, with residuals continuing to come in?

Passive, or residual, income is exactly that: you do the work once and then receive income over time that was/is generated by that initial work. One of the best examples of this is a direct marketing business. [there are others, but for this article direct marketing will be the example]

A truly golden direct marketing business (there are many of them with products that range from candles to perfume to soap to vitamins) is one where you invest (usually) a small amount for sign-up and then sell the product. You use the product, love the product and tell others about it. You generate retail income – however this is not passive income – retail income is active income.

The other element of a direct marketing business is that some of the people you tell about your wonderful product will either 1)desire to become a distributor so that they can purchase wholesale from themselves thus saving money, or 2)they like the business model and want also to generate residual income.

The income generated that is the “residual” income is the commissions from sales from everyone you sponsored as a distributor, everyone they sponsored and so on. In a really good direct marketing business model it is possible to see unlimited potential.

What makes the potential for income unlimited is a combination of factors including the marketplace in which the product sits (market share), the viability of the corporation/management team behind the distributors, the quality of the actual product, the timing of the product into the marketplace and the business model itself – how aggressive is the compensation plan – how much of the corporate profit goes back out to the distributor force?

The “truth” about residual income is that in today’s economy, it could be the retirement plan many of us simply don’t have and won’t have available to us. The “truth” is that passive, or residual income, can make dreams come true.

Joyce Penner, [Coach, Mentor and Trainer –  www.myspace.com/mlmmentoring ] shares this story/definition of residual income:

—There is a bus driver we’ll call him Joe, who drives his bus on his regular route every day, five days a week.  He works hard and he gets paid for every hour he works.  But, when he hangs up his hat for the day, he also hangs up the income.  While he’s at home, while he’s sleeping, what is happening to his income?  It stops!  The only time he makes money is when he is working. 


That’s called linear income and we can all relate to that! 


In another example there is a surgeon, we’ll call him Dr. Bob, who goes into surgery on a regular basis five days a week and sometimes on the weekends for emergencies.  But when Dr. Bob goes home to eat, sleep, play or relax what happens to his income?  It stops. The only time Dr. Bob makes money is when he is operating.


So we’ll all agree that the income difference is huge when you compare Joe, the bus driver to Dr. Bob, the surgeon…but, in essence, they are in the same boat.  When they are not working, they are not getting paid.  That is the definition of Linear Income.


Residual income (or as I’ve heard it referred to as RocknRoll income) is when you do the job right, once, and you get paid for it over and over again. 


Here’s an example: There is a famous basketball player and his name is no surprise to most.  Michael Jordan!  Michael negotiated a contract, posed for a few photos, did a few commercials and now he is collecting a nice residual income.  Every time you buy a product with that special logo on it, Michael collects a check.  A residual income or RocknRoll check! 


Example #2 – Do you know who Lisa Marie Presley is?  Well her dad, Elvis Presley, many years ago wrote, recorded and performed some songs and his daughter, Lisa Marie is collecting those residual income checks every time one of her dad’s songs sell.  That is residual income! 


Doing the job right, just once, and getting paid for it over and over again equals residual income.  There are many, many more examples of people who are living off of, and making a good income from, work done right, just that one time. 


At first this depressed me as I have no talents like Elvis or Michael.  I can’t sing (anyone who has heard me will confirm that for you) and my slam dunk is dismal.  But then I realized that network marketing would allow me to do the job once, do it right and I, too, would be collecting a residual or “RocknRoll” income!!  Then I got excited. —


Keith Cameron Smith, in his book, “The Top 10 Distinctions Between Millionaires and the Middle Class,” [quote used with persmission] in his discussion of net worth says:


“…Millionaires look at assets as the things they own that have value and earn passive income for them.  A middle-class person may have small assets that have some value, but these assets typically don’t produce a passive income….Working for a paycheck is not wrong or bad, it’s just hard work for most people – and it is risky….”  He goes on to describe ways of building passive income, one way is by starting your own business “…One way of doing this is to join a network marketing company.  Direct sales or network marketing companies are a great way to start your own business….”



Residual Income is income you earn from work done now.   You build the business [write and sell the song, sign the licensing agreement for the use of your name, purchase real estate…there are other ways to earn residual income], you follow the plan and you reap the rewards of continuing income.   



One Response

  1. Hi Linda,

    This is a very good explanation of residual income with excellent examples. I like to point out that the result of working a leveraged business is that you get paid for work that you don’t do. That’s also a big part of residual income.

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