Passive Income Smooths the Flow

Passive income is income that requires no work - an annuity that sends you a monthly check is an example. It may have taken a lot of work to accumulate the money you used to purchase that annuity, but after that you just cash the checks - or not even that if they go right into your bank account.

I also think of income that requires very little work in the same light. For example, if you sell software that requires a yearly license, you may have to do a little work each year to send out invoices, but that can barely be called work - it's pretty close to passive.

If you are selling support contracts that cover a certain period of time whether used or not, some of that might become passive income if the services you stand ready to offer are never used or are under utilized. For example, you might price those services assuming that your customers will average five hours of support per year. If they actually average three, you've picked up almost half of your total billing as passive income.

I think of things like my e-book sales as passive income. True, I put a lot of hours into writing them initially and put more time into revisions and updates, but the income is disassociated from that: it just drops into my accounts by itself.

The same is true for advertising income from this website. I may be working hard to write articles and maintain the website, but the advertising and affiliate income has no direct relationship to todays work. There's work involved, certainly, but again it is loosely associated with the income.

The value of all these revenue streams is that they flow with little or no attention. I could stop writing articles tomorrow and the website advertising income would continue to come in for years. I could stop selling new software licenses but the renewals of existing licenses would again go on for an indeterminate time. I could stop doing revisions and updates to my e-books and again the sales would still go on, possibly for many years.

This is the kind of thing you want: passive or near passive income. It's wonderful if you can make all the income you need that way, but even making part of it with minimal effort is a big boost to your business. It lets you be sick or take longer vacations. It smoothes out business downturns and recessions. It lets you start every month knowing that you will have income even if you can't find a single new customer or sale.

Work at adding passive or near passive income streams to your business. You'll be glad you did.