Building your business is like building a house. If you want a sturdy house, you must start with a solid foundation and then add robust walls and a protective roof.

The Foundation: Residual Income

In business, the most secure foundation you can have is one built around residual income. Residual income is something that keeps coming in, month-after-month and year-after-year. It’s not like a job where you have to go to work every day in order to get paid. Residual income keeps coming in without you having to add more work – or at least it should take very little effort to maintain.

It could come from a variety of sources. You could have one, two, three or more residual income streams. The more you have, the sounder your foundation. In the example discussed in chapter one about the romance novelist, Marcia Lynn McClure, her residual income stream is the Clean Romance Club. Each month people pay $5.95 via Paypal. It’s automatically billed and all Marcia has to do is write a book every other month. Or they may pay by the year and renew annually. She is doing some work for this, but it’s work that she enjoys and the ebooks that she writes for the club can be sold as single products and generate additional income.

At IdeaMarketers.com, we have residual income from our Publisher’s Toolbox PRO and Goldmine services. People pay either $9.95 or $14.95 per month to receive access to our newsletter content service and newsletter builder. Of course, some people quit, but most stay with it, and new people are always being added. So this subscription-based service provides a solid flow of revenue.  

Having this type of residual income insures that you can meet your monthly fixed costs associated with your business and your life. Without it, you are at the mercy of seasonal business fluctuations. Every business has peaks and valleys. For example, more toys are sold at Christmas than any other time of the year. More people take training classes in the fall than they do in the holidays or summer months. If all you have to depend upon are seasonal revenues to carry you through the lean months, then you better be good at saving for a rainy day.  

It’s better to build a residual income that flows relatively consistently throughout the year. That’s where subscription and membership-based services come in. I’ve mentioned a couple on-line examples. What about offline ones? For example, let’s say you own a carpet cleaning business. You could sell a carpet protection plan that is automatically billed to people’s credit cards each month for a few dollars. Then when they get a horrible spill or stain, they could call you and you come out and take care of it.  

Or one of my favorites is the monthly movie rental plan that Blockbuster has where you pay a flat $29/month and you can switch out any two movies anytime you want and take them back whenever you want.  

By having a consistent residual income, you can easily predict what your cash flow for the next month, six months or even year will be. You can plan better and when you get your residual high enough, then additional sales are like “icing on the cake.”  

Another way to build a residual income is through commissions. Insurance agents have residual incomes from the people who constantly renew their auto, home or health insurance. Network Marketing is another way to build a residual income. For example, if you have enough customers purchasing products each and every month, then you know you have a consistent income. In the consumer direct marketing company I work with, I know with the most minimal amount of effort, I’ll have a check coming in around the 18^th of each month that will at the very least pay my house payment. If I put in more effort, I’ll reap even more.  

When looking for a residual income stream, keep these things in mind:  

• Look for ones that require the least amount of ongoing effort.
• Find ones that reward you for your efforts. If you have the time to put more effort in, make sure that you’ll reap even more and increase your ongoing residual.
• Look for ones that are like a snowball kicked down a hill. They may start small, but they have the potential to continue to grow long term.
• If you’ll be working with another company, make sure it is a reputable and well-established company with clear policies and procedures and consistently pays on time.

The Walls: An Assortment of Products and Services  

The walls of your business are the various individual products and services you have to offer. Individual ebooks, books, CD sets, videos, widgets, gadgets and services that are sold separately help to bring additional income on top of your residual income. Sales of these items could fluctuate throughout the year. For example, training classes might be held predominantly in the fall or early spring. Some books might have more appeal during a holiday like Christmas, Mother’s Day or Father’s Day. Other products and services might have appeal year round, but you can’t count on them to sell a steady flow  

Any income stream that brings in more than it costs you is worth adding to your collection. They can be virtual products, tangible products or simply services. For example, in my business as a computer trainer, I first branched out into programming. I’d train someone on WordPerfect, and then she’d get an office job and tell her employer about my training services. Then, the employer would hire me to train a few more of their people. Perhaps they would even hire me to come in and create a series of macros that would streamline their office tasks. Any of these services comprised the walls of my business.  

Now, if I’d been savvy, I would have sold the office a support and training package where they would have kept me on retainer for a flat amount each month. Then they could have called me for tech support at anytime and had me come out for X number of hours per month to help their staff with any problems, questions or program issues. That service would have been a residual income and a foundational income stream.  

The Roof: Product Bundles  

The roof in our analogy is product bundles. An example of a product bundle is when you combine a book a workbook and a CD for one price that is less than what the person would pay separately for each individual product. Product bundles may be sold as memberships, subscriptions or packages. If you’re an author, you can often tape interviews or teleclasses and put them on CD’s and bundle them with your book. You could either charge for the package or you could use them as incentives like “Buy the book and get the CD for free.”  

If you bundle your products and services correctly, you’ll appeal to those who want “the best” and “the most” because bundles have a higher perceived value than individual products do alone.  

When I was running the International Association of Computer Professionals, the IACP membership was a bundle of products. It included advertising and promotion, a membership card and certificate, ready-made computer tips that they could put their name on and send out to their customers, a copy of one of my computer business books, discounts on services they needed, and several other benefits. Basically, I tried to think of anything and everything a person operating a computer business would need and included it in the membership. They could choose from three different membership options – a Basic, Gold or Platinum. The great thing about a membership bundle is that it not only serves as a roof, but also as a foundation because people renew after a period of time. They may pay monthly or yearly.  

TIP: Never give people more than two to three bundle choices. If you give people too many choices, they’ll get confused, and they’ll leave without buying anything.  

Most likely, you’ll start your business with one or two products or services. Then, you should ask yourself what else you can do to service your customers. Do they need training and support? Do they need complimentary products? If you’re brand new in a business, the foundation you have could be your day job or your spouses’ income. Then when you’ve developed enough products and services, you can create residual income with memberships, subscriptions and service contracts. Or you might do some network marketing on the side to bring in a steady flow of residual income.  

Once you’ve developed several products and services, sit down and brainstorm on ways you can bundle different products and services together to meet specific market needs. You can compile your bundles around market segments. For example, you might have a small business package, an internet entrepreneur package, a bundle for women or a bundle for men, a bundle for animal lovers or health nuts. Brainstorm on ways you can repackage your products to meet different market segments.  

In summary, if we compare your business to a solid house, the foundation is comprised of residual income streams. These might be ongoing commissions or annuities you receive from some form of network marketing business or insurance sales or it could be subscription or membership renewals.  Anything that smoothes out your cash flow and gives you something to cover ongoing fixed expenses with certainty is a foundation for your business.  

Next are the walls. The walls of your business are comprised of individual products and services – like pillars on the Parthenon holding it up. The more products and services you have, the more times a typical customer will come back to purchase from you. It costs money to acquire a new customer. Once obtained, the expense diminishes if you have more back-end products to offer.  

Lastly is the roof. The roof of your business is constructed of product bundles. These could be bundles for specific niche markets. If you sold gift baskets for instance, you might have a “New Baby” gift basket, a “Stressed Out Mom” gift basket, or a “Super Bowl Sunday” basket. Bundling collections of products in different ways to reach different markets comprises your roof.  

Put these three into place, and you have a business that is resilient against economic downturn, changes in marketing venues, and variations in technology. Granted, you’ll have to continue to adapt. A business centered around horse shoes, buggy whips, buggy wheels and horses may have been a solid business in the 1800’s, but it wouldn’t be today. You still have to adapt and always be creating new products and services for today’s market. But if you avoid stagnation, your business will always be evolving with your customers’ needs, and you’ll continue to succeed.  

In the next chapter we’ll go into more depth on how to create high profit margin products and services with high perceived values to add to your product bundles.

Let's continue on to Chapter 3: Developing Virtual and Informational Products
Back to the Table of Contents