Passive Income vs. Leveraged Income
Passive Income is the #hottopic of the day, but we are here to share a secret.. Are you ready?
What most people refer to as “passive income” should actually be called “leveraged income.”
First let’s define “passive income”.
There are tons of definitions out there, but we like this one from Wikipedia, “Passive income is unearned income that is acquired automatically with minimal labor to earn or maintain.“
Realistically, there aren’t many businesses you can start that will allow you to generate a completely passive income “automatically and with minimal labor”. There is always some work to be done in order to start and grow your business, online and offline.
Let’s breakdown leveraged income and why it differs from passive income.
Leveraged income is the idea that the time and effort you put into your business will give you major results in terms of earnings. With leveraged income, the work you put in once will generate recurring profits.
How does this compare to passive income? When people talk about passive income, they usually describe a scenario where some work can guarantee a lifetime of recurring revenue.
While this may be true sometimes, any profitable business requires a lot of work and constant development. There are few opportunities for minimal labor in a successfully growing business.
Examples of Leveraged Income
The top 3 examples that people typically use to describe passive income are selling online courses, digital products, or running a membership site. However, these are all examples of business models that can provide leveraged income.
Let’s take online courses, for example. Let’s say you put in the time to create content and build your program with pre-recorded lessons. Once you launch your online course, you can reach thousands of students who can purchase your program and access your content.
You are not teaching each student individually, so the hours you spent creating your online course now can generate recurring (leveraged) revenue, as your efforts are not directly tied to your income.
With an online course or a digital product, the same hours of work that generated 100 customers can easily offer you 1000 more. Yes, you could spend more time focusing on customer support or marketing, but you won’t have to work harder on your online course if you have one customer or you have 1000.
But isn’t this what people refer to as passive income?
No, there is still a difference in terms of time.
When people talk about passive income, they mention little effort for a lifetime of returns. An online course or any example of leveraged income can offer you exponential returns, but not forever.
If you don’t constantly put effort into growing and maintaining your business eventually, it’s going to decline.
So there is always work to be done -quite the opposite of passive.
However, with leveraged income, you have the chance to step away from your business for short periods of time. If you take time off, if you decide to focus on other things, you can still have money coming in from your leveraged income business.
Technically, this can feel like “passive income,” but only for a short period. After that, you need to get back to improving your business, which is why the term leveraged income is more appropriate.
If you simply left your business completely without improving it, it would eventually decline and fail.
The Benefits of Leveraged Income
With leveraged income, the efforts you put into running your business are going to generate greater steady returns in the future.
Over time, as you become successful, your earnings can give you the freedom to keep investing in your business and generate leveraged returns with minimal (but consistent!) effort.
A constant leveraged income for your business will allow you to have more freedom and flexibility in how you manage your time and reach a comfortable work-life balance.
So overall, choosing to start a business that will provide leveraged income not only is a good idea considering the high earnings potential, but it also offers excellent perks in terms of quality of life, as you can scale your business while working at a pace you are comfortable with.
Whether your goal is to make money, spend more time with your family, travel or simply do something you are passionate about, a business with leveraged income can be a brilliant solution.
Why does it matter?
Mindset is everything as an entrepreneur and words influence your mindset. If you are working with one result in mind, such as passive income, you may feel defeated when you find that you still have to work very hard to see the results. Changing the words can shift the mindset so that you work smart and allow your leverage income to provide you with the freedom and time you desire.
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