Passive Income vs. Leveraged Income?

What most people refer to as "passive income" could actually be called "leveraged income."

The truth is that there aren't many businesses you can start that will allow you to generate a completely passive income. There is always some work to be done in order to start and grow your business, online and offline.

So what is leveraged income? And why is it different from passive income?

Leveraged income is the idea that the time and effort you put into your business will give you exponential results in terms of earnings. In other words, with leveraged income, the work you put in once will generate recurring profits.

A 9 to 5 job paid by the hour is not an example of leveraged income, as the pay you get in return is directly tied to how many hours you work.

Surely you could put in more hours or ask for a raise, but this can never lead to a situation where - for instance - an hour of work gives you ten times your pay.

With leveraged income, the amount of time you spend working is not directly related to the result and the profits you can achieve.

So the difference between passive and leveraged income is indeed a fine one. When people talk about passive income, they usually describe a scenario where very little work can guarantee a lifetime of recurring revenue.

While this may be true in some lucky cases, generally any profitable business requires a lot of work and constant development.

So if passive income is not real, leveraged income can be achieved. Let's see some examples of leveraged income businesses you can start below.

Examples of Leveraged Income

Selling an online course, a digital product or a membership site business are all examples of business models that can provide leveraged income.

Examples of businesses that do NOT provide leveraged income include service businesses, let's say, for instance, a graphic design agency.

If you wanted to start your graphic design agency, you would still have the potential of generating a high income, and it would be different from a regular 9 to 5 job.

But the amount you earn and the impact you can make is still tied directly to your time, so you don't have the ability to create leverage. In other words, you still get paid for a single job, and the only way to scale your business is to take on more and more clients and put on more and more hours of work.

Surely you could grow your business and hire a team of people to assist you. But the amount you earn would still be directly tied to the number of hours you and your team are putting in collectively.

We are not saying that you have to start something other than a graphic design agency. If you enjoy it, it can be fulfilling and it provides great earning potential! However, it does not offer the potential for generating leveraged income.

Let's now consider an online course business, where you put in the time to create content and build your program with pre-recorded lessons. Once you launch your online course, you have the ability to 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.

So with a little more effort, you have the potential for much more significant gains and much greater impact.

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.

A business can be compared to the muscles in our body. If you don't work them out often enough, they will get into a state of atrophy from long periods of inactivity. In a similar way, 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.

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 of time. 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.

Unlike a regular 9 to 5 job, starting your own business does not guarantee any profits. However, the eventual income you gain can be exponential compared to the time and effort you spend on the business.

Over time and if you become successful, your earnings can compound and 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 great solution.

How did you create leverage in your business? Share with us in the comments of our video: https://youtu.be/P4_bnECSKeo