163 | Passive, Recurring and Active Income as an Entrepreneur. What's the Difference?
Danielle shares about her personal favorite income stream and explains why it's important to choose the right income stream based on where you are in your life and business.
LISTEN TO THE EPISODE HERE:
In this episode, Danielle discusses the different types of income streams available to entrepreneurs. She breaks down the definitions, benefits, and drawbacks of active, passive, and recurring income, and provides examples of each. Danielle also shares her personal favorite income stream and explains why it's important to choose the right income stream based on where you are in your life and business.
Tune in to learn more about generating income as an entrepreneur!
Episodes that lay the groundwork for this Bonus Episode:
Active Income
Active income is the most common type of income. It is income you earn through your day-to-day involvement in running your business.
General examples of Active Income:
Selling Services:
Consulting, coaching, design work, accounting, social media management, website design, photography/videography
Selling Products:
Retail store or an e-commerce website (create or package and ship the products when they are purchased)
Contract Work: compensated a specific amount for hourly/monthly or yearly work/projects.
Hosting Events & Workshops - Virtual or In-Person
Business Babes Collective: For us as a Brand, Our Active Income Sources Include:
Events - Both Virtually and In-Person
Coaching and consulting
Brand Partnerships and Sponsorships
Benefits of Active Income:
Can be a regular and reliable source of income
Control over your income
Potential cash injection - Potential for higher income if you work in a high-demand industry than passive or recurring income route
Satisfaction/Joy from work: Active income often comes from work that you enjoy doing, which can provide a sense of accomplishment, fulfillment and satisfaction.
Drawbacks of Active Income:
Requires constant effort and time commitment
Income may be limited by the number of hours worked where you trade time for money
Passive Income
Passive income refers to income that is earned without actively trading time for money - sources that do not require ongoing active work or effort to generate income.
The goal of passive income is to create a stream of income that can provide financial stability without having to rely solely on the active income earned income from your business or a job.
For many entrepreneurs, this type of income is the goal so that they don’t have to be working as much as they do - you put in the work one time and it continues to pay you over and over again.
General Examples of Passive Income
Selling digital products, Online Courses or Software.
Royalties from books, music etc.
Affiliate marketing - income from promoting other people's products or services and getting a commission on that sale.
Rental income from real estate properties
Dividend income from stocks, mutual funds
Peer-to-peer lending
Business Babes Collective: For us as a Brand, Our Passive Income Sources Include:
Action Takers Club - Signature Online Course - The sales are also mostly automated as our emails are all set up and they get triggered when someone signs up for our free workshop
Affiliate Partnerships - On our resource page, we have both free resources and downloads there and we also have softwares and products/services that we recommend - some of these are affiliates so if someone signs up with our link we get an affiliate commission on that sale
Benefits of Passive Income:
Flexibility & More Time: Having passive income streams in your business can require less ongoing effort and time to spend more time with your family, doing hobbies, traveling etc.
Work that you do once and can get paid on over and over again - you often will need to continue to promote and possibly update the passive income sources as you grow, but it can require little maintenance.
Drawbacks of Passive Income:
Requires a significant initial investment or time to set up
Lack of control over income streams could potentially go up and down with the economy
Recurring Income
Income that a business receives on a regular basis usually through a subscription model or ongoing contract with a client. This income stream can provide predictability of the business and it is not dependent on a one-time sale.
Examples of Recurring Income:
Retainer/Subscription-based services
Law firms, marketing agencies, consulting firms or even things like creative design work, photography, cleaning company, salon, spa or gym, co-working
Memberships
Coaching, Educational, Masterminds, content, templates
Subscriptions:
Meal Delivery Services. Product subscriptions or Subscription boxes: makeup, vitamins, snacks, clothing, self-care where customers receive regular deliveries either monthly, quarterly or yearly
Software - Saas - Email software, app creation/development
Business Babes Collective: For us as a Brand, Our Recurring Income source is our Mastermind where we:
Curate a community of successful entrepreneurs by getting together virtually every other week to brainstorm, support each other and collaborate.
Have hot seat calls where people bring their challenges and questions to the group and can get support
Bring in experts in specific areas of the business to support and answer questions
Host In-Person Events
Commit to 6 months minimum membership - this creates momentum and accountability and most of our members continue to remain in the mastermind group for years after their initial application!
Benefits of Recurring Revenue:
Predictable reliable income that can be re-invested into the business
Allows a business to build a strong strong foundation for growth and long-term success
It can also help to reduce the risk of cash flow problems
Recurring income can also be more profitable because it requires less marketing and customer acquisition to maintain the revenue stream
Drawbacks of recurring income:
Unlike with Passive income, you need to consistently provide value to your clients and customers to retain them. Always need to be looking at how to increase the value for your client and provide an amazing product & service.
Can be impacted by market trends or changes in consumer behavior.
If it is only dependent on a small number of clients, there is a risk in not diversifying your income streams If those few clients cancel, then your recurring revenue is gone. How can you continue to scale it, while providing ongoing value?
Don’t try to build all of these different income streams all at once. Build one at a time and then add to it as you scale!
We started with in-person events - we created momentum with that, then we added Action Takers Club, then we added the Mastermind, and then just naturally these other opportunities came up as people reached out to Danielle for 1:1 support through Coaching, then through brand partnerships and affiliates.
So can you see how this was built up over time, and we are continuing to build this over nearly a decade - good things take time!
DON’T FORGET ABOUT OUR BUSINESS RESOURCES HERE!
Get on the Waitlist for our Events HERE
Apply for 1:1 Coaching with Danielle HERE
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transcript
[00:00:00] Danielle: I am so excited for today's episode. I am going to break down the different types of income that you can make as an entrepreneur, and I'm going to be sharing examples of the benefits and drawbacks, as well as give you our business model, what we currently have, the products and services that we have in each of these categories.
[00:00:20] I know for me personally, when I first started my business, I had no idea there were so many different ways that you could generate income for your business. So I wanted to break this down for you, not only so you can see what is available to you, but also what might be the best fit based on where you're at in your life and in your business.
[00:00:40] Then also at the very end, I'm going to be sharing what my personal favorite income stream is and You actually might be surprised Before we dive into this episode though. I want you to know about our resource section of our website so if you go to business babes collective Dot com slash resources.
[00:00:59] [00:01:00] We have curated both free and paid resources for small business owners. We have everything from workshops, downloads workbooks, as well as different softwares that we use as a business. So if you want access to all of that, go to businessbapescollective.com/resources and go check out those goodies over there.
[00:01:21] Alright, let's go ahead and dive in the difference between passive income, recurring income, and active income.
[00:01:30] Let's get started with active income. So active income is the most common type of income. It's the income that you earn from your day to day involvement of running your business. Some examples of active income would be your services.
[00:01:46] So if you are a service based entrepreneur, then that would mean consulting or coaching, design work, accounting, social media management, website design, photography, videography, you get the point. So anything that you are [00:02:00] doing as a service based entrepreneur, that would be considered active income.
[00:02:04] This also relates to product based businesses. So if you have a retail store or if you have an e commerce business then usually you need to create or co design your products and so part of that is the active income, right? You're also packaging and shipping the products when they are purchased.
[00:02:25] If you currently have a job, whether that be a full time job or a part time job, where you're getting paid a specific amount of money for hourly or monthly or yearly work that you're doing, then that would be considered active income as well. Another thing that's included in this is hosting events or hosting workshops in your business, whether that be virtual or in person.
[00:02:50] So I want to give you some tangible examples based on our business model. For Business Babes Collective as a brand, our active income sources include our [00:03:00] events. Both the virtual events that we host as well as in person. Coaching and consulting, which I offer one on one to clients. So for example, when a client hires me for a VIP day to help them strategize on their business, or they hire me ongoing to support them and provide accountability and my feedback, that would be considered active income as well.
[00:03:23] And then also brand partnerships and sponsorships. So because we have a very large and curated community of mostly female entrepreneurs. There's a lot of brands that reach out to us and they will say, Hey, we would love to partner with you whether that be through social media or maybe through the podcast or potentially through our email list.
[00:03:45] Let's talk about the benefits of active income. So often, it can be a regular and reliable source of income for you. So if you are a contractor and have a job, normally you can count on [00:04:00] a specific number of hours or the average amount that you will be making per week or per month or per year.
[00:04:06] And as a business, often you have the ability to control how much income you make. So for example, the more hours you work. or the more clients or customers that you take on, the more that you sell, then the more that ultimately you make as a business. Often, especially if we have a product or service that's in high demand, then we have the ability to make more if we just are willing to more.
[00:04:34] The other thing that's really great about active income is that it can be used as a cash injection. For example, if you are in a position in your business where you are needing more cash flow in your business, then having that active income source is a really great idea because you can just open up your calendar, maybe take on more clients, or maybe you're going to host an event to create more profit in your [00:05:00] business.
[00:05:00] Something that's not talked about a lot is that active income often provides a lot of satisfaction and joy from the work that you do. So often entrepreneurs get into business. because of something that they love to do and something that they're passionate about. When we talk about creating a profit from something you're passionate about, often that active income is doing that thing that really lights you up that you can then get paid for.
[00:05:28] And so it also provides a sense of accomplishment and fulfillment and satisfaction. When we started our business, for example, we started with in person events, and it was something that I truly loved and truly got joy out of. And it was such a sense of satisfaction each time that I hosted and executed an in person event.
[00:05:50] And although that was a very active income source. And at the time we didn't have any passive income sources. That was just such a great way that I [00:06:00] could do something that I loved and also create an income from it. So let's talk about the drawbacks. So one of the drawbacks of course is that it requires constant effort and time commitment.
[00:06:12] Something that we started to run into when it was probably about 2018 when we were launching into other cities is that there was only one of me and I started to hire and started to build our team But it became you know a huge time commitment and effort to put on these in person events.
[00:06:33] And at the time we did not have anything else that we were offering as a business. And so your income might be limited to the amount of hours that you and your team are working. And so often in this case, we are trading time for money. Okay. So those are the drawbacks. Now. Let's talk about passive income because passive income refers to income that is earned without actively trading time for [00:07:00] money, and it doesn't require ongoing active work and effort in order to generate that income.
[00:07:07] The goal of passive income is to create financial stability without having to rely solely on money. solely on the active income earned from a business or job. for most entrepreneurs that I talk to, this type of income is like their end goal, right? They're like, I want to create more passive income for my business.
[00:07:26] I want to create a source of income that is not reliant on me. Trading time for dollars, they don't want to be working as much as they do, and that's often when entrepreneurs start to think of, okay, what can I create that will give me more flexibility and time freedom? You put in the work one time and it continues to pay you over and over again.
[00:07:49] So let's talk about some examples. Selling digital products and selling online courses. or software is the most common, especially of course in the online space. [00:08:00] So if you sell either templates or you sell a course or an ebook it would be on your website something that you have to create once and then you actually can sell it over and over again.
[00:08:14] Another example of passive income would be royalties from either a book or music and then another would be affiliate marketing. So this is really common in the online space is to promote products or services. and then get a commission of that sale. Whether you are promoting a service that you use, or a software that you really enjoy.
[00:08:37] We have a lot of affiliate partnerships with different companies that we use and that we recommend to our community. And we have an affiliate code that we use or a specific affiliate link that we can share and then we can earn a commission. on that. Another form of passive income would be rental income from real estate properties [00:09:00] dividend income from stocks and mutual funds and then also peer to peer lending.
[00:09:04] For us as a business, so Business Babes Collective, Our passive income sources include Action Takers Club, which is our signature online course. We created that course once and we can sell it over and over again. The sales are also mostly on automated because our email sequence is all set up and they get triggered when someone signs up to our free workshop.
[00:09:27] That is one and then two is affiliate partnerships. Like I talked about before on our resource page, we actually have both free as well as paid resources on there that are curated for small business owners. We love to promote some of the softwares or products or services that we recommend that our community use because we love them so much.
[00:09:51] And so we get specific affiliate income when someone signs up using our links. Let's talk about the benefits of passive [00:10:00] income. One of the biggest benefits would be the flexibility and giving you more time. So having passive income streams in your business will require less ongoing effort, so you can spend your time doing what you love, spending time with your family or doing hobbies or traveling or, investing that time back into your business to create even more income sources.
[00:10:22] I think that's the biggest draw of passive income is the flexibility of the time freedom. The other benefit is just the idea of So work that you do once and that you can get paid on over and over again. I think that it's important to mention here though, is that what you often don't see
[00:10:41] is the continued effort that you do need to put in order to promote that product or that service. So just because it is quote unquote passive, where you don't technically have to do any more work in order to get paid from that stream of income, you need to [00:11:00] be driving traffic to that website that has that product or service on there, right? So just because technically it's passive, it doesn't just mean it's going to sell itself. So that's something that is really important to realize. And I actually did an entire episode on this.
[00:11:17] I'm going to link the episodes that I've done on passive income. Down below in the show notes so that you can listen to those because, everyone wants to make money while you sleep and, all of these phrases that people throw out there. But what is really important to recognize is that there actually is some work and effort you do need to put in on an ongoing basis just to manage those passive income streams.
[00:11:41] So nothing is. is completely passive. And if something is very passive, then usually it's a higher risk, so it could potentially go up and down with the market. Okay, that leads us really well into the drawbacks of passive income. The first drawback is that it usually requires a [00:12:00] significant amount of initial investment or time to get set up.
[00:12:05] Let's give the example of real estate, right? You either have to have the time to put into it or you need to have the capital in order to purchase real estates in order to have that passive income. And the same goes for creating a product, right? So a product maybe a digital product or a course or an ebook or a software.
[00:12:25] It usually takes a lot of time, investment, or potentially financial investment in order to get it set up. . Let's talk about the third type of income, which is recurring income. So what is recurring income? It is income that a business receives on a regular basis, usually through something like a subscription model or an ongoing contract with a client.
[00:12:49] So this income stream can provide predictability for the business, and it's not dependent on just a one time sale. Let's talk about what [00:13:00] some examples are of recurring income. If you have retainer clients, they're paying you on a monthly basis, or you have people that are on a subscription this would include things like law firms, marketing services, consulting firms.
[00:13:16] Even creative design work or I've seen really cool subscriptions for things like photography or even like a cleaning company, a salon could do this, a spa could do this, gym memberships co working space, right?
[00:13:29] It's structured on a recurring basis. The other thing is memberships. So this could be a coaching membership that you provide for your community, could be educational content, something like a mastermind templates or content on a monthly basis, and then people are paying to be a part of these memberships.
[00:13:49] So this can be. in any industry, in the health and wellness industry, in business. I've seen businesses be really successful in doing art classes as a [00:14:00] membership, or homeschooling, support. There's so many different ways that people can offer a membership model. that can provide recurring income. The other example is subscriptions.
[00:14:11] For example, a meal delivery service and then product based or subscription boxes. A lot of companies, especially if they have a product based business you can have makeup subscription box or vitamins, snacks, clothing, self care all of those things can be created as a subscription.
[00:14:31] And so people will sign up for it and then get regular deliveries, whether that be monthly or quarterly or yearly. The next example would be something like a software, so a SaaS company. Like an email software or if you own an app or something else where someone is paying on a regular basis, usually a monthly basis, to have access to that software, then of course that would be considered recurring income as well.
[00:14:58] So for [00:15:00] us as a brand our recurring income source is through our mastermind. So we are curating a community of successful entrepreneurs where we get together every other week, we brainstorm, we support each other, we collaborate we have hot seats where people bring their challenges and questions to the group and get support there.
[00:15:19] We also offer expert calls, we bring in experts in different areas of business so that our members can get support and get their questions answered. We also have our in person events that are included with our mastermind as well. And then our mastermind, the way that it's set up is it's set up similar to a membership where people can join.
[00:15:44] We actually do require a minimum of six months when people join because we believe that six months is a really good timeline to actually start seeing those benefits. It's coming back because, relationships take time and actually , getting to know the people in the group, having them get to know you, [00:16:00] really getting that support and diving in takes a minimum of six months and then people can continue on for as long as they want.
[00:16:07] So the beauty of this is that we actually have mastermind members that have mastermind for years. years now because they find so much value in the group. So the mastermind is a source of recurring income that we have within our business. Let's talk about the benefits of recurring revenue, recurring income.
[00:16:27] The biggest benefit in my books is the predictable, reliable income that you can count on every single month. When you are a business owner, you know that predictability is not something you have, especially at the beginning of your business. So to have some level of predictable income you can average the amount of, every month, that there's going to be an average of X amount coming into the business.
[00:16:52] It's so helpful so that you can actually. Make plans to reinvest into the business. It allows the business to [00:17:00] create a strong foundation for growth and long term success. And it can also help to reduce the risk of cashflow issues that often come up in the business. And then it's also like recurring income can also become.
[00:17:13] much more profitable because it requires less marketing and customer acquisition to maintain your revenue stream. So if you think about it this way, if you are just selling to different people every single month, you don't have repeat clients within your business, then every month you're starting from zero.
[00:17:32] But if you have recurring revenue in your business, then every month really the marketing and the sales and the client acquisition is actually just to build upon what you already have. So you can have that predictable income and then you can actually just build upon it month after month. And that is where the marketing comes in.
[00:17:51] It can become a very profitable way to run your business. Okay, so here are some of the drawbacks of recurring revenue. So unlike with passive income, [00:18:00] you need to consistently be providing value to your clients and customers to make sure that you retain them. So it's not work that you do once and then you don't have to do any work ever again.
[00:18:11] You always need to be looking at how are you providing value? And then also how do you increase the value for your clients? Providing a better, product or service or experience for your clients is always super important to be able to retain those clients so that they're coming back to you again and that they don't want to, if it is a subscription or a membership, they don't want to cancel their membership.
[00:18:35] Another drawback of recurring income is that it could be impacted by market trends or just changes in consumer behavior, so you always have to be Just aware of is this value that I'm providing sustainable for the market and where it's at?
[00:18:51] So just being aware of that, making sure that you are in connection with your clients and that you understand if they are getting value from. The product or [00:19:00] service that you're offering. Also if your income is solely dependent on a very small amount of clients, let's say you have three big retainer clients, that's where the risk comes in.
[00:19:12] If you're not diversifying your income, if you say, for example, only have three big clients, and they're all on retainer. If you lose one or two of those clients and all of a sudden your income is cut significantly. And so what I would do is I would look at, okay, if you have those consistent repeat clients, that's good, but make sure that you're always adding to that, whether that be adding recurring revenue, adding those clients, or maybe creating something like a membership or a subscription.
[00:19:45] That could be a little bit lower cost that could really create that diversity in your business so that you can have those other income streams coming in. And again, this is like high level strategies, so if you're just like, Oh [00:20:00] my goodness, Danielle, I don't even know. I'm not even I'm not even there yet in my business.
[00:20:03] And don't worry about this. I'm just talking for people who are further along in their business and they're like, okay, I want to start creating like really reliable income source into my business where I know that I'm getting paid a minimum of X amount every month and I can rely on that coming in again and again.
[00:20:21] So that was a lot of information. So now that we've gone over the active and the passive and the recurring income, I want to tell you what my favorite is. My favorite is actually recurring income. So yes, it requires more time and effort to continue to build that.
[00:20:39] However, I love the predictability of knowing on average how much money your business can bring in per month as a base. So that's your base business. income or revenue. Then when you add in the active income that you're doing and you also add in the passive income, those act [00:21:00] as bonuses on top of your base.
[00:21:03] So I love that we've been able to build multiple streams of income because it allows us to be able to really create cash flow when we need it, but also just really serve our community and our clients on so many different capacities through coaching and courses and events. And of course the mastermind but I do want to mention that if you were like, Oh my goodness, I would love to build, multiple streams of income, but you're feeling overwhelmed.
[00:21:27] Don't try to create all of these streams of income all at once. Build one at a time and have that one source of income be really strong. And then add to it as you scale. So we started with in person events. We created a ton of momentum with just hosting in person events and that was all active income.
[00:21:47] Then we added Action Takers Club, which was also active income because at the time it was a four week program and we actually ran that program in person. So we had Action Takers Club. [00:22:00] Then after that we added the Mastermind. And then naturally, after all of these other opportunities, people started wanting my support one on one.
[00:22:09] So I started offering one on one coaching and VIP days. And then we also started getting approached by brands for brand partnerships. And then of course our affiliate partnerships as well. So just know that all of these things that we have running within our business have happened over time. And so you can see that this is all built up and we will continue to build this and not necessarily add more income streams necessarily, more so strengthen the income streams that we already have and put the time and attention into the ones that are bringing in the most amount of profit and making the most impact as well.
[00:22:47] We are now eight years into the business, if you are on year one, year two, even year five, please don't compare yourself again, build one at a time, have that income stream be really strong before you start moving on [00:23:00] to a secondary.
[00:23:02] 3rd, 4th, 5th stream of income, so I hope you found this episode helpful. I hope that you were inspired by it. I hope that it gives you some inspiration of okay, what do I want to focus on? What kind of income do I currently have in my business? And what do I want to build for the future?
[00:23:20] So I would love to chat with you. So send me a DM, let me know what your current income streams are, what you're working on and what your goal is, because I would love to support you in that. I would love to help you create that. And I'd love to cheer you on as you start to do that in the next few years.
[00:23:36] And if you need support right now, if you're like, Oh my goodness, I want support from other entrepreneurs. I want to be able to brainstorm some of the ideas that I have, whether it be for different income sources or income streams, I highly recommend that you go over to our website. So go to businessbabescollective.
[00:23:53] com and click on the mastermind button. And we also have action takers club if you're just getting started, but [00:24:00] for the mastermind, that is really where you're going to get in depth support. This is where we talk about things like passive income, recurring income we talk about different ways to, build that financial stability within your business and we have transparent conversations around it.
[00:24:16] And what does that look like and what are you working on and how are you building in those systems and processes so that you can have that ability to build that into your business. So I would love to see your application come through. I would love to chat with you to see if it's a good fit for you.
[00:24:30] And regardless, I will share with you what I think would be next for the next steps of building your business. So thank you so much for listening. I hope you enjoyed it and I will catch you in the next episode.