Ever since I read Rich Dad, Poor Dad I’ve been on a quest to build,
- Pipeline money
- Residual income
- AKA – Freedom Monday
This has been a decade + journey that has shown me much inside the home business beast.
1 ugly side you don’t learn about until after you’re in for a while is attrition.
The unfortunate fact that no matter how good your product or service, there will be a certain percentage who cancel.
Cancellation are the evil nemesis of residual income.
I used to be affiliated with a very successful company who advertised an unusually high retention rate as one of their main selling points.
One day I noticed the word ‘monthly’ in front of the retention rate and realized that if the number was a monthly number – what they were really saying is x % canceled monthly.
I then stretched that number out over a year and came to a number that was far less attractive than the advertised rate.
I asked one of my leaders if I was calculating my math correctly and he said “Yes, but don’t ever let anyone hear you explain it that way.”
hmmmmm….
Well, here’s 1 simple way to fight this evil nemesis.
Get paid enough for your first sale and first few months of orders that even if the customer decides to cancel, you’ve been well paid for your efforts.
Here’s some crazy math for you to consider.
Let’s say you have a 95% annual retention rate (which as far as I know is WAY above anything I’ve ever seen), and you get paid $3 per customer.
You start out with 100 customers on day 1, lose five and retain 95 over a year.
95 X $3 x 12 = $3,420 commission for that year.
Now let’s say you also sell an affiliate product that pays $100 commission per customer.
To really emphasize this point, in this example – let’s assume you have horrible retention.
We’ll say you only retain 10% (or lose 90%) over a year.
So you start out on day 1 with 100 and lose 90.
10 customers X $100 = $1,000 per month – – > stretched out over a year you’d have $12,000 in your pocket.
You’ve just earned 3 times the money with a 9 times worse retention rate.
The big difference?
You were paid a higher commission for your efforts.
I was trying to guess what the nemesis of passive income could be before I opened the blog… attrition… i was thinking, lackadaisical-ness, or lack of passion, or relaxation. Lol! I just realized, I work too hard. Lol! Love the perspective…
I worked a $3, 95% retention rate direct sales biz… almost 10 years later, I still earn a check on the 3 months of “hard” work I did 10 years ago… I think that’s passive income … I’d rather have the $3K a year for 10 years, than $12K in one year… what about you?
ha ha.. Great points heather! Yes, I thin those are also all nemesis’s of passive income… 🙂
Great job on your success on that 10 year passive income! WAHOOO!
If the $3K per year for 10 years was compared to a 12k in one year then yes for sure, but the 12k in one year in this example was also passive so to compare apples to appels – it would be 3k per year for 10 years vs. 12k per year for 10 years.. 🙂 In that case – I’d take option 2.