Ah, the joys of small business ownership and freelancing: one day you’re riding high, then next you’re scrambling for work. Here’s some ways to overcome those challenges and stabilize your income.
What you really want, first and foremost, is recurring income – ie, clients that pay you something on an ongoing basis. This is the ultimate stability (in a business context at least).
For example, you might currently be selling a new website for $1000. Two alternatives are:
- Sell the website for $1,000 plus $85/month for hosting and maintenance (plug-in upgrades, simple revisions up to 1 hour of time, annual performance review)
- Sell the website plus the other services for $99/month on a 2 year contract
Feel free to change the dollar amounts, inclusions, and timeframes – this is a business model example, not a pricing suggestion. The ideal outcomes from this is that you wake up on the first day of each month knowing you already have 20-30 clients paying you something – even if that only adds up to $1000 or so, that’s a way more stable base.
Multiple income streams then help ensure you’re not overexposed, for example if Amazon decides to enter your market. It covers a multitude of concepts:
- it could cover some of the upsells I mentioned above (eg, hosting);
- it could just refer to multiple clients (unlike those who solely rely on a single employer each month);
- it could refer to referral relationships – eg, you might help clients engage a graphic designer for a % of their fee; and
- it could refer to investments or other businesses – for example, being a landlord, owning a share in that graphic design business, or playing weekends in an 80s hair metal tribute band.
Passive income is generally misunderstood, in that the passivity comes from upfront active exertion (even when sometimes that exertion was an ancestor who bequeathed you millions in capital in their will). So investing in shares (ETFs are lazy and low risk) would deliver a passive income through dividends.
Some other income streams may eventually lead to some passive income – for example, you might sell a ‘Guide to DIY web development’ on your website for $49 and sell 10 copies each month. There’s the upfront active effort to produce the guide, then the ‘passive’ $490/month. In reality, you’re likely to still need to keep an eye on marketing it, and it will need regular updating, and so on. If the volume in sales is there, then it may be worth it – but that’s another income stream, hardly ‘passive’.
The ultimate passive income to pursue is generating letterbox money by writing a massive Christmas hit song. If you succeed, I’ll gladly take my 10% for giving you the idea…