Passive income is all the rage. Who doesn’t want to collect checks without working?
The thing is unless you have millions of dollars invested in an annuity or some investment that pays you regularly, there really isn’t such a thing as 100% passive income. If the income is from some form of business, you need to manage that business.
Nevertheless, a huge appeal of succeeding with an online business is the perception that it can generate 100% passive income. It can’t, but it can earn an excellent income that grows while not having to work as hard as working for other people.
One way to earn income that’s fairly passive in nature is promoting recurring commission products. You sell it once and earn revenue each month or year… you get paid every time your referral pays the recurring subscription fee.
With the insanely fast growth of cloud software, there are many recurring commission opportunities. Many cloud software products that offer an affiliate program pay a recurring commission.
Here’s the thing… promoting recurring commission products is slow-going at first, but it can build up over time into a healthy income. I’ve done it for years promoting a wide variety of recurring software to various business industries. My current recurring monthly income is approximately $8,000. It was much higher, but one merchant knocked my c0mission down by nearly half. This is one significant risk of promoting recurring commission products which is yet another reason to diversify your income sources.
I suspect some people don’t totally understand just how powerful recurring commissions can be over time. I didn’t know early in my online career either, but I had a pretty good idea because I focused on it for several years. Now I enjoy the results. If you don’t fully get it, check out the following example numbers.
Recurring Affiliate Commission Sample Earnings Timeline
Below is a simple timeline of how recurring commissions can add up over time. It’s very simple, but it’s also not exaggerated in that the commission percentage I use and numbers involved are very realistic.
- Average monthly software cost: $75 (retail cost to referrals)
- Affiliate commission (recurring): 20%
- Revenue per month per referral: $15 (20% of $75)
- 6,000 monthly website visitors (a very realistic number to reach fairly quickly)
- 3% of website visitors join your email newsletter which results in 60 new email subscribers per month.
- 10% of email subscribers buys the recurring software = 6 sales per month. That’s 6 sales x $15 commission per month = $90 per month.
- For the sake of simplicity, let’s assume you maintain the 6 sales over the long run. Here’s how recurring commissions can add up.
Tally it up:
- Month 1: $90 per month
- Month 2: $180 per month
- Month 12: $1,080 per month
- Month 24: $2,160 per month
- Month 36: $3,240 per month
- Month 48: $4,320 per month
- Month 60: $5,400 per month
While 5 years may seem like a long time to build up that income, keep in mind the income is recurring. While you must continue generating sales to grow your commission income, if you set up a great website that gets free SEO traffic and have a good email newsletter funnel in place, you don’t have to do much work to grow your referral count.
Also, the above is just an example. There’s no reason you couldn’t increase those numbers. On the flip side, it’s also good to have revenue from a variety merchants or sources because if your entire income is from one merchant and that merchant ends the affiliate program or cuts your commission (which happened to me), your income can take a bad hit overnight.
Variables that impact the above numbers:
Price changes: merchant may increase or decrease product price. This will impact your bottom line either positively or negatively.
Stick rate: One important variable I didn’t include in the above is stick rate. Stick rate refers to the average number of months software subscribers keep paying the subscription. Stick rate varies tremendously across industries, but for higher end business management software, it’s quite high (several years). Nevertheless, the above numbers would be pushed down somewhat due to users cancelling their subscriptions.
Affiliate commission rate changes: Merchants can and do change affiliate commission percentages. I’ve had merchants increase my commission and merchants decrease my commission percentage.
Product competition: Better products may come along that hurt your ability to promote the product.
Sales volume: It’s rare you’d stick at the same sales volume over 5 years. Chances are it will go up or down. Hopefully it would go up, but new competing affiliates may enter the arena which could have a negative impact on your sales.
What do I know about recurring commissions?
I know quite a bit about earning recurring commissions. Early on in my affiliate marketing career I recognized the power of promoting products that paid a recurring commission. I started immediately understanding it would take a while to build up a meaningful recurring income. Fast forward several years and and if I combined all recurring commission products, the monthly revenue is approximately $8,000 USD. It would have been $5,000 per month higher, but one merchant hacked my commission by nearly 50% in 2017.
What are examples of recurring commission products?
There aren’t many in terms of types of products. They include:
- Supplements (recurring orders)
- Membership websites
I find supplements and membership websites have a low stick rate. By stick rate I mean the average number of months customers keep paying. A low stick rate means customers stop the subscription very quickly – often after a month or two.
Software, on the other hand, especially software used by brick and mortar businesses, have a high stick rate. Therefore, I suggest promoting leading software used by brick and mortar businesses. They invest a lot of time in setting it up and are loathe to dump it after all that front-end work and cost.
Does this mean you can retire in 5 years?
I wouldn’t count on it. Even if you have a good site getting free traffic with an effective email funnel, you can’t count on the commissions to keep flowing for 20 years. Anything could happen. The merchant goes out of business, ends affiliate program, your traffic dwindles… you never know.
But, what this does is it gives you near passive income so you can devote time and money to other projects. The point is that in the long run, the revenue per hour and per website visitor is very lucrative.
Should you only promote recurring commission products?
I don’t. I promote many products that pay only one time. Recurring commissions are just one source.
Can you sell a recurring commission income stream?
Yes. I’m not sure how it would be valued, but the entire set up including future recurring commissions could be priced into a lucrative sale. The future commission income stream would be discounted for risks that would reduce that stream. Exactly how much the discount would be is anyone’s guess. I suspect it would boil down to a negotiation.