“Lever Rank” is a term that I use to rank the amount of leverage a specific business model or specific business tool gives you when building residual income. At Levered Income, I discuss the varying amounts of leverage of different businesses and tools that build residual income. Focusing first on the different business models that deliver the most leverage for your time is critical to building lasting and growing residual income. I assign Lever Rank to both the business models as well as to the specific tools that help you grow these income-generating residual income businesses.
Understanding Lever Rank
Lever Rank can range from 1 to 100. A Lever Rank of 1 is given to anything that delivers a 1 to 1 ratio of time to income. This is primarily your paid job (hourly or salaried), where you get paid only while working. This not only applies to a W-2 employee, but also to freelancers that charge by the hour/ job and are paid by the hour/job. If you only get paid while you are working and only for the work you are currently doing, the Lever Rank of that activity is a 1.
A Lever Rank of 100 is given to an activity that magically puts money in your bank account for absolutely no reason. I do not count inheritance or trust funds in our ranking system. To get a score of 100, it must be an unrelated person or company that just deposits money into your account for no reason whatsoever. In other words, it doesn’t exist.
Lever Rank for the different tools and businesses can change over time depending on changes in the business environment and technological changes. I update the rankings as conditions change or from what I experience operating these businesses.
Lever Rank for Businesses and Tools that Build Residual Income
When ranking businesses and tools that build residual income, I look at many factors to develop the overall Lever Rank. Factors like cost, risk, time, effort, longevity, and growth play a part in the overall analysis and a specific business or tool’s Lever Rank.
Some factors have a higher weighting than others in determining the overall Lever Rank. For example, a business that cannot generate residual income is very competitive and requires an increased time commitment (freelance web design is an example), giving it a very low Lever Rank. On the other hand, a business that only generates residual income from previously performed work (affiliate marketing businesses are an example) has a much higher Lever Rank.
I have separated high-level residual income opportunities (the “businesses”) from the tools used to execute those businesses (the “tools”). I view the tools used to enhance residual income opportunities as “mini-levers” inside the larger Levered Income concept.
Ranking Businesses that Build Residual Income
Understanding that some business opportunities generate more residual income than others enables you to focus your efforts on the highest return residual income businesses. Here is a short list of some of questions I seek to answer when applying a Lever Rank to different residual income businesses.
Is there a market for this business?
This is an easy one. If there are no customers to market your products or services to, you don’t have a business. Does the opportunity have a marketplace? Are there buyers?
How much risk is associated with this business?
As I have gotten older, risk analysis has started to play a larger part of whether or not I move forward in a business opportunity. Risk is not just limited to your capital investment or time spent on a project. It is important to always understand what you have to lose. Insurance is critically important.
How long in the future is the business expected to pay residual income to the business owner?
Is the concept long-lasting? This plays a large part of total earnings. Will the concept still be viable in 5 years? Residual income is all about duration of the income stream. As you shorten the time horizon, it becomes closer to being a job.
Is the amount of residual income fixed or does it grow over time?
Growth of the residual income stream is important to overall earnings and should be used in comparisons. With a 3% inflation rate, $100 is only worth $97 the next year. The best residual income streams are the ones that grow over time.
How much investment is needed to start up the business?
This has a large impact on the rankings as I take into account the effort to acquire the capital. Sure, purchasing a $1,000,000 commercial net lease property with a 7% return pays you $70,000 per year with no landlord responsibilities. Sounds like a great source of residual income until you add in the work it took to make the $1,000,000 after taxes in the first place. Consider an affiliate marketing business that cost $2,500 to start up that pays you $5,000 per month? Which is the better return?
How much money is needed to run the business?
This is intertwined with the investment amount and risk. Will you need to contribute capital to keep the business running? Capital intensive businesses (think oil and gas) can have multiple “capital calls” to continue operations or complete projects.
How much time and effort is needed to start up the business?
This typically has an inverse relationship with the amount of capital invested. If you are launching a new business with low startup costs, you can typically expect to spend more time on creating the new income opportunity. For example a digital real estate business (domain sales) can be started for less than $100. You will need to spend the time to research the best domain names to purchase, as well as market the domains to potential buyers.
How much time and effort is needed to run the business?
If it takes a lot of time to operate the business, it is not a business that generates residual income. It is a job. I have worked 16 hours a day in companies I have owned. Believe me, it is a job.
Can this business lead to other symbiotic or support businesses in the future?
This is a big one for me. I have found extremely lucrative business opportunities that have been “branches” off of the original business. If you keep your eyes open, the more you become familiar with an industry, you will find niche markets for new businesses.
Is learning this business model helpful to starting other businesses?
I believe in continuing education, and I try to learn something new every day. Writing this blog teaches me something new every day. It forces me to articulate ideas and concepts that I did not even realize I was using, and helps me to understand them better.
Lever Rank for Businesses that Build Residual Income
Below are my current Lever Rank Rankings for various residual income businesses I cover. This table is constantly updated as I add new businesses to create more levered income.
Click on the residual income generating business type for a direct link to a review or information on how to get started building that residual income business.
Using your real estate for vacation rentals can be very profitable and a great way to make more money from a property you own.
- Great Way to Increase Returns
- Many Vacation Rental Platforms
- Significant Capital to Start
- Increased Maintenance Costs
- Requires a Lot of Work
- Exposure to Risk
- Requires Staffing to Scale
- It is a Job
Day trading is buying and selling a security within a single trading day.
You can make a lot of money trading the financial markets, BUT it is a full-time job. Your work is not leveraged, and there is no compounding effect.
- Potential to Make a lot of Money
- Leverage (Magnifies Gains)
- Many Resources Available
- Easy Access to Markets
- Online Business
- Potential to Lose a Lot of Money
- Leverage (Magnifies Losses)
- High Risk
- High Failure Rate
- Very High Learning Curve
- Lack of Transparency in Some Markets
- No Compounding Effect
- Essentially a Profession
Digital Marketing (also known as online marketing) raises awareness of a business or brand via online channels.
It is a very much in-demand service and can be very profitable.
- Very Profitable
- Incredible Demand
- Very Inexpensive to Start
- Inexpensive to Learn
- A Lot of Productivity Tools
- Strong Outsourcing Market
- Incredible Amount of Competition
- No Moat
- Very Time Consuming
- Client Perception
- Clients
Being a landlord and collecting rent as a residential property owner is probably one of the oldest and most stable forms of business income.
Just don't overpay for your properties.
- Consistent Demand
- Mature Business Model
- Favorable Tax Treatment
- Significant Capital Required
- Concentrated Capital Risk
- Legal Risks
- Tenant Risks
- Repairs and Maintenance
Cryptocurrency mining is a business model using computers to add transactions to the cryptocurrency’s blockchain by solving the complicated mathematical problems associated with that specific cryptocurrency’s algorithm.
In return for this computer’s “work,” the business receives a small fee for verifying that transaction block.
- Can Start Using Just 1 Computer
- Easy to Automate
- A Lot of Choices of What Coins To Mine
- Many Online Resources
- Volatile Market
- High Risk
- Fast Decline Curve on Hardware
- Technical Skill Needed
- Electrical Costs
- Infrastructure Required
- Rife with Scammers and Hackers
A triple net lease (commonly referred to as NNN or “triple net”) is a rental agreement (typically commercial) in which the tenant is responsible for property taxes, insurance premiums, and structural maintenance and repairs to the property (in addition to rent).
A triple net lease removes most of the risk of being a landlord because the tenant is now responsible for everything – the landlord receives the rent check.
- Tenant Responsible for All Expenses
- Favorable Tax Treatment
- Long-Term Leases
- Significant Capital Required
- Concentrated Capital Risk
- Tenant Credit Quality
- Re-Leasing Risk
- Illiquid
- Online Business
- Low Touch Source of Residual Income
- Inexpensive to Start
- Turn-key Hosting Available
- Coin Quality
- High Risk of Loss
- Very Complex if Setting Up Yourself
- Cryptocurrency is Volatile
- Industry Rife with Scams/ Hackers
What is digital real estate? In the online world, a piece of digital real estate is known as a “domain name.”
Also known as "Domain Name Investing," Digital Real Estate is a very attractive business model requiring very little time to set up and start.
- High-Profit Potential
- Online Business
- Cheap to Get Started
- Several Ways to Monetize Domain Names
- Many Available Sales Platforms
- Highly Competitive
- Volatile Markets
- Takes Time to Sell inventory
Real estate has always been a popular investment vehicle for growth and income.
Historically, real estate investors were limited to directly buying real estate, managing properties, and collecting rental income.
REITs take all management issues away and give REIT real estate investors liquidity.
This is our favorite way to invest in real estate.
- Requires Little Capital
- Liquidity
- Diversification
- Professional Management
- Better Returns than Direct Investment
- Price of Investment Moves with Stock Market
- No Depreciation Deductions
- Typically Non-Qualified Dividends
Dividend stock investing is one of my favorite forms of “Levered Income.”
There are several different approaches to dividend stock investing. Still, the primary dividend stock investment strategy is to create enough dividend stock income that you do not need to deplete your capital in retirement.
In a sentence, the best dividend stock investment strategy is to build a dividend portfolio to pay you more yearly (after taxes) than you spend.
- Requires Little Capital to Get Started
- Liquidity
- Diversification
- Professional Management
- Price of Investment Moves with Stock Market
- Requires a Lot of Capital to Achieve Financial independence
- "Sucker Yields"
Affiliate marketing is a potent business model to leverage to earn consistent, growing residual income and is one of our favorite business models on Levered Income.
- Online Business
- Unlimited Residual Income Potential
- Inexpensive to Start
- Inexpensive to Operate
- Plenty of Tools to Leverage Work Units
- Intense Initial Effort
- Learning Curve
- Time to Earning Ramp
Lever Rank for Tools that HELP Build Residual Income
Ranking Tools that Build Residual Income
How much time does this tool save?
A tool is a shortcut. Would you rather spend 2 hours and a bloody hand trying to pound a nail into the wall with your fist or spend $5.00 and buy a hammer? You would finish the job in 1 minute and can reuse the hammer. I have seen other business owners pay an employee $50.00 an hour to sit in front of an old computer with a small screen that works at half the speed of a newer model. You do the math on that one.
How much does this tool cost?
Cost is relative. You can analyze payback, time savings (see the employee example above), or quality of work improvements. I have always viewed technology as cheap and people as expensive. Always buy the best tools and upgrade often.
How much will you use the tool in the future?
I avoid “one-time use” tools. I hire a contractor with the experience and tools to perform the task if it is a non-recurring item. The time to get up to speed with a new tool will cost you more.
Is the tool business-specific? Or can it be applied to multiple businesses?
This builds on “how much you will use the tool in the future.” Something that can be leveraged across ten businesses only costs 1/10 of the price per business. Quickbooks Enterprise Edition is a perfect example of this, as it consolidates all of our companies for tax filings. The software costs approximately $2,000 annually and saves me over $10,000 in CPA fees alone.
Is there value for you as the business owner in understanding how to use the tool?
Learning how to use the tools that help your business function better also helps you learn how to run your business more efficiently. For example, learning to use one of my favorite WordPress themes (DIVI from Elegant Themes) helps me build better affiliate marketing businesses, better eCommerce stores, better online businesses, and a better online presence for my brick-and-mortar businesses.
Current Lever Rank Ranking for Tools that Build Residual Income
Below are my current Lever Rank Rankings for various tools I use to enhance productivity and build more residual income. This table is constantly updated as I add new tools.
Click on the item in the bar graph for a direct link to the tool or review.
WordPress Tools
With over 1.5 million happy users (we use it too!), RankMath is a WordPress SEO plugin that makes it easy for you to optimize your content.
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We use DIVI on all of our WordPress websites.
Why?
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Using Lever Rank to Build More Residual Income
Ranking businesses and tools that build residual income is a fluid process and changes over time. Use these rankings as starting point on your research into building residual income streams. I will update all of the categories and tools reviews as my experience operating businesses in these areas changes and grows over time.
Thanks for reading and I welcome comments below.
