Friday, February 12, 2010

"The Gumball Machine" Theory to Passive Income

Has anyone heard of "The Gumball Machine" Theory?

Well, if so, then awesome, because you probably understand more than most.  If not, don't worry I will explain.  The Gumball Machine Theory has to do with an investment example that creates passive income.  Gumball Machines can range from \$75-\$200 depending on where you purchase them.  Lets create a scenario: You don't have excess funds to invest in real estate, invest into a ROTH IRA (Which I do recommend) but you do have \$50-\$200 dollars that you want to start earning this Passive Income off of.  You know a few local stores and other shops that have an entrance and possibly a "back" in the shop hang out spot for employees for break.  I will break down steps now:

Step 1: Purchase one gumball machine - there are many sites for this online and you can find one that you are attracted to.  Cost: \$150 (Lets say - for example, of course)

Step 2: You receive the gumball machine and also buy gumballs from a distributor (normally less than 2-5cents/gumball so you can fill your machine very cheaply) - rough price \$10.

Step 3: You ask the store if you can place the machine in the front or in the back for the employees.  Some will say yes, with no problem, others want a % of revenues etc.,

Step 4: Hypothetically, it was free to place one in.  Cost per gumball, lets say is 25 cents.  At the end of month one, go to the store, and check on the funds accumulated for the 30/31 days.  Wow - \$50 not bad *we all know the children with parents ALWAYS want that gumball either entering or leaving the store : )

Step 5: You do this for 3 months, accumulating \$150.  You just returned your investment of the machine.  Now you have created passive income, all you need is to buy and restock the inexpensive gumballs.

Step 6: Why stop?  Search and visit other stores/shops and find others to place another machine.  Therefore, lets say (of course), with 2 = \$100/month, 3 = \$150/month

If you purchase 3, at a sunk cost of \$450, with 12 months you would receive = \$1,800 (12x150).  That is a 400% return, with expenses of gumballs probably high 300 Percentile.  This is an example, and also is true for people that pursue this, for amazing potential of Passive Income.  Such simple ideas that work.  When you think of these ideas, pursue them, evaluate it, realize what you are getting into and go for it.  You need to feel confident in what you want to pursue, don't pay attention to others putting down your ideas and saying "that won't work" or "that is too risky".  You can create passive income, I know you can.  Make your money work for you, do not work for your money! Thank you and best of luck!