I’ve been thinking lately about ways people make money. And I have what I believe may be a Grand Unified Theory of Making Money. It still needs some refinement, but here it is: There are three ways to make money: selling time, selling a product, investing, or some combination of these.
That’s extremely simplified, so let me elaborate a little.
This is probably the most common way people make money. If you work for someone else and get paid by the hour or a yearly salary, you’re essentially selling your time. But having a “regular” job isn’t the only way to make money selling time. There are several ways:
- Sell Your Time to an Employer – This is your typical job. You’re hired by an employer to do a job, and they pay you an hourly wage or a salary.
- Sell Your Time to Consumers/Clients – This is freelancing, contract work, or certain types of self-employment. You’re hired by clients (essentially, many employers) to do a job/jobs, and they pay you an hourly wage or set fee.
- Sell Other People’s Time to an Employer – Think of temp agencies or a company that hires people and then fills an employment contract for another business. These aren’t extremely common, but you’re seeing more of them.
- Sell Other People’s Time to Consumers/Clients – This is what a lot of businesses do, especially in service industries or professional companies (like CPAs, investment firms, law firms, etc.). They hire employees at a certain rate/salary, and then sell their services at a higher rate.
Clearly, the problem with this strategy for making money is the limitation of time. There’s only so much time available – even when you’re selling other people’s time. Sure, you can raise rates, but only to a point. However, there’s a big difference in the limit between the first two examples and the last two.
Selling a Product
Next up is selling a product. This can be any kind of product – basically anything that isn’t “time”. Again, there are several different ways to make money by selling a product:
- Sell a Product for Someone Else – If you’re in a sales position where you get paid by commission, you fall in this category. Also, think of bloggers using affiliate deals or multi-level marketing (MLM) schmucks who haven’t developed their “downline”.
- Sell Your Own Product – Farmers with road-side stands, bloggers with their own books for sale, and people selling a product they create/manufacture themselves are all in this group.
- Get People to Sell Someone Else’s Product – Think retail businesses or MLM schmucks who found suckers to join their downline. Also, affiliate marketing networks (like Commission Junction) would be in this crowd.
- Get People to Sell Your Own Product – Businesses that create or manufacture their own product and then hire people to sell that product fall into this group. In the online world, this would include businesses with affiliate marketing programs or bloggers who create their own products and offer a cut to anyone who will sell it for them (via affiliate links).
Depending on which strategy you’re using here, you could be limited by your own time or abilities or the sky could be the limit. The only problem here is that you need to have people willing to buy. But that’s not necessarily a problem if you have a good, useful product and/or you’re a good salesperson.
Investing is a way to leverage your own or others’ money-making efforts. You can:
- Invest Your Own Money – If you’re buying securities or other investments or if you’re starting your own business with your own money, you’re in this crowd.
- Invest Other People’s Money (OPM) – If you’re borrowing money to invest or if you’re managing someone else’s money and taking a cut (think mutual funds), you’re in this group.
Again, there can be a variety of limitations here: your resources, others’ resources, your time, availability of good opportunities, etc. However, this is probably the one area where people have made ridiculous amounts of money – especially when they combine it with any of the other methods.
Any Combination of the Methods
I won’t even go into the possibilities here as they’re simply too numerous. But in reality, this is what many people/businesses do. Take my wife’s grandfather for instance. He started an agribusiness, which has become quite successful. In the whole process of starting/growing his business, he has:
- Sold his time to clients by combining, spraying, chopping, etc.
- Sold other people’s time to clients by hiring them to combine, spray, chop, maintain equipment, etc.
- Sold products for other people/businesses like fertilizers, insecticides, pesticides, and herbicides, etc.
- Hired other people to sell others’ products
- Sold his own products (mainly corn)
- Hired other people to sell/produce his own products
- Invested his own money in his business
- Invested other people’s money in his business through prudent borrowing
You can probably take any business and break it down into some combination of these methods.
Why in the World Does This Matter?
Well, beyond the interesting theoretical implications, this matters because it can help you figure out how to make more money! Take a look at what you’re doing now. What are your limitations? How can you expand your opportunities to make money by looking at other methods? Maybe you’ve never considered any of these options beyond what you’re currently doing.
If you want (or need) to make more money, thinking about the various methods might help spark a new idea for you. And that seems like a good enough reason to write about it!
I Need Your Help!
As I said before, I feel like this Grand Unified Theory of Making Money needs some refinement. Which methods did I leave out? Can I simplify the statement: “There are three ways to make money: selling time, selling a product, investing, or some combination of these.“? What do you think about this theory? How will you apply it to your situation?
Share your thoughts in the comments below!