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It’s an exciting time to delve into the world of passive income. The internet has exploded with countless opportunities from self-published books to online courses and from e-commerce to robo-investing. It’s no longer a matter of where to look, but what to choose from a plethora of options.
I traded the earned income lifestyle for a passive one a few years ago. I got sick and tired of the work-to-earn pattern of income and desired change. Working on passive income projects and assets allows me to attract revenue around the clock whether I am working or not. Self-employment is right up my alley and provides flexibility I did not experience in my mundane 9 to 5 existence. These two facets combined, passive income and self-employment, have made daily work much more enjoyable.
I currently attract six passive income streams, and together, these streams yield thousands every month:
- Blogging (multiple streams)
- Ebook royalties
- Online course royalties
- Affiliate commissions
- YouTube ad revenue
- Investment income
I forecast my monthly revenues with relative consistency and like what I see, so my passive income activities are here to stay. I am looking at adding another stream through niche affiliate sites and have just gotten this venture underway. I am glad I chose to focus on earning residual income and only wish I would have made the decision sooner. Earning passive income is challenging yet easy once you consider the success factors I address in this book. Here are the 14 ideas and a couple of excerpts.
4 Categories and 14 Ways to Make Passive Income
1. Content Producers: blogger, affiliate marketer, author, online instructor, and YouTuber
2. Techies: app developer, online tool developer, WordPress theme and plugin developer
3. Creative Retailers: creative stock publisher, product designer, and drop shipper
4. Investors: landlord, investor, and lender
Passive Income Explained
Passive income is revenue that’s received on a regular basis with little or no ongoing effort made to receive it. Also, it can continue indefinitely after the initial effort has been put in. For instance, an author attracts royalties five years after publishing. Passive income is also known as residual, recurring, unearned, and sleep income.
- Passive income is an incredibly rewarding and satisfying way to make money because income can be generated around the clock without direct involvement.
- Passive income can lead to financial freedom if the money generated exceeds financial needs e.g. living expenses.
- It can last for many years into the future and perhaps an entire lifetime.
- It can provide a safety net when earned income stops or isn’t available, for example, a full-time employee is terminated from his work, but he continues to receive income from his self-published online courses.
- There’s no limit to how much passive income can be made in most cases.
- The idea of passive income is glorified all over the internet, but it’s difficult to achieve a hit product, service, or method to attract sufficient revenues.
- Passive income success is hard to achieve because so many people are drawn to the idea resulting in plenty of competition. An example of this can be seen in the self-publishing market with a plethora of new books released every day.
- You may have to invest a lot of time, effort, and capital upfront only to experience a net loss.
- It can be months or years before a passive income product or idea takes off, if at all.
- Products/services can become obsolete or decline in demand which can negatively impact future revenues.
- Only a small percentage of people generate enough passive income to become financially independent.
Passive vs. Earned Income
Earned income differs from passive income in that it derives from active or ongoing participation in a task or series of tasks e.g. a job. The moment earned efforts end, earned income stops with them, for example, an employee quits her job and immediately stops receiving paychecks from her former employer.
Borrowing from my travel experiences, I can explain earned and passive income this way. When I was in Brazil, there was a man, Sam, who spent two weeks building an exotic sand castle. Sam’s aim was to have his castle ready for the busy summer season. After completion, day after day he sat beside his castle and socialized with friends (he wanted to monitor his castle). He put a sign in front of his castle requesting a fee of $2 to take pictures of it to “support the arts.”
On the same beach, there were clothing merchants. The merchants had to work every day to earn money. Any day they didn’t work resulted in no opportunities to make money thus no revenue.
Sam worked for two weeks, completed his project, then attracted revenue passively while expending barely any effort to maintain his castle. The merchants had to work each day to generate income.
Online Marketplaces: Friend or Foe?
A discussion about passive income and making money online invites a more in-depth conversation about online marketplaces. An online marketplace is a type of e-commerce site where products and services are provided by multiple third parties with transactions processed by the market operator. Their selection is wide, product and service availability is high, and prices are more competitive compared to standalone sites. Frequently visited online marketplaces include:
- Apple App Store
- Creative Market
- Getty Images (iStock)
There are many advantages and disadvantages to using marketplaces which we can review.
Advantages for Sellers (You and I)
- Marketplaces offer plenty of traffic and customers, so they’re perfect for making money fast.
- They spend millions on brand awareness and marketing.
- They provide a template or layout which sellers simply need to populate.
- They host your profile, products, services, etc.
- They take care of processing, financial transactions, and fulfillment.
- They’re an excellent and quick way to expand your online footprint and profile.
- Leads and additional sales may come through having a marketplace presence.
- It can be inexpensive or less expensive to operate a business in a marketplace compared to a standalone site.
- They take care of technical and web development activities.
- You must play by their rules and guidelines which can constrain your activities.
- It’s you against the marketplace since rules often change to benefit their bottom line, not yours.
- If their business goes down, you go down with it, so you have to hope competent management is in place (50-50 chance).
- A significant change in their business model or shift in focus can significantly hurt your revenues.
- Marketplaces tend to give preferential marketing and promotional treatment to their best-selling partners which can leave you to fend for yourself.
- Seller support is usually dismal if you’re not a top provider.
- Marketplaces may set the pricing range for your products/services. This may not align with your revenue and profit goals.
- You typically have to split/share revenues with them.
- A lack of transparency regarding internal marketplace activities means you have to hope/trust everything is working as it should.
- They can terminate your partnership for any number of reasons leaving you with little recourse.
- Your profits/payments are usually delayed anywhere from weeks to months meaning marketplaces and customers benefit from transactions long before you do.
- You don’t gain access to customer data e.g. email addresses even if you’re responsible for bringing those customers to the marketplace (customer data drives a business forward).
- Sales reporting can be inadequate not giving you a line of sight to the information you need for effective analysis and decision-making.
- With so many rules, constraints, and revenue sharing, it can feel like you’re working for the marketplace thus not working for yourself and having little control of your destiny.
- Search engine optimization parameters may be limited which could result in fewer opportunities to influence your visibility and rankings.
- You’re a tenant in their domain.
As you can see, the disadvantages far outweigh the benefits of using online marketplaces. However, if generating income quickly is a top priority, or you’re new to working online, then marketplaces can be very beneficial especially in the short term. For example, selling on Amazon has proved to be very financially rewarding in my case. In the long-term, however, putting yourself, brand, and assets first before marketplaces and social media networks are the way to build a thriving online presence and business. For instance, prioritizing your blog or e-commerce site over a marketplace.
The most successful passive income earners didn’t take the easy, lazy, and convenient marketplace approach. Rather, they worked hard to build their brands one project and product at a time and are reaping rewards far greater than the majority (95%) of marketplace sellers. Furthermore, they experience greater decision-making control and work freedom.
Ultimately it doesn’t have to be an either-or decision. You can leverage marketplaces while developing your online platform inviting a holistic approach. Just make sure you don’t let them get the better of you, but the opposite, so that you don’t end up a marketplace puppet or bitch. Seeing dollar signs is a wonderful feeling, but you need to remain steadfast with a goal to generate sufficient passive income independent of marketplaces.