This post includes excerpts from my book, Passive Income: Create Passive Income Streams with Little to No Investment.
What Is Passive Income?
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 her book. Passive income is also known as residual, recurring, unearned, and sleep income. Earned income differs from passive income in that it derives from active or ongoing participation in a task or series of tasks—usually a job. The moment earned efforts end, earned income stops. For instance, an employee quits her job and immediately stops receiving paychecks from her former employer.
Benefits of Making Passive Income
- Passive income is a very gratifying 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 and living expenses.
- Passive income can last for many years into the future and perhaps an entire lifetime.
- Passive income 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 a person can make in most cases.
Drawbacks of Making Passive Income
- The idea of making passive income is glorified all over the Internet, but it is difficult to create 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 book market with a plethora of new books released every day.
- You may 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.
- Passive income products and services can become obsolete or decline in demand, which will negatively impact future revenues.
- Only a small percentage of people generate enough passive income to become financially independent.
Passive Income Categories
There are many exciting ways to generate passive income, and I am going to highlight several of them. I’ve created four job categories for earning passive income streams.
- Content Creators
Content creators are engaged in creating content and information mainly through digital media. For example, blogs, books, and videos. Content creators include bloggers, affiliate marketers, authors, online course instructors, YouTubers, and Facebook group and page owners.
Techies develop products and services based on internet technologies. They focus on the online environment to deliver innovative and practical solutions. Techies include software, app, online tool, and WordPress theme and plugin developers.
- Creative Retailers
Creative retailers design and produce digital media assets for all sorts of online projects. Digital assets include photos, images, video clips, audio files, and so on. Also, they procure, create, and sell retail products and services online. Creative retailers include creative publishers, drop shippers, product designers, and service arbitragers.
Financiers have and desire to put their money to use. They seek to invest in traditional assets like real estate and investment securities to attract passive income. Investors include landlords, investors, and lenders.
1 ) Blogger
Blogging is what I do at chadtennant.com. I write about marketing, WordPress, self-publishing, passive income, personal finance, and online business then post blogs to my site. Other bloggers write and share their ideas and experiences about travel, food, fashion, lifestyle, tech, politics, and so forth. Many bloggers, including myself, use free WordPress.org software and purchase hosting to keep our websites up and running.
Bloggers can attract multiple streams of passive income and monetize their sites with:
- Ad revenue via Google AdSense
- Affiliate marketing
- Evergreen webinar sales
- Online course sales
- Membership fees
- Subscription fees
- Private ad revenue
2) Affiliate Marketer
Affiliate marketing is a process in which a merchant (advertiser/company) provides compensation to a partner (publisher/affiliate) when the partner generates traffic, leads, or sales for the merchant. For example, as a DreamHost affiliate, I promote their web hosting services on my blog. If someone clicks on my DreamHost affiliate link and makes a purchase, I will receive a commission. Affiliate marketing is essentially selling without being hired to sell or act as a salesperson.
Affiliate marketing is a billion-dollar industry facilitated by hundreds of thousands of companies, website owners, and bloggers. Companies such as Amazon, American Express, Apple, eBay, Microsoft, Sony, Starbucks, and thousands more offer affiliate programs—some with good program incentives and some without. With so many affiliate programs to choose from, there’s something for everybody.
Some companies run in-house affiliate programs, like Amazon, while others join top-rated networks such as ShareAShare, CJ, FlexOffers, and Impact Radius. There are benefits and drawbacks to each approach, but your primary concern is being able to promote products and services that appeal to your target audience.
Authorship is one of the oldest ways to make passive income. Authors earn royalties each time they sell a book. For example, I receive a 70 percent royalty on my e-books that are priced at $2.99 or above.
Amazon makes the self-publishing process painless and quick so that everyday people can write, publish, and profit from their ideas. Amazon operates CreateSpace (paperbacks), Kindle Direct Publishing or KDP (e-books), and Audiobook Creation Exchange or ACX (audiobooks) for a complete self-publishing solution.
Books are unlike most passive income activities because a manuscript can generate three separate income streams, i.e., paperback, e-book, and audiobook revenues. I see hundreds of self-published authors offer readers one or two book formats, but very few offer all three. I began offering audiobooks last year and have already made hundreds of sales (and passive income from the ACX bounty program).
4) Online Course Instructor
E-books are one way to package and sell information, but the ascent of online video arguably yields a more engaging approach. The popularity of e-learning has led to a $100 billion industry, and companies including Codeacademy, Coursera, CreativeLive, Treehouse, and many others are taking advantage of it.
Earning royalties from books is no different than earning royalties from courses. However, creating excellent courses does require more technical know-how regarding video production and content delivery. For example, will you appear on camera or do voiceovers?
Online instructors have two legitimate self-publishing options, that is, Skillshare and Udemy. On these platforms, you would create an account and go through the motions of setting up your course. Teaching opportunities exist on CreativeLive, Lynda, and Pluralsight, but these aren’t self-publishing platforms per se. You must apply and inquire about creating classes on these websites.
Business Insider has published the highest-paid YouTube Stars of 2017, which highlights how much the top YouTubers are making. At the high end, a twenty-six-year-old was pulling in $16.5M in pretax profit and rounding out the list was a superwoman who brought in $10.5M. These impressive figures excite me despite the constant demonetization news surrounding YouTube. YouTubers earn residual income through:
- Ad revenue
- Product and merch sales
- Affiliate and influencer marketing
- Directing traffic to a landing or subscription page
6) Facebook Group or Page Owner
Facebook groups are plentiful, and you might belong to some. My Facebook group has grown to over 26,000 members, but this didn’t happen overnight. I started my group in Q3 2014 and membership has increased steadily. I have a moderator who takes care of day-to-day activities, which gives me more time to focus on other things.
There are various ways to profit from Facebook groups, which I cover in a video on my YouTube channel. Generating decent passive or semi-passive income from a Facebook group requires a sizeable audience because engagement is always lower than the membership total. I monetize my Facebook group by posting affiliate links, my blogs, and YouTube videos to get commissions, traffic, and views. Also, I’ve charged to advertise in my group.
7) App or Software Developer
The app market is as wide open as the self-publishing market because of how many app categories and subcategories exist. Yes, the gaming market has experienced tremendous windfalls, but so too has business, education, lifestyle, and entertainment app categories.
Believe it or not, success in the app market is less dependent on programming skills and more dependent on ideation, which is the formation of ideas and concepts. If you have an app idea but lack mobile development skills, it is easy to hire an app developer through freelancer marketplaces like Fiverr and Upwork.
Do you know that dull calculator app that you use occasionally? It is making somebody money. App developers can generate passive income by taking several approaches including:
- Device royalties and licensing fees
- M-commerce sales and subscription fees
- Affiliate and advertising revenues
8) Online Tool Developer
I use websites like convertcase.com and alertful.com to simplify my work and life. There isn’t anything innovative or mind-blowing about these sites, but they offer tools that help me. Making passive income cannot get much better than owning an online niche tool or automated service. You’ve probably come across your fair share of logo generators, button makers, SEO analyzers, and document conversion websites. What’s interesting about this residual income stream is many online tool sites are dated and could use a reboot in website design and SEO, resulting in plenty of opportunities.
The passive income streams will not surprise you as we are talking about a website, so many of the revenue streams will mirror that of a blog.
- Ad revenue
- Affiliate marketing
- Product or service sales
- Subscription fees
- Private ad revenue
9) WordPress Theme or Plugin Developer
The WordPress universe is comprehensive and generous in its offerings. The free WordPress open source software makes creating websites easy, fast, and efficient. Individuals can choose from thousands of themes and plugins to develop unique sites. Furthermore, WordPress yields at least 18 ways to make money. Regarding passive income, developers can sell themes and plugins on marketplaces and their sites.
10) Creative Stock Publisher
Photographers, videographers, graphic artists, illustrators, and audio creators can sell their creative wares on marketplaces, for example, iStock and Shutterstock. Content creators and website owners are continually purchasing creative assets to adorn their sites, blogs, and YouTube channels.
11) Drop Shipper or Online Retailer
Drop shipping is a retail fulfillment method where a store does not stock the products it sells. When the store sells a product, it then purchases the item from a third party and has it shipped directly to the customer. Thus, the merchant never sees or handles the product. Instead, the merchant purchases inventory as needed or just-in-time (JIT) from a supplier—usually a wholesaler or manufacturer—to fulfill orders. The business model behind drop shipping is that you need an online storefront and the ability to drive traffic to it. Everything else is handled by suppliers and third parties on the backend while you walk away with your share of profits.
12) Product Designer
Product design is the process of creating new products and items from scratch or working on improvements to existing ones. As part of the burgeoning e-commerce market, the product design sector is flourishing. There used to be a time when product designers and creators were limited to local stores and craft markets, but that has all changed with the multitude of pipelines now available. For example, product designers can sell through Amazon Handmade, Merch by Amazon, eBay, Etsy, Redbubble, Zazzle, and many others.
13) Freelance Service Arbitrager
In economics and finance, arbitrage is the practice of taking advantage of a price difference between two or more markets: striking a combination of matching deals that capitalize upon the imbalance, the profit being the difference between the market prices. Service arbitrage involves taking advantage of the difference between the selling price and outsourcing cost of a service. Unlike traditional service people, for example, a plumber, service arbitragers hire others to complete tasks. For instance, you could offer SEO services and hire SEO freelancers from Fiverr to complete assignments.
14) Landlords & Hosts
Thousands of landlords and “hosts” are leveraging websites like Airbnb, HomeAway, and VBRO to attract rental income. Hundreds of success stories have been published about landlords and hosts that have made five and six figures from rental income. Some folks are sitting on vacant properties and basement apartments that could be used to make passive income. If this is you, get hustling!
I had a client who had $500K invested in the stock market, and every month he would generate approximately $2K in dividends and distributions, an annual yield of close to five percent. Naturally, the market went up and down, but his passive income kept coming. After he invested, he did not spend any time earning this money. Receiving dividends, interest payments, and other types of distributions is one of the oldest and most practical ways to generate passive income.
Peer-to-peer (P2P) lending is the practice of lending money to individuals or businesses through online services that match lenders directly with borrowers. Since peer-to-peer lending companies offer these services entirely online, they can operate with low overhead and provide services more cheaply than traditional financial institutions. Thus, lenders often earn higher returns compared to savings and investment products offered by banks, whereas borrowers can obtain money at lower interest rates. Popular P2P networks include Prosper, LendingClub, Zopa, and Funding Circle.