If you’ve been hanging out on the internet for any length of time, you’ve probably heard the term ‘passive income’ being thrown about. Books like The Four Hour Work Week have generated something of an obsession with passive income, but it often doesn’t look much like the picture books like this one like to paint. The term ‘passive income’ conjures up images of earning 6-figures whilst only working an hour a day from your beach-front villa in Bali, but the reality is very different.
However, it’s still an important thing to consider when assessing the income streams in your business.
Passive income is income which you earn that requires little or no input from you. The truth is that no income stream is completely passive, all income streams require marketing and nurturing to be profitable.
The term has evolved to include the sort of work that you can do once and sell forever, like writing a book or creating an online course, rather than the traditional exchange of money for services, or goods that require manufacturing.
Passive income streams can include:
Print on demand
Membership sites (like the ones you can build with SubHub!)
The main differentiator of passive income is the fact that the work involved is largely ‘front-loaded’, so you can expect to spend the bulk of your time creating the product at the beginning, i.e. creating an online course, writing a book, or creating artwork for printing on demand.
Once the product has been created, your time on the product is limited to sales and marketing, and periodic updates to the product if applicable. With affiliate income, there’s no need to even create anything (see our blog post on affiliate marketing here).
Affiliate income is when you sell someone else’s product and they give you a percentage of the cost. Many online course creators offer affiliate programmes as part of their marketing, for example.
You then sell their course, and they give you a cut. Perhaps the most well known is the Amazon Affiliates programme, when you use special affiliate links to recommend books or other products on Amazon to your audience, and in exchange, Amazon gives you a percentage.
Having one or more passive income streams in your business is an extremely good idea when you’re self-employed or have a small business. Think of it this way, if your business model involves selling your time for money, for example, personal training sessions, or music lessons, then you will only ever make as much money as you have time – there’s only one of you, after all.
However, if you create an online programme or membership site packaging up your expertise in a digital product, then there is no limit to how many times you can sell it (or people you can help). You could be teaching the flute to someone on the other side of the world in your sleep, and wake up to money in your bank account. Having a passive income stream of some kind is so sensible, because it means that you can be earning money without having to be there in person – your digital product can be earning you money whilst you’re eating dinner with your family, or off on holiday.