What is Passive Income and How Can I Make Some
If you’re not familiar with the idea, passive income is a way of generating income without having to actively do something in return. Sounds awesome right! Whilst this is not a new concept, it’s been possible to make passive income well before the internet came along. What is new is the growth in the number of options available to budding internet entrepreneurs and their relatively low barriers to entry.
The term passive income is a little misleading. There a very few ways of actually making good money on a regular basis without doing anything. There’s no push button dispenser pumping out pound coins, at least not that I know of. What they really offer is a multiplicative effect of the effort you put in, something traditional forms of work can’t.
Traditional forms of employment start at school. We learn bunch of stuff which is deemed to be a useful skill by the labour market, we then head out into the big wide world ready to trade our time and skill in exchange for money. As you acquire more skills and experience your time become worth more and so you get a bigger salary.
Now this process is great if you have set of skills and experiences that the market deems to be worth paying lots of money for. If that’s the case, as your career continues, you’ll move up the ranks into increasingly senior roles and hopefully watch your remuneration package grow with you. But, and this is a big but, you will still be trading time for money, you’re just getting a better deal than most other people. In fact, chances are the more senior you get, the more of your time will be demanded. So whilst you’re getting better pay, when you divide this by the number of hours you put in, you may not be as far ahead as you at first thought.
passive income is not really passive, you still have to put in a lot of effort to be successful
So that’s active income, you actively work for the money that you’re paid. As I said in the opening, passive income is not really passive, you still have to put in a lot of effort to be successful in whatever avenue you choose, but the key difference is that it no longer scales linearly based on your time input, you’re not longer the bottle neck.
Once a piece of content, a product or some other good is created, the main bulk of your work is done, by leveraging the network effects present in many of today’s internet platform it’s possible gain access to huge numbers of potential customers. Each of whom, if happy with their experience of your product, is likely to endorse or share it with their circle, further growing your potential audience.
So, what sort of things actually constitute passive income? Well here’s a list of some of the more common, it’s by no means exhaustive, but it captures the key ones and those most likely to make a reasonable return.
The perceived wisdom is that blogging alone is probably not going to make huge sums of money. Just writing posts and sticking it up on the internet is just not enough, and it’s one of the reasons the majority of blogs don’t make money.
What they do offer is a platform to engage a community of people and build trust with that community by offering content of value. You can then leverage that audience to drive them into other channels that can make money.
The key here is to add value, this is a two-way street and needs to be an equitable exchange. By offering content that helps people solve problems or learn something, you’re much more likely to be able to monetise that audience later on.
So long as you have enough good quality traffic, it’s possible to use many of the ad networks available to offers up ads to your readers and get paid for either the number of impressions or the number of clicks. The reality is that without a reasonable amount of traffic you’re either going to struggle to be accepted by the major ad networks, or you’re just not going to have the volume to make huge sums, at least not at the start.
Care also needs to be taken to ensure the ads that are being displayed on you site are of good quality, in line with the tone of your site, technically safe and suitable for your audience.
This is a way for other sites that are selling something, be it a physical or digital product, to get more traffic to their site in the hope that it will convert into a sale. Normally you, the affiliate, signup to the sites programme and receive a unique ID which is then embedded within the links that you position on your pages. If someone clicks one of your links and then makes a purchase, the purchase will be attributed to you and you’ll and earn some commission.
There’s a bunch of people offering this type of programme from small start-ups looking to gain traction to massive behemoths like Amazon or affiliate marketing platforms like ClickBank.
As an example, you can sign up to Amazon and then using your affiliate ID generate links for any of the products Amazon sells. You then write an article espousing the virtues of said product and if one of your readers clicks on the link and makes a purchase, you’ll get a percentage of the sale price. This typically varies depending on the category of the product. Check out Amazons fee schedule to get an idea.
This is a broad category covering all non-physical, digitally delivered products. So, think eBooks, video courses and images, webinars, online summits or software. Anything that can be created, stored digitally and then distributed to an audience. Whilst this may not be day one activity it’s a great way to offer some real value to an audience, whilst generating some solid income.
These can be particularly successful once you’ve managed to build up a strong email list.
Investing is a little different from the others I’ve mentioned so far due to the down side risk involved. There’s little chance with many of the other options explored here that you’re going to lose money, time maybe, but less likely significant funds. As a result, great caution needs to be employed here and the right advice sought. That said, with the right investment it’s possible to generate passive income in the form of dividends, but also potential equity growth.
YouTube is the second largest search engine in the world, generating over 3 billion searches a month. That’s a staggering amount of traffic that can be tapped into to generate passive income. The model YouTube uses is to insert ads before the main content plays. For each ad played, the content owner gets a small placement fee. With enough great quality content, more viewers will be drawn in, meaning more ads are shown and hence more revenue generated.
To take this to extremes PewDiePie has been estimated to make nearly £3 million just on YouTube ads, but YouTubers with much smaller subscriber bases are still making good money from content on YouTube.
Personally, I think this is one of the most exciting opportunities available on the internet today. Without a shadow of a doubt, Amazon is the 500-pound gorilla in this space. It’s estimated that over 50% of products sold on Amazon are sold by private sellers. Now these are not all private label products, but a good chunk is.
Private labelling is the process of taking a product that’s already being manufactured, potentially making some customisations, and then selling it under your brand name via platforms like Amazon. There’s a number of ways to find such products, but Alibaba is a current favourite. Once you’ve found a number of manufacturers, you request the products be manufactured to your specification and then ship them directly to an Amazon warehouse. Using Amazon’s FBA service, means as a private label seller, you never need to touch the product between manufacturer and buyer.
Of course, this is a gross simplification of the process, but the end result is access to the huge market that Amazon serves and the potential to make significant money in the process.
Where to start?
Good question! With the right amount of effort and focus and a good slice of luck, any one of these could potentially make a reasonable return, but trying everything all at once is destined to result in failure. With that in mind I’ve selected a couple of that I’m going to pursue right now.
The private label route is probably the one that appeals most, not only is it something that can develop into a real, potentially saleable business, but if successful could generate some great returns. I also love the idea of being able to create a real, tangible product.
Of course I’m going to use this blog as a means to document my progress and in the process, look at ways of growing its readership. Which I’ll also document as the process continues.
If there’s any passive income ideas I’ve missed or if you’ve got hints and tips on succeeding in any of the above, let me know in the comments below. And don’t forget to sign up to the email list to get updates on new posts.