Passive income is the Holy Grail of all the ways to make money. Just the concept alone brings to mind the image of sipping margaritas on an exotic beach, while cash swiftly accumulates in your bank account. It seems like everyone wants a piece of the passive income pie. Just turn on a television late at night and I guarantee you’ll find at least one “foolproof” system for making easy money.
The question is can you earn a passive income? I believe you can. That’s because for the 18 months I’ve been living off the revenue streams I created over two years ago. The problem is a lot of folks have a misguided notion about passive income. They think it doesn’t involve effort. The truth is it is possible to build a passive income stream but you have to be willing to work hard to set it up.
Today we’re going to talk about how to create a passive income stream. Specifically we’re going to discuss how to use the Internet to set up revenue that’s practically automatic. So with that in mind, let me first clear up two myths…
Myth #1- Passive Income Requires ZERO Effort
This one always pisses me off. For a lack of a better term, the world is full of predators ready to take advantage of your gullibility. They use words like easy, simple, and automatic to convince you that it’s easy to make money on the Internet. Even worse, they make you believe that passive income requires zero effort. Like all you have to do is press a few buttons and WHAMO money flies into your bank account.
Repeat after me …
“There is no such thing as 100% passive income”
Yes, at this point I have an income that’s virtually automatic. But it took over 3 years to get to this point. During this time I spent many weeks working 50+ hour weeks – More than what most people do in their “full-time” jobs. My point is you should forget the notion that passive income requires no work. If you want money, then roll up your sleeves and go get it!
Myth #2- Full-Time Income = Full-Time Work
Next, I want to dispel the myth of working full-time to earn a full-time income. Right now, I spend an average of five hours a week on the activities that add up to a wage that’s better than your average American. This is good news because at the end of the rainbow of all your hard work is that period when you can sit back and enjoy the fruits of your labor.
It’s time to eradicate the idea that you need to work full-time in order to feel fulfilled. I’ve spent the last seven months traveling and working very little. But once I get home (today actually), I’ll be working at least 40 hours a week. My point is I work hard when I want to work hard. And I slack off when I feel like it. The effort I expend isn’t tied to another person’s preconceived notion of how much time I should spend on a business. Instead I’ve decided that my life will be separated into periods of serious effort coupled with times where I relax.
Now that we’ve dispelled those two myths, let’s get to how you can set up a passive income stream…
Step 1: Find a Way to Make Money
There are dozens, even hundreds, of ways to make money on the Internet. Your goal is to find one that can be automated. I’m sure you can earn a great living by being a freelance writer. However I wouldn’t choose this method because this income is directly tied to the amount you work. This type of job will never be considered passive because you need to expend effort in order to generate an income.
The secret to passive income is to build something one time and then use it to make an automated income. This can be done in a variety of methods:
- Affiliate marketing (This link has a step-by-step blueprint on how to build a successful affiliate business)
- Create a high-trafficked website and monetize it through advertising
- Build a series of niche specific businesses that focus on Google Adsense
- Write an information product or eBook
- Buy underutilized domains, improve them, and then flip these sites for a profit
As said before, you’ll have to work on each of these businesses. However these can all be considered passive because they can easily become automated. The litmus test is if you’re working full-time with no break in the foreseeable future, then it’s not called passive income, it’s called being self-employed. See the difference?
Unfortunately I can’t tell you what business is best for you. Although I personally use affiliate marketing and information products, I don’t think it would be fair to push you in any particular direction. What you create has to come from within. I recommend researching the best models for making money on the Internet and then starting a business that fits best with your lifestyle.
Don’t get sucked in by the “Internet marketing gurus” who promise an easy system for making money – Instead brainstorm/mind-map a system that’s simple to follow. My rule of thumb is if you can explain a business model on a small piece of paper then it’ll probably work. On the other hand, if can’t clearly describe how you’ll generate an income then this business is doomed to fail.
Okay, now it’s time to roll up your sleeves and get to work…
Step 2- Create Your Money-Making Mechanism
In order to make money you have to create what’s called an “offer.” This is something of value that people want. The nature of the offer depends on the business model you choose. For instance, you’ll need to do the following for these types of online businesses:
- Write an eBook and then build an affiliate program to promote it
- Develop a website/blog that takes advantage of search engine traffic
- Create a free report, landing page, and autoresponder sequence that promotes affiliate products
- Build a series of niche-specific websites that earn money from Google Adsense
This might seem like a repeat of the previous step. Actually this is the step of the process where you get to work. I know it’s not going to be easy. But you’ll be surprised at what you can accomplish if you dedicate a few hours each day towards building a sustainable Internet business.
Obviously this step is going to take awhile. Once it’s completed, you’re ready to move on to the third step…
Step 3- Generate Leads for your Online Business
This is the step where most online businesses fail. It’s not that hard to create an offer that makes money but it’s really challenging to get people to notice it. The fact is lead generation is the most important step in this entire process. It’s like being a salesperson… If you’re not cold-calling or networking then you’re not going to succeed.
In terms of an online business you do lead generation by directing web traffic to an offer. Some businesses (like my affiliate marketing site) only require a few hundred visitors a day. Others (like most Google Adsense sites) need thousands of people a day in order to turn a sizeable profit.
I can’t underemphasize the importance of web traffic. It really is the lifeblood of any Internet business. That’s why it’s important to spend time during the planning phase on how you’re going to generate leads for your website. Some of the techniques should include:
- Implementing Search Engine Optimization (SEO)
- Building a social media presence
- Using pay-per-click (PPC) advertising
- Running an affiliate program
- Creating videos on YouTube
- Writing eZine articles
- Buying advertising on email lists
- Networking and partnering with other sites
Each of these methods requires an in-depth explanation that can’t be covered here. So again, I put it to you to research the pros and cons of each. I can say that each of these methods has been successfully used by an Internet entrepreneur to build a solid passive income stream. Get the facts first and then try them out for yourself!
After setting up your sources of traffic it’s time to follow-up with the people visiting your online business…
Step 4- Following Up with Prospects
It’s been said by many experts that it takes over seven exposures to a marketing message before a person will make a purchasing decision. I don’t really know if is true or not. What I will say is you can skyrocket the success of an online business by getting people on an email list.
The best Internet marketing businesses have email lists. This is a group of prospects that can be contacted on a regular basis. Even if you’re not sending them an offer, it’s important to correspond on a consistent basis because this builds authority and trust. This list will be one of your most important assets. You can literally write an email in an hour and use it to make thousands of dollars. Powerful stuff, right?
How do you entice people to join an email list? I’ve found the best way is to offer a lead magnet. This is a valuable piece of content, given away for free, in exchange for getting a prospect’s contact information. You earn an income by providing great value on a regular basis and then mixing in the occasional offer that makes you money.
Also, it’s important to contact your list on a regular basis. I don’t mean pitching offer after offer. Instead be that one person who consistently sends useful content. Then when you make an offer people will buy from you because they’ve grown to trust your recommendations.
You might wonder what program to use. I personally recommend the Aweber email marketing system. I know it’s tempting to save money by using a freebie program. I think this is the worst mistake you can make. Most of the free email marketing programs are filled with advertisements and usually your emails aren’t delivered to the recipient. So basically you’re losing money every time the ‘send’ button is selected.
Finally I think it’s important to build a solid autoresponder sequence in your Aweber account. Initially you’ll want to send over 90% of pure content that’s helpful to the reader. Then once trust has been build you can drop this down to 70% to 80% with the rest centered around promoting a product that helps people on your list while earning you some money. Which leads us to…
Step 5- Automate, Automate, Automate!
Okay, the previous four steps were all about working hard. Now let’s talk about removing yourself as a cog in the machine. In other words, how you can automate this online business and turn it into a legitimate source of passive income.
I have to say automation is a beautiful thing. There are many days when I haven’t even looked at a computer – Yet I’ll earn $400 to $500. It’s a great feeling to spend a day traveling and then login to my Clickbank to see how much money I’ve made while having fun.
The question is how do you automate an online business? Well, that really depends on the nature of the site(s) you’ve built. Some can easily be automated, while others require a good plan and a lot of work. To give you an idea of what I mean, here are three different ways you can automate an online business:
#1- Run an Affiliate Program-If you own an info product then an affiliate program is a great mechanism for creating automated, passive income. Your job is to recruit people to promote your eBook by providing an excellent commission rate supported by top-notch sales tools and an email sequence that teaches them how to make money.
A lot of affiliates don’t know how to get started with a product. By providing a step-by-step blueprint you’ll give these people special knowledge most other product owners won’t reveal. The upshot is this empowers many affiliates to take action and promote your eBook. What’s cool about this technique is it doesn’t require much “hands-on” work. Basically you set up an affiliate program one time and others do the hard work.
#2- Manage an Email List- With this technique I recommend directing all web traffic to a landing page and getting people to subscribe an email list. The automated part happens when you set up a series of autoresponders. The members of your list will receive emails in a timed sequence that is a mix of quality content and direct sales messages. All you have to do is write these emails one time. The rest is handled by your email marketing program.
This technique works even if you have a content site – Specifically online destinations that are monetized through advertising like Google Adsense.
Again, all you have to do is get people onto an email list and set up a series of autoresponders. The only difference is every email will be a teaser of the content that’s on your site.
In theory, subscribers follow the hyperlink and then click on the advertising you’ve embedded in the content. Email marketing works well with Google Adsense because you can keep earning money from the people on your list because they’ll continue to click on your money-making ads.
#3- Search Engine Optimization- The third technique takes advantage of Search Engine Optimization (SEO). It’s easy to make money when you have a site gets a lot of organic traffic from Google. To monetize this technique you need to offer a product/service that specifically solves a problem people are looking to solve.
I’m definitely not an expert in SEO. But I’ve learned that search engines love sites that are filled with quality content. When you build a site that ranks well for thousands of keywords, it becomes easier to turn this into a passive source of income. All you have to really to is monitor traffic stats and make sure money is coming in.
Furthermore, it’s important to continue to add content. This can be done by creating it yourself. Or automate the process by hiring an outsourcer to post articles to the site. They get paid to create content, while you get to enjoy the fruits of their labor.
Now… I just gave three ways to automate the process of making money. Obviously this won’t happen overnight. In all likelihood you’ll need to work for months, even years to put your business on autopilot. Eventually though, the business will become automated and you can let it run on its own. However, there is one major obstacle that you will encounter at this point…
The Dreaded Product Life Cycle (PLC)
Every business has what’s known as a “product life cycle.” Without going into a long-winded explanation, a PLC has four major phases:
1) Market introduction stage
2) Growth stage
3) Maturity stage
4) Saturation and decline stage
What does this mean for your passive income business? To put it succinctly, you’re either growing or you’re dying. Sure, it’s fun to go off and enjoy the proceeds of a business. But eventually an outside factor will decrease your profits. On a long enough timeline this money will go away forever.
The harsh truth is there are a lot of things that could happen to eliminate this income. Your traffic sources could dry up. Google PPC could delete your account. Affiliates start promoting a competitor’s product. Basically anything could happen. And the sad thing is you won’t really know what will go wrong – Until it’s too late.
While I do believe in the power of passive income, I’m also a realist. You can’t ignore an online business indefinitely. Eventually you have to invest time into it or expect that the money will one day disappear. That’s why stress the importance of what I call “growth activities.” These are things that you (or an outsource worker) do on a regular basis to prevent the fourth phase of the product life cycle.
What does a growth activity include? This could be any (or all) of the following:
- Networking with other online business owners
- Creating more traffic to your site
- Expanding/Retooling your PPC advertisements
- Writing more ezine articles
- Adding additional content to your site
- Recruiting more affiliates for your information product
Like I’ve mentioned in other sections, a growth activity really depends on the nature of your passive income. The rule of thumb is to do a 80/20 analysis of your business, find what works the best, and then make 100% certain you always continue these activities.
Final Thoughts on Creating Passive Income
The world is full of passive income opportunities – Especially when it comes to the Internet.
While I’ve only covered a few techniques, there are a lot more out there. My advice is to take action right now. If you’re not working on building an online business that makes you money then it’s time to start.
Do independent research. Find a business model that works best for your situation. Buy the best product that teaches this technique. And then don’t stop till the money comes rolling in.
I know this sounds like a simplistic overview of what’s like to make money on the Internet. But this is the exact process I followed in late 2006. I found the best course that taught affiliate marketing , studied the lessons, and then worked my butt off till I was making a full-time income. It wasn’t easy. In fact, I spent many nights worried that I was making the right decision. However my dedication has been rewarded because for the last seven months I’ve earned money while traveling through Europe.
Well, this has been a pretty long post about creating a source of online passive income. I did my best to cover all you’ll need to do to get started. Now, I’d like to know your thoughts.
In the comment box below, let me know what steps you’ve taken (or you’re taking) to create passive income in your own life.Take Action. Get Results.