The Myth of Passive Income: Is It Ever 100% Passive?
Picture this: you wake up, enjoy breakfast with your family, have a swim, go for a run or meditate (whatever makes you happy!) You meet up with a friend for lunch, and while you’re sipping a mojito, your phone keeps buzzing. Your business is making money, while you’re busy having fun.
That’s the basic idea behind making “passive income.” You do whatever you want, whenever you want, just as long as you attend a few meetings and put together occasional promotional content: quick video, something in writing here and there, or even a podcast.
That’s the idea, right?
This post was originally recorded as a video. To watch instead of reading, check out the clip below.
Types of “Passive” Income
“The Internet” keeps telling us (small business owners) that we should be making passive income. All. The. Time.
However, you can’t just wave a magic wand and pluck passive income out of thin air. Before you get to the level where you’re actually making passive income, you will need to invest - time, money and effort.
First, let’s take a look at a few online business revenue streams that are generally considered to be passive income.
- Online course (with an evergreen funnel)
- Membership or subscription programme (not including live elements)
- Affiliate marketing: promoting products in blog posts, social media, or emails, and getting commission if people end up buying as a result.
- Dropshipping: running an online shop without holding or handling any physical stock. Instead, orders are automatically fulfilled by a third party company.
- Subcontracting: offering services but outsourcing the actual work.
Be honest (and tell us in the comments) have you ever created an online course, run a membership, or tried affiliate marketing? How “passive” did it turn out to be?
Most of those that I’ve experienced do actually take some work - I’ll go deeper into that below.
Now you may be saying, “Of course there’s such a thing as passive income! Look at all the billionaires who are just waiting for their money to make even more money by itself!” Well, you’ve got me there. Making existing money work for you is not the subject of this post - this is really about creating a business model that generates passive income.
3 Reasons Why “Passive” Business Income Isn’t 100% Passive
1. It Costs Money & Time to Set Up Your Passive Income Stream
Let me introduce you to the concept of “leveraged income” here.
Leveraged income means you create something once, after which you can sell it often. From books (ebooks or real paper) to online courses, from music (on a CD, YouTube or Spotify) to tickets to an online summit; there’s just no limit to the number of times you can sell the thing.
But before you can sell it, you have to put in the work.
Months, sometimes years of writing. Finding a record label, lobbying distributors, setting up an online marketing campaign. Creating a passive income stream can cost a lot of time, energy and sometimes money in the initial stages.
Another term you might hear in the context of passive revenue is “recurring income.” Subscription box services or online memberships are good examples of this. They can be leveraged (especially in the case of a digital product) so you don’t need to put in more work when more people join, but they’re not 100% passive. You still have to provide your members with excellent service month after month.
That being said, you can outsource the setup and admin tasks surrounding your leveraged and/or recurring income. That's what we specialise in at SmartAlpaca: you show up for your weekly call, and we make the backend work for you. Schedule a call to discuss your own project!
2. Outsourcing The Tasks
One pretty efficient way of making a regular income stream passive is by outsourcing the tasks associated with it.
For instance, if you’re offering one on one services, like a graphic designer, web developer, VA or social media manager does, you could turn your business into an agency, with other people doing the work for you.
You’d still need someone to manage your subcontractors and negotiate with clients - but hey, you could outsource that too.
I believe you can make any type of income stream passive at a certain point - if you invest enough in setting it all up and outsourcing the actual tasks associated with it.
It’s the same thing with an online course. You could turn it into a passive income source if it makes enough money for you to outsource tasks like marketing, customer support, or answering questions from potential buyers. But a lot of online gurus make it sound like setting things up is a breeze and then you'll make loads of money without ever looking back; that is very rarely the case.
Don’t get me wrong here, I’m not saying you should never outsource any tasks before your (potential) passive income stream is making enough money to justify it. Sometimes it’s smarter to invest in hiring people who know what they’re doing, rather than trying to do everything yourself.
(Just remember that, if you’re investing more than your product is making, it’s not technically passive income.)
3. Keeping Things Fresh And Up-to-Date
Imagine: you create an online course. You set up an evergreen ad campaign (so new students keep streaming in steadily throughout the year.) You set up systems to take care of the back end, hire someone to do customer support and a team to take care of day-to-day affairs, like content marketing, social media and SEO.
That’s it; you’ve reached it- total passive income. Now you can go on that expedition to Alaska - as long as you pay your invoices from time to time (or get someone to do it for you).
You’ve got it all figured out… except things may change.
Maybe new findings on your course topic suddenly make it outdated. Or perhaps the industry just changed over time. Or your lead magnet is copied by someone else who’s more “present” online, leading to a decline in signups.
Whatever it is, that leveraged income stream you’ve worked so hard on making passive for you will likely require you to invest in it again. More time, more money.
How to Build a Nearly-Passive Income Stream
To be clear, I am not advocating against making passive income. I’m just trying to caution anyone starting out that passive income might not be as passive as you expect.
There are some great ways to make passive income - or rather, leveraged or recurring income. I mentioned a couple of them above!
If you’re not sure how you might make leveraged or recurring income in your business, or if you need strategic support with an existing course or membership, we can help you with that. Schedule a free call to find out how we could work together!
Is there anything you’d like to add to this? How are YOU (planning to be) making passive, leveraged or recurring income?