Passive income really is the Holy Grail of many small business owners. Why? Because it’s money you make without trying. Well, not really: you have to try initially, but once you’ve got your passive income stream going, it carries on flowing, whatever else you might be doing.
What is passive income?
Put simply, passive income is money you earn without doing anything for that particular chunk of money. Confused? Let’s look at some examples.
You write a book and sell it through a bookshop or online as an e-book. People can buy it whenever and there is no demand on your time and effort once you’ve produced it and got it ready for sale.
You set up a referral link to Amazon on your website so that every time someone clicks through and buys something from Amazon, you get a percentage back.
You accept advertising on your website. You say OK to requests to place adverts (this is different from having a free blogging or website service that has adverts applied to it unless you pay the provider not to do that) and make the requisite part of your website available: someone else pays you a regular or one-off fee to host that advert.
Get the idea?
How do you start earning passive income?
Most people will do something connected with what they’re doing already. Here are some examples drawn from Libro clients and people who’ve taken part in my small business chat feature:
- An author has created e-books and downloadables on how to publish an e-book, based on her experience publishing her first book
- A hypnotherapist has created CDs of hypnotherapy sessions which people can buy online
- A business advisor has franchised her business, so people pay her to run a similar business under the same brand name
You can see that in all of these cases it’s not magic, effortless income: you have to put some kind of effort in first, be it negotiating with an advertiser or creating a resource or franchising model. But once it’s done, all of these people can get on with their every day life, knowing that their efforts will be bringing in income.
How am I developing a passive income stream?
For my normal run of income, I do some work, whether it’s transcription, editing or proofreading, I charge my client for either the hours I spend or the minutes I transcribe or the words I edit, and I can’t do any other similar work at the same time. One piece of work for one client, one chunk of income at a time. That’s fine, but will only go to a certain point. So I have developed a couple of streams of passive income, and while they’re only trickles at the moment, I hope to expand at least one of them in the future.
- Referral fees. Having checked out their services and assured myself that they do a good job, I recommend self-publishing authors to use a print-on-demand publisher I know (this saves the authors having to pay upfront for millions of boxes of printed books that they have to sell themselves or, hopefully, getting ripped off). I am very clear when I recommend that I will be getting a small referral fee for this – so I’m not duping anyone into going for a service only because I will benefit. I haven’t made much out of this so far, but it’s there and something is better than nothing!
- E-books. I published my first e-book, How I Conquered Cholesterol, a few months ago. It’s selling small numbers steadily – OK, about 20 per month so far. It’s made me around £40 in royalties so far – again, not much, but not nothing. It took me a few hours to write, so I haven’t made back my initial investment in terms of those hours being worth money if I’d “sold” them to other projects – but I did this in down time, I didn’t cancel any bookings to do so, and most importantly, I learned all about publishing e-books on Amazon from the process, which helps me understand what some of my clients need to go through.
For the future, I’m planning another e-book based on this Libro Full Time blog, detailing how I went full time and what it was like. This actually fits better with the rest of my activities than the cholesterol one, and I’ve certainly got more contacts and friends in the small business world than the heart health one, so I’m hoping that one might do a bit better.
Remember to record your passive income in your accounts
Passive income doesn’t come from an invoice. That doesn’t mean that you can leave it off your accounts sheets, not pay tax on it or not record it at all! Here’s what I do …
- I keep paperwork for any passive income that comes in. Amazon sends me a statement when they send my royalties. These come straight into the bank account I registered with them. The publisher, at my request, sends me a statement of which people came to him and how much I am making for each, then transfers the money into my bank account.
- I have a section on my accounts sheet for passive income, so that tots up and makes up part of my turnover and thus profit – and it can then be easily recorded in my bank reconciliation, too.
Have you tried getting a passive income stream going? What have you tried and how has it gone?
Fiona Cohn
Nov 30, 2012 @ 23:57:12
Great post Liz. I’m waiting for my aha moment to put together something to bring in a passive income stream. And now you’ve got me thinking. I like the ebook idea.
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Liz at Libro
Dec 01, 2012 @ 10:06:11
Thanks for your comment, Fiona, and glad I’ve given you some ideas!
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siliconbullet
Dec 03, 2012 @ 11:46:07
I am building up a passive income too – through becoming a distributor for Forever Living products. When you reach a certain level you earn Royalty Income which continues even if you take a break from your own business – and it is willable to my children too. Why not see if your passive income can be passed on should something happen to you – after all if you have worked to build it up surely your loved ones should benefit. You can read about my business at http://www.siliconforever.co.uk.
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Liz at Libro
Dec 03, 2012 @ 11:51:59
Thanks for telling us about your passive income stream, and for raising the issue of inheritance!
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Zach
Dec 04, 2012 @ 09:34:17
I primarily use youtube and it works really well. Set up youtube channels, and continue to add related videos and the passive income comes in. Youtube so far is the only thing that has worked for me. Paid traffic hasn’t really been as successful and targeted as youtube. But youtube is picky and really wants naturally occurring traffic. I have tried buying views but this hasn’t worked as a long term strategy. Slowly and steadily building a quality youtube channel is the way to go for consistently growing passive income. Best and thanks for allowing me to share.
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Liz at Libro
Dec 04, 2012 @ 09:37:42
Thanks for sharing, I’m not sure how you make money out of YouTube, do you use it to sell other products, just leaving the video up there to act as a sales channel?
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Zach
Dec 04, 2012 @ 09:49:11
What I do is build niche related youtube channels completely targeted on one main keyword and I include lsi keywords under a long description under each video of what the video is about and what my experience is with it. Under the video I will promote affiliate offers in whatever niche I’ve chosen. I’ll use clickbank and some private affiliate networks. Here is an example of a channel I am building:
I’ve found that every time I add a video my views for my other videos will increase so I try to add a new related video once a week. I will also buy video comments on fiverr to get the video started gaining momentum. Youtube eventually starts recommending the videos I’ve uploaded and I get most views from youtube recommendations because the keywords are so targeted. Theres more but, I think you get it.
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Liz at Libro
Dec 04, 2012 @ 09:54:55
That’s interesting, thank you. I’ve included the link because you’re explaining what you do so other people can learn from it – thank you for that.
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Zach
Dec 04, 2012 @ 10:03:09
It may be a little black hat because I share youtube videos with no share restriction that I did not make. Just any video I think is high converting related to the niche. For you though, you could easily build a channel making 1-2 minute videos of you talking about your book or niche related to your book and you would get constant and consistently growing traffic to your book for as long as youtube exists. It really is awesome. I just started making a lot of money with this so I’m excited about it. Hope this helps and congratulations on your sales thus far. People must be really enjoying your work.
I hope to release an ebook soon about how to freestyle rap. I’ve been learning all of this marketing stuff to get ready for that.
I think I’ll release it on click bank so I can have friends promote for me and get paid but I am curious about kindle and amazon as well. Selling on Amazon is intimidating to me for some reason though.
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