How an Online Passive Income Business Works

How an Online Passive Income Business Works
How An Online Passive Income Business Works

In case you’ve never heard of online passive income business models before, it’s about creating products or services and putting them on an online business platform that generates the income without the need for further input from your side. Sounds amazing, right?

Yes, some of those “Online Passive Income Businesses” do work, and they do generate income with very little input from the business owner. They work by outsourcing the active part of the business to an online third-party provider. But my experience has shown me that they are far from passive, at least at the beginning.

It does sound like a dream. You put a bit of effort into a new business for the first few weeks or months, then move to the beach and lay in the sun for the rest of your life while your business generates the income for your lifestyle.

But let me be straight with you, that is not how online passive income businesses work. Let’s have a look at some details:

What is an Online Passive Income Business?

We are using the word passive a lot in this article. Let me just clarify what this relates to. The word “Passive” always relates to the product or services you offer. It does not relate to your business. There are no passive businesses. A business requires actions in order to be called a business, but a product can be created once and never touched again.

This is what we are talking about here. Even if you have a great passive product, your business will need to be very active to make and keep making money with it. Just having money transferred to your business account is a (trans)action. You get my point. As an active business, you might have many online passive products.

When we’re talking about passive income, we’re talking about creating an online product, put it on an online third-party business platform and hope that the product will sell for a long time to come.

A good example is creating a blog with a theme and subject a lot of people are interested in. Add some advertising and affiliate links to the blog and put it out there for anyone to read. As more people read the blog, more people see the ads and click on the affiliate links. This provides income.

The most fashionable way today is with YouTube videos. Many “YouTubers” trying to create that amazing video that will go viral and be seen by millions of viewers. Because the video is monetized with ads provided and managed by YouTube, some get paid vast amounts of money without the need for any more work on that video. Hopefully for a long time to come.

Another great example is the book author. In the beginning, he takes the time to write a book, then gives it to a publisher, who puts it on the market. If the book sells well, he will receive royalties for every sale as long as the book sells.

Passive Income isn’t a new invention. It exists for a long time. Examples of offline passive income business are:

  • Renting property
  • Investment
  • Airbnb

to name a few, but the internet as a platform has made passive income an option for anyone interested without the need for large investments.

To sum it up: The idea of an Online Passive Income Business is to put a lot of effort into the creation of passive products at the beginning until it reaches a certain point from which onwards it reaps the rewards of the efforts with very little work on the product.

Which products work for an Online Passive Income Business?

Not all products can be easily outsourced. Some need continuous development, service or support, while others link to you as a brand and require you to be available to promote the products.

The attributes that make an online passive income product a good contender are:

  • the final product (no further development needed)
  • no need for continuous support or servicing
  • timeless
  • market-specific (niche)
  • informational
  • entertaining

If your online product fulfills at least some of these attributes, you might have a great passive income product.

Depending on your expertise, you can find passive income options in almost all market niches. In the finance sector, we can see another huge area of growth for online passive income products.

Affiliate Marketing

Besides advertising your own products, there is always affiliate marketing. Affiliate Marketing is about offering products or services from other companies by using your influence and brand to promote those products.

All you have to do is placing links to that product on your website, pointing to a third-party product provider and they take care of the buying process and pay you your commission. This is like the reversed role, where you are doing the sales via your informational product and your brand. But for this to work properly, you will need to have some traction in your niche.

The next step would be to find the right online platform for your product.

What are Online Passive Income Platforms?

There are many platforms out there. To find the right one for you depends on your product.

If you are looking for information on how to buy a car, you’re not expecting to pay money for this information. This is freely available with a simple Google search.

If that is the kind of product you have, you’re not actually selling the product itself, but you’re using the product to attract people to the information you provide. And wherever there are people, there is advertising. Instead of selling your product, you provide your product as a magnet for advertising. And advertising agencies will gladly pay you for this. Also linking to products from other companies as an affiliate for a commission works well on those information products.

But if you’ve created a step-by-step guide on how to change the gearbox of your car, you might have a product you can charge for. It all depends on the niche and on how much information is freely available about your subject. In this case, you could choose a sales platform, like Amazon for example and offer your guide or manual there for sale.

You can also combine both product types by creating a general information product to attract the visitors in your niche and in that article offer your paid products for sale. If both products are passive income products, you’ve got yourself a Passive Income Business.

Let’s have a look at the most common platforms for online passive income products:

  • Video platforms (like YouTube, Vimeo, etc.)
  • Course platforms (like Udemy, Teachable, Thinkific, etc.)
  • Podcasting platforms (like AdvertiseCast, etc.)
  • Blogging platforms (like Blogger, WordPress, Medium, your self-hosted blog, etc.)
  • Sales platforms (like Amazon, eBay, Shopify, Craigslist, etc.)

Some of them are just platforms for your content, while others provide advertising or affiliate services to connect to your content. Additionally, some might provide further services, fulfillment, etc. It’s all down to your type of product and on how much you want to outsource.

How much money does an Online Passive Income Business make?

This is a big question and depends on many factors. In my experience, as more passive you design your business as less money you will make.

Let’s take the example of a simple self-hosted blog like this one. If I generate a single blog and put it out there, the chances that it will attract a larger crowd of people is quite low. The reason is the way Google works. This blog relies on Google to be put in front of people searching for content like this one. If I only write one article, Google will not be very impressed. Its aim is to provide the best results to the questions people ask.

There are thousands of blogs out there writing about similar things. Now Google has to decide which one it wants to present. If the other blogs have more content or more relevant content, Google will see this as a better source and present it to the user.

That means the only way I can generate enough traction is by constantly creating great and relevant content. This shows Google that I am serious about the niche and it might move me up the scale to be seen by more people.

If now more people click on my content and stay on my article, reading the whole thing, it shows Google that the people liked it. That again will move my article up the ladder. Can you see how the process works?

This is far from passive. At least as a business. Yes, my article (product) is written once, but my business has to work hard, producing more and more products to give the initial product a chance to create income.

Advertising Income

I’ve spoken to a few online marketers about the amount of money they make with their online products. There is a lot of variation, depending on the market and the products.

In the online blog advertising space we can look at 4 major players:

Based on my own experience and what other marketers told me, on average you can expect anything between $2.00 USD and $17.00 USD per 1000 page views. Google Adsense is the lowest payer, but the easiest to start with. The others require you to have a larger number of page views before they accept you as a client.

For YouTube, you can calculate with around $30.00 USD per 20.000 views.

Direct Sale Income

Vimeo offers a Video On Demand option, where you can charge people an amount of your choice to watch your videos. This could be interesting if you have great content in a specific niche with information or guidance which is otherwise not available.

Course platform payments depend on the subject/niche and the price of the course. But there is a lot of competition in this space and in my opinion, there are only a few who make a real living out of it. It starts being profitable when you reach around 50.000 enrollments in your course. This could translate into $10.000 USD per month.

Affiliate Marketing Income

Many companies offer affiliate commission if you promote their products and if through your promotion people buy their products.

The best known is Amazon Affiliate. Amazon covers a huge range of products, which makes it very easy to link almost any kind of content to a product in Amazon’s market place. But there are others you have to investigate if you want to be serious with Affiliate marketing.

The best-known ones are:

  • Amazon Affiliate
  • Clickbank
  • ShareASale
  • eBay
  • CJ Affiliate

The commission you will get varies depending on the product, the number of sales and often on your own brand. I am not able to give you real numbers, but you can calculate around 10% of the actual sales of the promoted product. Please contact the companies directly for your specific niche.

Many companies, especially SaaS (Software as a Service) providers offer their own Affiliate platform, specifically for their product. If any of those fit into your niche and you can recommend them, they might be worthwhile looking into. Most of them pay a percentage of the actual price of the product.

How much is this in the end?

This depends on how active your business is going to be to create passive income.

It’s like a contradiction in itself, but that is how Passive Income Businesses operate.

It’s difficult to give you real numbers. Many people talk about fictional numbers, but only a few are willing to put the real information out there. But even with those businesses, be aware that they have been active in their market for over 10 years already. Success doesn’t happen overnight!

If you’re interested to find out how much the bigger players in the market make, have a look at those two sources:

They have been involved in creating Passive Income Businesses for a long time.

If you want a step-by-step guide on how to create your personal Passive Income Business, sign-up for Income School Project 24.

What is the downside and risk of a Passive Income Business?

The only reason you can call such a business “passive”, is because you’re actually outsourcing the active part to another party. This can be YouTube, a book publisher or an agent. Usually, you will use a third-party platform.

These platforms can be your blessing and your downfall. They are your blessing as they provide the perfect service for your Passive Income Business. But at the same time, you’ll have to oblige to their rules.

An example of how this can be risky is the latest YouTube changes. YouTube adjusted the way they monetized videos depending on the subject. For many YouTubers, this was a disaster as they lost a huge chunk or even all of their income from the impacted videos from one day to the next.

Something similar happened on Amazon when it decided to reduce the affiliate commission on certain categories by a large margin.

You need to be aware, that the platforms are not yours to control. They may change their Business Model and they control how they present your products at any given time.

That is where the “passive” part goes out of the window. You need to be able to adjust to those changes quickly if you don’t want to lose any of your income streams. You need to watch the market and keep an eye on the platforms. If the worst happens, you might have to produce a new product to compensate for market changes.

I guess you can see why I struggle with calling these business models “passive”.

This doesn’t mean that they are bad business models. They work for many businesses. And if you’re an entrepreneur who learned his skills, you will know, to never put all eggs in one basket. But a combination of more traditional business and a passive income business could work very well.

When it comes to Google, you should also consider the following points:

  • E-A-T (Expertise, Authoritativeness, Trustworthiness), which is a measurement of Google that impacts your ranking. To build these points takes time and commitment from your side.
  • YMYL (Your Money or Your Life) is another major factor. If you are in an industry related to money, health or life, you better be able to prove that you are an expert in that field.

I hope this article gives you a good idea about Online Passive Income Businesses and I was able to answer all your questions. If you want to know more, send me an email and I will do my best.

John di Stefano

This site Skills for Entrepreneurs is run by me, John di Stefano, teaching and supporting entrepreneurs to learn the skills every entrepreneur needs to create a better life for themselves and the people around them.

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