Update: 601 of your fellow adventurers have now enrolled in Submersion, our new 60-day Subjective Reality deep dive. What more becomes possible when you're living in a simulation? Join us for this epic journey!
To generate passive income, you need a way to maintain your income without having to do so much grunt work to keep it going. If you have to keep working each day to avoid seeing your income drop, then you’re earning active income, not passive income. Passive income continues to flow even when you aren’t actively working.
Many forms of passive income still require daily or weekly maintenance activities, such as fulfilling orders or handling customer service, but this doesn’t mean that you have to perform those maintenance tasks yourself. You may delegate such tasks to other people, to businesses, or to technology. For your income to be passive (meaning that you don’t have to do much to maintain your cashflow), you need to remove items from your plate, but those items still need to get done.
A passive income system is a form of delegation. What is being delegated, and to whom? How will the necessary active tasks being handled if you won’t be doing them yourself? Your passive income system must provide these answers.
I love delegating to technology because it’s fast, efficient, consistent, and inexpensive. Technology also tends to scale well, meaning that you can add more computing resources, which generally requires little more than paying for those resources. This works well for an Internet business.
For example, I’m delegating the distribution of this article to my web server. I’ll post it to my server when I click the “Publish” button, and then various hardware and software will do the rest. Without this technology I would have to use some other distribution method. Technology is so ubiquitous these days that it’s easy to overlook what it does for us and take it for granted, but it can perform a vital role in any passive income system. Without this technology what would it take to distribute copies of every article I’ve written to millions of monthly readers around the globe every month? It would be a massive effort if this had to be performed by human hands.
Notice then that when you rely on technology to communicate, you’re already taking advantage of passive systems. Your messages pass through equipment that’s designed, built, and maintained by others. You may not be paying those people directly, but they’re working for you every day. You’re already taking advantage of these systems now. So if you currently rely on such systems for your communication needs, then why not leverage them to handle your income as well?
You can also delegate tasks to other people and to businesses to get them off your plate. In a typical affiliate deal, you may delegate the order processing, fulfillment, and customer service to another company. For example, if you use Amazon’s affiliate program to sell items, you’re effectively delegating a significant portion of the work to Amazon. From your perspective an affiliate sale may seem very passive, but that’s because Amazon provides the active labor to make your affiliate commissions possible.
Build or Borrow
To employ your own passive income system, you have several options:
- You can design and build your own passive income system from scratch.
- You can learn how other people earn passive income and try to copy their approach.
- You can use someone else’s system as-is (usually by paying for the privilege).
- You can do a combination of any of the above.
I’ve used all of these approaches at different times. I can’t offer a general recommendation for one of these above the others though. The most intelligent choice depends on a variety of factors including time constraints, budget constraints, personal strengths, and personal goals.
If you’re up for a real challenge, it can be very rewarding to design and implement your own passive income system from scratch. The upside to this approach is that you invented it, so you know its inner workings, and you can customize it all you want. The downside is that this method can take a lot of work, and it may be quite a while before the first income streams start flowing. Innovation is risky. Sometimes the risk pays off. Sometimes it doesn’t.
More commonly, people borrow ideas from each other. Why reinvent the wheel? Learn what works for other people, and use similar methods for yourself. There are plenty of books and systems authored by entrepreneurs who are happy to teach you how to do what they did. Some people are willing to share details of their systems for free, while others only share this info for a fee. Even when there is a fee, buying someone else’s system can save you a tremendous amount of time and energy.
When I was trying to build some sales for my computer games during the 1990s, I bought a book called How to Sell Your Software by Bob Schenot. Bob shared the details of his system, and I was able to adapt much of his advice to my own business, which saved me a lot of time. That system would seem very dated today (it was largely pre-Internet), but it got me off to a good start in building my own direct sales system.
A seemingly inexpensive approach is to use someone else’s system as-is. An example of this is licensing your book to a book publisher or selling your book via Amazon. This may seem like a good deal since you don’t have to pay anything up front, but it can be a lot more expensive if you do well because you may have to give away a significant percentage of your sales to the system provider. This approach tends to be the easiest for getting started. System providers in this category may be very good at processing orders and handling customer service, but they usually don’t provide much marketing assistance, so it may be hard for you to get noticed with them. That said, they can do an awful lot of work for you, making your income streams very passive.
The good news is that you don’t have to understand how to build a passive income system from scratch in order to use one, just as you don’t need to know how to build a computer from scratch in order to use it.
My personal favorite is the hybrid approach. I pick up many good ideas from others, but I like to put my own spin on things and keep tweaking my passive income streams as I go. I rarely use other people’s systems as-is, often because I find their marketing methods a mismatch for my audience, so at the very least, I still need to tweak the marketing elements even if the underlying product or service is a good fit.
To Buy or Not to Buy
One question that will surely come up for you is whether or not you should buy into someone else’s system, such as by paying for their knowledge or resources.
Generally I do think this is a good idea, especially when you’re first starting out, but only if you’re cautious about it. You can waste a lot of money buying low quality money-making systems from random Internet marketers. On the other hand, paying for a good system can also deliver tremendous value. You can learn in a short period of time what took someone else years or even decades of painstaking work to piece together.
I used to be a bit over-eager in paying for what seemed like premium knowledge in this area, and I wasted money on what turned out to be fluffy or outdated info. Then I cut back massively and became very stingy, which caused me to miss some easy opportunities. And finally I settled into what I feel is a more practical and realistic attitude. I’m willing to pay for systems know-how if I think I’ll be able to apply it effectively and if the info comes from a quality source. For me a quality source is someone who seems to genuinely want to help people understand and apply the methods they teach, rather than just selling low-quality info to make more money. Also, a quality system is one that’s already been proven to work under real-world conditions.
Usually when I pay for systems knowledge these days, I’m not looking to implement someone else’s system as-is. I’m simply looking for a few fresh ideas I can use to upgrade my existing systems. What are the latest and greatest ideas I might otherwise miss?
I know that when it comes to marketing, the people who sell these systems may try to push my emotional buttons and offer extra incentives to get me to buy. I do my best to ignore those sales tactics and look at the potential value more objectively.
Since I know people are going to ask me this, I’ll share a couple of specific recommendations for systems you can use to generate passive income streams online today.
I’ve been recommending Site Build-It (SBI) since early 2008, referring thousands of new customers to them. I still wholeheartedly recommend this service today for its outstanding mix of technology, tools, hosting, and education. They sought to be an all-in-one solution that helps people build successful online businesses (not just websites), and they really deliver on that.
SBI continues to update its technology, and they had a major update not long ago, so now it’s even more robust and modern than it was when I first began recommending it.
SBI also hosts an active discussion forum where its members share tips and strategies on a daily basis. That alone is a treasure trove of useful information… not to mention an ongoing support resource for SBI members.
SBI charges a very reasonable subscription fee for its service. The annual cost for an SBI site is less than what I pay for a single month of web hosting for StevePavlina.com. SBI sites are certainly capable of generating at least as much passive income as I do, and many SBIers own multiple sites. This is a very cost effective solution if you’re interested in generating passive income with a website that you own.
I recommend SBI especially if you have a topic you’re very interested in, or you have some knowledge you’d like to share. Instead of constantly sharing ideas on your Facebook page, you could be sharing them on your own website and using that to generate traffic. Then you can monetize that traffic in various ways to generate income.
I recommend SBI because people are making real money with it, they provide a solid all-in-one solution, and it’s very inexpensive relative to the value they provide.
For details on SBI, see my SBI review.
Get Rich With Ebooks
My book publisher Hay House informed me yesterday that ebook sales are expected to nearly double this year. We’re in a unique time where the demand for ebooks is growing so much faster than the supply, partly because tablet computers have been selling like crazy. There’s a hungry demand for ebooks that can be read on these devices.
I spent the past week in Canada, and during my flights I did some ebook reading on my iPhone. Despite the small screen, I found it very pleasant to use for reading, and I know I’m not alone. The people in the aisle across from me on one flight were reading ebooks on their iPads. This trend towards ebook mobility is only going to continue.
Last night I was discussing the inevitable contraction of print book publishing with my friend Stewart Emery. Stewart co-authored Success Built to Last, and he’s an influential figure in the book publishing industry. A while back he predicted that either Borders or Barnes & Noble would be out of business within two years. Two years later (almost exactly) Borders went bankrupt, and Barnes & Noble was saved by shifting their focus to ebooks with the Nook.
For my own book, I can also see that sales of the Kindle version are exceeding sales of the paperback and hardcover versions combined. I expect this gap to widen even more over the next five years.
This situation creates some unusual opportunities for ebook authors. Eventually the supply will catch up, but for now the demand is increasing at a much faster rate. There are still far more print books than ebooks on the market, but the sales momentum is all on the ebook side. This is creating something of a gold rush for ebook authors.
Vic Johnson noticed this trend, and he jumped on it. To date he’s earned more than $7 million from ebooks. He offers a very thorough course on how to do what he does, appropriately named Getting Rich With Ebooks.
I’ve gone through this course myself and learned quite a lot from it. I also spoke to Vic directly. He was broke and selling ebooks became his ticket to wealth, which explains why he’s so passionate about them. I recommend checking out Vic’s course and his system for creating and selling ebooks. This unusual demand-supply situation won’t last forever.
This trend is similar to the advantage I capitalized on when I started my blog in 2004; back then the demand was growing so much faster than the supply, and many people who started blogs around the same time I did saw significant traffic growth as public interest in blogs grew and grew. If you’re just starting a blog today, however, you’re pretty late to the game since now the field is much more crowded.
The interesting twist here is that Vic doesn’t even write most of the content he sells. He’s earned quite a lot of money from repackaging public domain works and from using ghostwriters to create content for him. He explains how to do this in his program, including how to identify opportunities for new ebooks you can sell.
Take note that if you use Vic’s system, you can even use any of the articles or podcasts on my website to create your own ebooks since they’re all uncopyrighted. If you search on my name at Amazon.com, you’ll see that dozens of ebooks based on my content have already been released by others.
I can see that people are making a lot of amateurish mistakes in trying to repackage and resell my content, however, and that’s going to hurt their sales. They’d likely be doing much better if they went through Vic’s program first since he shares many optimization tips to increase sales. It’s fine with me if people want to turn my content into ebooks to sell, but I’d love to see them do even better since it means the ideas will spread further.
Vic’s system is a good choice if your writing skills aren’t so great or if you have doubts about your ability to create high quality content on your own. If, on the other hand, you love to write like I do, then you can also use Vic’s program to help you research, market, and sell your own ebooks effectively. I think it’s well worth the money, and Vic sells it with a try-before-you-buy model that makes it easy to get started.
I’ve already written a book (published by Hay House), so I’ve been through the whole publishing process and know what it’s like. Nevertheless I still picked up some golden nuggets from Vic’s program that I wasn’t previously aware of. I also got a kick of out his enthusiasm, and I liked his down to earth style.
I think Vic’s program will appeal to a lot of people who are following the passive income series since it does not require that you have a website, nor does it require that you create one. Vic teaches you how to earn income using other websites to sell your ebook for you. You can still create a website to help sell your ebook, but that part is optional.
I like that Vic is very generous with his content, so he includes tons of extra bonuses and resources to help you with the practical details. He even tells you which specific service providers he uses and gives you their contact info.
Vic’s program and SBI can complement each other quite nicely, so this isn’t an either-or situation. You could easily create an SBI site and an ebook on the same topic. Your SBI site can help sell your ebook, and your ebook can help promote your SBI site. I enjoy this type of relationships between my book and my website, for instance — they both help to promote each other.
I used a similar combo strategy when I ran my computer games business. I sold the games through my own website, but I also posted my game demos to hundreds of software and game download sites. The download sites helped drive traffic to my website, where people could buy the full versions of my games. Vic uses a similar strategy, using inexpensive ebooks to drive traffic to his websites. He makes good money from the ebooks, and he also makes money from his websites, which can sell other products and services in addition to ebooks.
Your Passive Income System Preferences
My goal in this article is to get you thinking about what kind of system you’d like to use to generate your own passive income streams. Do you want an income-generating website? Are you leaning towards having a product to sell on other people’s websites? Would you like a system that incorporates both? Or do you want to do something wildly different?
Think about your strengths. A good system will allow you to leverage your strengths while delegating the areas where you’re weakest. Are you a content machine like me where you need a system to provide an effective publishing platform and a way to monetize your work? Would you feel more comfortable selling someone else’s product or service? Does selling turn you off, and would you prefer to delegate the selling aspect as well?
When it comes to passive income systems, the key test is whether your system works in the real world. You can dream up whatever you like, but dreams aren’t streams.
A good passive income system generate results. If you’ve never created your own system from scratch, I recommend borrowing someone else’s system if you want to reach your goal quickly. Otherwise if you prefer a bigger challenge and don’t mind investing a lot more of your time and energy up front, you’re always free to roll your own.
Once you’ve had the experience of working with someone else’s system, you may decide to keep using it, you may experiment with different systems, or you may tackle the challenge of rolling your own system. There’s no right or wrong way to do it. But I’d suggest that for your first stream of passive income, it’s much easier to simply borrow and apply someone else’s system, even if you have to pay for it. A good system looks simple, but that’s because it hides so many implementation details. For passive income, this is a good thing. Handling too many details yourself throws you back into the realm of active income.
A good passive income system will normally employ many different income-generating strategies simultaneously, weaving them into a congruent tapestry. This is similar to how a computer integrates many different hardware and software components that function well as a unit.
We can also learn a lot by breaking out and studying the individual components of a passive income system, and that’s what I’ll be sharing in the weeks ahead. While I still recommend borrowing someone else’s system to get started, learning the details of how the different elements work together is still very helpful since you’ll probably want to tweak and extend what you learn from others.
Loving Your System
At this point you don’t have to commit to a particular passive income system approach just yet. You’ll eventually need to make such a commitment, but for now I just want you to familiarize yourself with some options and start giving this some thought.
It’s important to cultivate a healthy relationship with the passive income system you’ll use. If you love your system, you’ll use it. If you don’t like it so much, you’ll procrastinate.
I don’t do real estate investing to generate passive income because it would bore me to tears, and I wouldn’t feel like I’m contributing much. Some people may be very passionate about real estate investing, but it’s a bad fit for my personality and values.
On the other hand, I love blogging. I love that when I have an idea, I can get it out of my head and share it with thousands of people that same day. I love that my work is permanently archived and accessible 24/7 to anyone with an Internet connection. I’m not very patient, so when I have an inspired idea, I like to share it immediately. I love the passive income system that supports my blogging because it allows me to provide a tremendous amount of value for free without feeling I have to hold back or to charge money for every little thing. I like sharing, and the system I use allows me to do that abundantly.
I don’t want you to make the mistake of adopting a passive income system that you merely tolerate. I want you to have a system that you truly appreciate. Offload the work that you don’t enjoy, so you can do more of what you love. When you do what you love, you’ll contribute more, and that’s better for everyone.