Thursday, September 24, 2009

How Can You Make Passive Income Online?

By Yaro Starak
(The article published at Entrepreneur-Journey)

(Part 1)  

I had a meeting with a friend and his business partner last week. The request was to “pick my brain” on the best way to move forward to generate some passive income streams online.These two particular people are like a lot of people I know. They’ve got tech skills, they know the Internet well and they have lots of ideas for cool Internet business applications and websites.

Unfortunately they’ve managed to dig themselves into a situation where they spend all their time working on client jobs, running what you might call a “consulting” tech firm, completing various programming and web development projects for other people’s businesses. The money in this business model can be good, but it has some serious downsides too, namely -

  • You have to deal with clients, usually one-on-one, a very low leverage interaction and often just painful as you have to work you way through lots of annoying clients to find the good ones
  • You work very long hours, which my two friends could certainly testament to
  • You know a lot about a lot, yet have difficulty specializing in anything
  • You’re in competition with every other jack-of-all trades web development firm out there, which means you unfortunately end up competing on price, and it’s certainly not nice to have to undercut yourself simply to work with bad clients
Those points aren’t necessarily true across the board, but I’m pretty sure any person who has ever consulted or done any kind of web development work for clients will know what I’m talking about.My friends are smart enough to realize the path they are on is not going to lead them to where they want to go, so they’re looking to make some changes.

The goal is to develop some form of income stream, or several, that could replace the need to take on client work. As always, the relationship between time, money and freedom of choice is heavily integrated here, as my friends are looking to make more money without drastically increasing their workload and eventually freeing up their time so they can do what they want to, rather than what they have to.

Let’s Not Be Strict About Passive Definitions

I’m about to reveal what I talked about during our meeting with my two friends. In terms of what I suggest you do if you are looking to make some passive income online, I don’t want people to get too caught up on the idea of “pure” passive income.

The methods I’m about to talk about are not pure passive income sources, however they have the potential to be low work, high return income sources that can potentially become very close to pure passive longer term. The fact is, it takes time to develop these income streams, but we all love the phrase passive income so I’ve decided to use it here in the title of my post.

So to clarify, what we are looking to do is start up completely new projects that have the potential to become good sources of near-passive and possibly pure passive income, it just might take some time to get there.

First, Understand Your Unique Opportunities

One of the first things I discussed with my friends was taking their present situation and turning it into something that’s less work for them. Sometimes the “lowest hanging fruit” is just a simple adjustment to the business model you are following now, transforming your core skill from labor intensive, to hands-off delivery, or at least much less work.

Here’s some examples of how you might do this -

  • If you’re currently a consultant or deliver a service of any kind personally, one of the best ways to transition away from the paid-per-hour or paid-per-project client trap, is to either transform or supplement what you do now with information products. Take what you are good at and have done for other people (which make great case studies as proof) and create training resources to do what you do.
  • If creating training products doesn’t quite fit, you might do better developing software, or a system that you can sell based on how your business currently delivers value. Sell the “magic” instead of delivering the magic yourself.
  • Chunking down a very dynamic service into structured packages can help. This serves to focus your offer, which will mean you say no to certain clients you can’t help, but have a very tailored solution for clients who fit right. This is the difference between being a run-of-the-mill web developer who makes websites for virtually anyone, compared to a company that sells three tiers of conversion improvement packages focused on a combination of SEO, PPC and split testing of existing pages. One has focus, with set prices and set deliverables, making it easier to deliver and more profitable, the other way is ambiguous, often blows out of proportion as the client changes their mind, and results in you making a very low hourly rate of pay. If that’s still confusing you, here’s another example: Think of it as the difference between a general website developer versus a developer who only makes blogs for real estate agents. Don’t be an everyman, specialize (read this for more advice – The Core Reason Why Your Business Lacks Momentum)
  • Hire people. This is the path of most businesses that have a strong growth curve because they require more resources to keep delivering. A consulting style company can transform into an independent machine that no longer requires the owners participation, or at least the owner’s role is not “in” the business and instead is a more strategic role “on” the business. The problem with this option is that the transition period, which can be very long, often drains even more time from you as you not only continue to deliver to clients, but also attempt to hire and train people. This usually means you get the opposite of what you want, at least until you have a team and systems in place.

How About Completely New Income Streams?

I’ve covered what you can look at without drastically changing the market you are presently in. The other option is diving into something completely different from what you do now. You can choose a different business model, in a different industry and a completely new path, or even start several different little businesses and see what takes off.

This option will likely be more difficult to implement because everything will be new, but sometimes it necessary to start from scratch if you what you are currently doing is not working and you want a clean break. This obviously is the only option if you don’t have a business at all, so if you’re new to making money online, listen up – this will be helpful.

Buy A Web Business

This is perhaps the easiest method to find yourself the owner of a profitable website business, but there are serious downsides – it costs money to buy assets and if things go terrible you could lose everything you invested, though that is very unlikely.

After my blog started to generate dependable income I decided to take that money and reinvest it into buying as close to passive income returning websites as I could find.

I won’t go into too much detail regarding how I did this, as I explained my strategy already in some depth in this article –
How To Invest In Websites In Your Spare Time

At the end of that article are links to other articles from this blog that will teach you more details about buying and selling websites, so it’s worth a bookmark if this interests you.The great thing about this strategy is if you have enough money you can be the proud owner of a dependable online income stream in a matter of weeks.

Speaking very generally, for every $10,000 you have to invest in websites, you should be able to acquire at least a $1,000 a month revenue stream. If you’re clever about what types of websites you buy, you can easily improve your return in a matter of months.

It’s important when investing in websites that you…
  • Know how the website makes money
  • Understand how the website gets traffic/customers
  • Feel comfortable taking it over (don’t go in blind)
  • Start small so you only run the risk of failing small to begin with
The best scenario is to pick a model that you “get”. If you know software, find an online business or website that deals in software, like for example you might seek out a website that sells a script in a coding language you understand so you can improve and maintain it. If you know blogs and how they make money, invest in blogs. If you like ebooks, find profitable ebook businesses and buy them.

The less ambiguity in your mind the better. If you know the market, the product and can see yourself running the website, that’s a good buy. If you lack experience, then pick small websites so you can become familiar with how things work before investing thousands of dollars.

A good place to start your initial research into website buying and see what is for sale is
Outside of established websites, you can also buy domain names, which are very easy to maintain and can often be passive income sources if you pick up some good ones.

A person who deals in domains is called a “domainer” and generally, besides profiting from buying and selling of domains, income is generated from type-in traffic. Type-in traffic is people opening up a browser and directly typing in a domain name. The domain name itself might not have much of a website in place, but if you have enough type-in traffic simply displaying a few ads on a basic page could be enough to generate some nice passive income.

Building up a portfolio of domains is a strategy you can pursue, just remember due to the ease of which you can get into buying domains, competition is fierce, so like with real estate, do your research before investing.

A good place to start domain trading research is DNForum, however look around as there are many other communities discussing this money making method.If you have some serious capital to invest buying fully established online businesses is an option. With $50K to $100K to spend there’s no reason why you can’t buy yourself into a nice full time income stream in one hit, or diversify and purchase several websites that in total result in a full time income stream. The challenge is maintenance, as running a large e-commerce site or many smaller sites can be a lot of work.

I sold my proofreading business to a couple, who, assuming they didn’t break everything, were essentially buying a solid income stream in exchange for a lump some of capital. The business was reasonably automated when I was in control, although the new owner had to familiarize with how the ship worked, it pretty much sailed itself.


Click here for Part 2

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