Today's a special day because we're going to talk about the cold, hard truth about passive income.
And yes, I have done a previous episode on passive income streams with my brother Matthew (@matjoez), but today, we're diving a little deeper to look at:
- What is passive income?
- Should you focus on it?
- Good passive income formats
What is passive income?
Checking online, you'll find a bunch of definitions for passive income.
“Passive income is income that requires no effort to earn.”
“Passive income is income that requires little to no effort to earn or maintain.”
In other words, we can look at passive income as something we earn consistently without having to do a lot about it.
Common examples include rental income, passive sales of digital products, or other earnings where you're not actively participating.
In the past years, passive income has been hyped a lot online as this magic pill to increase your earnings, BUT be aware that passive income might be simple to create, but not necessarily easy or quick to set up and generate!
For instance, I have funnels in place that generate between 1,000 to 5,000 EUR/day entirely passively, but that doesn't mean there's no active effort. My team, or me, still have to maintain it.
And, of course, the question arises: “Is it really passive income then?”
Let's say that passive income is passive, yet it requires a lot of strategy and effort to set up. Remember this!
As you see, the definitions are somewhat blurry. I consider downloads that come through from my podcast episodes and email list as passive income. Rental income, on the other hand, wouldn't be passive for me.
Let's conclude this section and refer to passive income as earnings where you're not actively participating. With that in place, let's move on to the next question.
Should you focus on passive income?
I'm sorry to break it to you. The really broad answer is YES and NO. Let's start on the bright side. Passive income is a great extra, but before you get started, ask yourself two questions.
Question #1 Is your core offer in place?
I ALWAYS recommend that you start with your core offer.
Do you know what you're offering?
Are you making enough money with what you're doing?
Do you know your process?
Therefore, first look at your core offer before diving into passive income. If you decide to try it out, your core offer should already make up 80% of the revenue, and then you can add your new passive income as it will start making up 20%.
Question #2 Do you know the opportunity cost?
I currently earn passive income from affiliate fees and generate between 100 and 1,000 EUR from affiliate fees per month. Mainly, I focus on recurring fees from, for instance, ConvertKit and Leadpages.
If you can build these up over time, they are definitely a great extra, BUT you still have to set it up.
Always remember to think about the opportunity costs, and ask yourself: “Is it worth promoting the stuff from someone else?” The time it takes for you to promote someone else is time you can't spend on promoting your own offering.
That's also one reason why 80% of the time, I don't recommend you to focus on passive income.
Good passive income formats
Alright, so you want to give it a try. Before you dive in on your own, I want to share what I'm mainly focused on and what you should be focused on to generate qualitative passive income.
Format #1 Recurring affiliate fees
As I said, I primarily focus on recurring affiliate fees. This way, I can start stacking the affiliate income if people sign up for a membership.
If you want to try out affiliate fees, don't forget the opportunity costs of promoting someone else's stuff over your own products and programs. Know your numbers!
Format #2 Big commissions
Next to affiliate fees, you could also focus on really big one-time commissions, but make sure they are big enough.
For instance, recently I bought an iMac. Let's say I have a link to a website where my commission percentage is fairly low. Yet, with an amount like 3000 EUR, the commission will be worth it because the initial price is so high.
Photographers and videographers can easily earn fairly big commissions if they promote the gear they use because it's so expensive.
So, if it's a one-time thing, make sure the commission you get is big enough compared to the opportunity cost.
Format #3 Referrals
You can also be working with a referral fee.
It could be you're working with an agency, for example. They tell you ‘If you're happy, and you want to refer clients to us, you get a referral fee'.
Basically, if you're referring someone, getting someone to buy or sign up on a platform anyway, you may as well benefit from it, right?
Format #4 Digital products
Another type of passive income is earnings from digital products. For example, I have a lot of mini-courses on sales and time management selling for between 20 and 80 EUR.
Such mini-courses could be a great thing for you if they are purely passive. BUT remember you must have a strategy for it. You need to know what you're doing!
I don't want you to spend all your time on an e-book that's going to sell at 19 EUR per piece, and no one ends up buying from you. That 19 EUR isn't going to make you rich.
So, rather than investing time in digital products, you're often better off creating real programs, services, or products that are tied to your core offer.
But what you can consider is creating a digital product as a low-tier product to get people inside the door before they commit to buying something bigger from you.
No matter in which direction you go, I advise that you always remain in control.
Look at Kylie Jenner. She has built an empire by focusing all of her effort on her own social media pull. She's the one bringing in the traffic and the one converting prospects.
Now and then, she's even doing giveaways to increase traffic and get more people in the funnel. The more followers she gets, the more people she converts.
If you want to learn more about conversion and traffic, make sure to check out the previous episode where I talk about building sales funnels that convert.
Hopefully, this has helped shed some light on passive income and helped you decide whether or not it's something for you.
Good luck out there!
If you want to give passive income a try and start the smart way, definitely grab the free guide, Start Your Passive Income.
- Create one core (passive) product you can sell.
- Set up your first email sequence to attract customers the smart way.
- Make money on autopilot; day and night.