Passive Income Systems
09-01 Passive Income Systems
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. To generate passive income, you need a way to maintain your income without having to do so much grunt work to keep it going.
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 cash flow), 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 be 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 information to a file format known as PDF.
Without this technology I would have to use some other distribution method, perhaps a traditionally printed book.
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 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, fulfilment, 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 labour to make your affiliate commissions possible.
09-02 Build Your Own System or Borrow Someone Else's
To employ your own passive income system, you have several options:
1. You can design and build your own passive income system from scratch.
2. You can learn how other people earn passive income and try to copy their approach.
3. You can use someone else’s system as-is (usually by paying for the privilege).
4. 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 customise 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 their information for a fee. Even when there is a fee, buying someone else’s system can save you a tremendous amount of time and energy.
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 - although I've never taken this approach myself.
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 favourite 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.
09-03 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.
09-04 Get Rich With eBooks
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.
This trend towards eBook mobility is only going to continue.
For my own eBook, I can also see that sales of the digital 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 very 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, myself included.
This trend is similar to the advantage I capitalised on when I started my blog, 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.
09-05 Your Passive Income System Preferences
My goal here 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 monetise 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 generates 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’m sharing with you now.
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.
09-06 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 familiarise 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.
Our goal is to find multiple income streams, and the more passive the better.