Passive Income Ideas

What is Passive & Residual Income and How to Generate It

Passive and residual income are, after the initial set-up, a way for you to earn money with little maintenance, from anywhere on the planet. But, a lot of people are confused about the differences between passive and residual income... understandably so.

According to Wikipedia, passive income is described as being revenue that you receive on a regular basis without having to do much to maintain it. Maintain is the operative word, as you will definitely need to create the situation from which your income flows. Think of it like priming a well. In the beginning, you have to do quite a bit of pumping, but then the water flows freely. You may have to go back every now and then to give it a few more pumps, but overall it will flow independently. In other words, instead of trading time for money, as you do with a job, you trade initial effort to create a situation that will be on-going.

Examples of Passive Income:

Rental Income: We have a house in Florida that we bought at a great price. We'll eventually retire there, but for now we rent it out in the winter as a furnished rental. The income generated in six months is enough to cover all our expenses, so in essence, our renters are paying our mortgage for us.

Dividends from Stocks: Even in hard times, some stocks still pay dividends, which are a return on the profits made by the company, based on the amount of stocks you own. We invest in several different dividend paying stocks that return anywhere from 5-8% annually.

Income Generated from Vending Machines: After your initial layout of cash to buy the apparatus, be it a photo booth, video game, pinball machine, drink or food vending machine, you will not have anymore major expenses. Though you will need to either pay someone to maintain it or do the maintenance work yourself (in which case the income is no longer passive). The more vending machines you have, the more sense this structure makes. Whether you have one or 100 machines you will only need one person to maintain them. I would also group laundromats, videomats, self-car washes or any other business into which the initial outlay of cash goes toward setting up a self-sustaining, physical, business.

If you chose this business model, you'd be in good company. Warren Buffet bought three pinball machines when he was 15 and placed them in three popular hangouts. Then, all he had to do was collect the money at the end of each month.

Online Marketing: Well, this is the golden goose that everyone is chasing because, unlike vending machine income which needs to be maintained, after the initial set-up, there is no major overhead. You will have to renew your domain and hosting at least once in a while, though, even this can be paid up to ten years in advance. I used to have a website about expatriate lifestyles, called Jet Set Living which, at it's peek was generating an income of almost $2000 a month. Unfortunately the server went down one day and with it my site. I didn't know I could recover it until almost three years later and by then most of the pages were corrupted. However, I still earn, on average $150 a month from a site that's no longer in existence from affiliate programs (more on this later).

Residual Income

Residual income is money earned from something that you have done or invented. In America, actors, musicians, composers, and writers all earn residual income (Europe often uses the "buy out" system).

Let me give you an example, if you happen to have been part of the harmony that sung "I'm Love'n it" for McDonalds you would get money (just a few cents) every time that commercial plays all over the world. That can very quickly add up to thousands and thousands of dollars.

Writers also get a portion of the profit every time one of their books is sold. And let's not forget inventors who patent their creations. When ever someone wants to use their invention, they have to pay a fee to the owner of the patent.

As you can see, the definitions for passive and residual income are very similar. It doesn't really matter what you call it, as long as you have grasped the concept. At this point, you should be thinking about what you can do to stop having to rely on linear (time for money) income and how you can create an on going, self sustaining income stream for yourself.

Ideas for Generating Passive & Residual Income

It's best to concentrate on ideas that are attainable for anybody who's willing to invest the initial time and effort- and don't require large initial investments of money. That pretty much narrows your choices down to internet marketing.

But internet marketing does work. Albeit, not right away. I actually worked on my website, Jet Set Living, for about a year before I received my first check over $500. I was so surprised, I wasn't even sure where it came from. Turns out it was payout from an affiliate program. Before that I was only making a couple hundred a month with Google Adsense. Though as traffic to my site increased, so, too did my monthly income.

I'm certainly not a web genius. So, if I can do it, any one can. My secret, if you can call it that, was two fold. One, I wrote about a subject that I enjoyed researching and, two, I wrote about it extensively so my website began getting more and more traffic. More traffic equals more hits on your "money links".

Many of the following ideas assume that you either already have, or plan on creating a website. Frankly, no matter what you choose to do, having a website is a good idea and I highly suggest it.

Passive Income Idea #1: Money Links

Money links are any link on your website that, when clicked, earn you a small income and transport your visitor to another, relevant site. Examples of money links are:

  • Google Adsense: Google Adsense has become so ubiquitous that most people don't even notice it anymore. That's because Google has gotten very good at what it does, which is insert ads that are compatible to the page's content. By displaying ads that are relevant to what the visitor is reading, everyone benefits.
  • Affiliate Programs: If you join an affiliate program, you have agreed to sell specific merchandise for a specific vendor and in return, you receive a small percentage of the profit. An example of this would be amazon.com, which I think everyone is familiar with. The great thing about amazon is that they don't just sell books but everything under the sun, including the kitchen sink. So, you shouldn't have a problem finding a product to endorse.

As I mentioned above, you must have a website and your website must have "quality" material. I use quotation marks because quality is subjective. Let's just say for our purposes, original, well researched and well written material on any subject you deem interesting. That's the beauty of the internet, if you think something is interesting, chances are excellent that others will, too.

While were on the subject of your own website, another way you could earn money from your site is by selling advertising space.

  • Advertising: If you have a niche website and/or extremely high traffic, your space is valuable to other businesses with a similar customer base . On jet set living, I sold advertising space to insurance brokers that sold insurance specifically to expatriates. I also sold space to real estate brokers in Panama and Nicaragua, which appealed to people looking to join an expat lifestyle.

Passive Income Idea #2: Publish an eBook

If you have in depth knowledge about a specific subject, consider writing down what you know and publishing it in an ebook. Amazon.com alone has sold over a quarter million books for Kindle but they're certainly not the only game in town - they're just the biggest and the best - for now.

Apple also has a reader called iBooks and they sell ebooks through iBookstores. In addition to these two titans, other outlets for selling your self published ebook are:

  • Barnes & Noble
  • Sony
  • Kobo
  • Diesel eBook Store.


Passive Income Idea #3: eBay

EBAY

My dad used to have a joke that he loved to tell. An immigrant came to America and opened a store which eventually became a huge success, growing to be one of the most profitable department stores in the States. The man was satisfied that he was able to give his family the luxuries he could never afford back in his country. In fact, he sent his son to the Harvard Business School, which as far as he was concerned was the best darn university in the world. And on the bittersweet day, when he handed the keys to his emporium over to his son, it was done with a sigh of relief and full confidence in his son's abilities.

However, in just one year, the son managed to destroy all his father had built, leaving the department store in ruins and bankruptcy. The son went to his father, tears of shame welling in his eyes, and said, "father, I've done everything I learned and tried my best to build on the success you started, but I've failed. What have I done wrong?"

The old man looked at his son and said, "My boy, I only ever followed one rule. Buy for one dollar, sell for two."

This joke was doubly funny for my dad because he actually went to the Harvard Business School however, it's moral still holds true. eBay is a place where anyone can open a store and succeed, if they follow this simple rule.

Ebay is a great place to sell digital art, books, and printable items as well.  Plus, ebay will give your products great exposure. 

Passive Income Idea #4: Cafepress

Cafepress is a huge, worldwide, online printing house that will print what ever you want on just about anything on an "on demand" basis. They have over 70 customizable items so, something like this is perfect for graphic artists, photographers, authors (who want to see their book in actual print as opposed to epublishing) and musicians. Have you come up with the world's greatest bumper sticker? Sell it through Cafepress and you won't have to spend a dime on production or inventory. Some examples of Cafepress's items are:

  • Clothing like t-shirts, aprons, baby apparel, hoodies, underwear, maternity wear, golf shirts, pet clothing...
  • Mugs, thermoses, iPhone cases, magnets, Christmas ornaments, clocks, coasters...
  • Stickers, cards, calendars, books, cd's and cases, yard signs, banners, mouse pads...
  • You can even customize a GPS

The above is just a sampling of what's available. Cafepress will give you a free online shop from where you can promote your items but they also offer what they call Premium Stores for about $5 a month. But obviously, you can promote your items from your own website as well. They only print what is ordered, and they take care of payments and shipping. They'll even manage your returns and exchanges for you and take care of any customer questions with a toll free customer service hot line.

You earn all money above the base price and you set the selling price. So, for example if you're selling a t-shirt that has a base price of $10 and you sell it for $20, you make a clean profit of $10. Sound interesting? Check it out for yourself.

www.cafepress.com

Passive Income Idea #5: Sell Your Crafts Online

Are you a graphic artist, photographer, or painter?  If so, you should be selling your art online.  Just keep in mind that art is like anything else... in order to be successful selling it, people have to want to buy it.  If you think that's not a problem, you'll still have to deal with the challenge of making your art known to the world.  That means you'll have to promote it. 

There are two websites I highly recommend, Etsy which offers the above three categories plus all sorts of other crafty items (really, it's fun just browsing through their amazingly creative stuff) and Artbreak, whose focus is primarily on The Arts (painting, sculpting, drawing, photography).  Just google them, you'll see what I mean.  Both are very professional, visually appealing and rank high with the search engines. 

The idea here is to create an item that you then can mass produce, or produce on demand, for sale.

Passive Income Idea #8: Affiliate Programs

Become an affiliate to merchandise that you already know and like. As I mentioned above, the biggest example of affiliate marketing is with amazon. Just about everyone who has a website also sells something related to their site through amazon be it a book or a lightbulb.

There are several excellent affiliate program management websites. These are sites that are the middlemen between the company you want to represent (the advertiser) and you. They will provide you with access to an application, links, banners and codes to the products you'd like to sell and, most importantly, keep track of all your earnings for you.

  • Commission Junction
  • Link Share
  • Click Bank
  • Value Click

With this idea you will need your own website and there are a couple of ways you can approach selling the advertiser's product:

  1. Relevant links in your articles
  2. Set up a merchant site that sells the products you'd like to represent.

Passive Idea #9: Pay to Write

There are many programs on the web that need quality articles and offer enticing incentives to the would be writer.  Most of them will offer a split of Adsense which is a pay for click advertising program run by Google.  Every time someone clicks on an ad on your article's page you receive part of the profit.  Unless you have your own website, it that case you will receive 100% of the profit.

What you should look for in a Pay to Write (PTW) program:

  • A website that offers a high influx of traffic and ranks well with the search engines
  • A clear understanding of how the money will be split
  • An long standing (relative in the internet world) web presence
  • An excellent reputation

Websites that offer to split a share of Adsense are:

  • Associated Content (run by Yahoo)
  • Bukisa
  • Suite 101
  • About
  • eHow
  • Squidoo
  • Hubpages (I've saved the best for last).

Obviously, I choose to write for Hubpages.  That's because they are upfront  about how the profits from Adsense are split (60/40 and you get the large percentage), have an extremely intuitive writing format that delivers a visually pleasing page with ease, have a high volume of traffic and rank well with the search engines.  In sum, bull's eye!  If you're interested in learning more about how Hubpages works you can find out here.

Last But Not Least...

Obviously, I've only touched on the 9 passive income ideas. You'll need to do your own in-depth research on your chosen avenue(s) of success. Make sure, you first google your idea to see what your competition looks like. Once you've established what you'd like to sell you should use as many venues as you possibly can to hawk your merchandise. For instance, if you decide to write and sell an eBook, not only should you have a dedicated website for your book but you should also offer it for sale on ebay, cafepress, amazon, barnes & noble, iBookstore,...

The more places your item is advertised, the better your chances are of selling it. Sure it's a lot of work in the beginning. You'll have to create then list and promote your product, but once the ball is rolling you'll be able to sit back and watch it grow. That's passive income at its best -- until the next great idea strikes!

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Comments 14 comments

Fiddleman profile image

Fiddleman 5 years ago from Zirconia, North Carolina

Excellent hub, I believe you have done your homework.


edelhaus profile image

edelhaus 5 years ago from Munich, Germany Author

thank you! It's certainly a fascinating subject - each idea could generate pages pages of new content... and just might

;-)


Jeff May profile image

Jeff May 5 years ago from St. Louis

Excellent advice. You can also publish your ebook on Smashwords. Thanks, and I'm impressed with your success.


Justsilvie 5 years ago

Great Hub! Very helpful.


edelhaus profile image

edelhaus 5 years ago from Munich, Germany Author

thanks to both of you for stopping by and leaving a comment.


Joyce F profile image

Joyce F 5 years ago from USA

Very useful hub about passive and residual income. Several of these I have never heard of. Have you ever used the CafePress?


edelhaus profile image

edelhaus 5 years ago from Munich, Germany Author

Actually, I have - I used to have another website years ago and we had t-shirts and other accessories made up. It's a lot of fun!


Misty May profile image

Misty May 5 years ago

Great Hub!


AngelaKaelin profile image

AngelaKaelin 5 years ago from New York

Excellent! I really like the part on CafePress!


edelhaus profile image

edelhaus 5 years ago from Munich, Germany Author

Thank you! Yes, they are a lot of fun (and can be lucrative, too).


Millionaire Tips profile image

Millionaire Tips 4 years ago from USA

This is all excellent advice on residual and passive income. Publishing a great number of patterns, instead of a craft item itself wouldn't require you to keep making more.


edelhaus profile image

edelhaus 4 years ago from Munich, Germany Author

Thanks for your input!


Jools99 profile image

Jools99 4 years ago from North-East UK

Very good hub, informative and useful. Voted up, etc, etc.


htodd profile image

htodd 4 years ago from United States

online marketing can generate passive income to you ..Thanks for your points

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