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What is Passive Income and How To Create It

Updated on July 14, 2014

What Is Passive Income?

Passive income can most simply be described as a product or business that makes maximum profit, with minimum effort. But more specifically it's regular, steady, repeated income from a small amount of initial input.

Active Income = directly trading hours and effort for payment

Passive Income = repeated income from a single piece of work

Examples of passive income include:

  • Writing online
  • eBooks
  • Stock images
  • Subscription sites

Source

Active vs Passive Income Example

  • Active Income~ Charlotte sells one-of-a-kind jewellery online, for a fair but not large profit. There are multiple costs to consider (see table below) and each piece can take several hours to complete. She designs and makes each piece by hand. When one sells, she packages it and goes to the post office to send it. Any time left over after making, packaging and posting is spent marketing, listing and networking.
  • Passive Income~ Sophia also makes jewellery. She donates many pieces to charity auctions when her collection is too large. She uses her blog and social networking to sell kits, patterns, tutorials, ebooks about jewellery making and sells photos of her work on stock photo websites. Sophia makes around the same profit per product on average as Charlotte, but has many more sales and lower overheads. The number of products available to sell doesn't depend on Sophia making each one. She still spends a lot of time marketing and networking but once the ball got rolling she found she had more time for herself, low overheads and maximum profit.

 
Passive Income
Active Income
Product(s)
Jewellery kits, patterns, tutorials, ebooks, stock photos.
One of a kind jewellery pieces
Overheads
Materials for new designs and kits, listing fees
Materials for each order, packaging, parcel packaging, business cards, listing fees, shipping costs, petrol to the post office
Delivery
Instantly downloaded from a site, or emailed directly to customer
Shipped from the post office within 3 business days
Availability
Unlimited as once the products are made, they don't need to be made again
Dependant on time and materials

Writing Online And eBooks

This is my favourite way to make a passive income. You're not dependant on people buying anything and you can actually earn whilst helping readers find solutions to their problems. It costs nothing to read an online article.

There are a few ways to make money as an online writer~

Article writing:

Sites such as HubPages share a portion of the revenue from adverts placed on your articles with you. So each article has the potential to earn, as long as it remains published~ this could mean regular income for years to come. OK it may start with only pennies per article, but they add up. If you know your Search Engine Optimization (SEO) and marketing you could well become a success story. There are many sites like HP, but not all are so generous and many only pay once per article, so make sure you read the terms before signing up. If you haven't tried HP before sign up now and give it a go!

Blogs:

Similar to article writing but it's all your own. You control the look, the ads, the widgets and you are totally responsible for getting the traffic. Blogs are a fantastic way to define yourself as an expert in your niche subject and promote your own products. You can even add shops to them!

eBooks and eCourses:

This differs from the above two in as much as you are creating a product which needs to be sold. But where paper and ink books each need to be printed and posted, digital equivalents don't. Write it once, self-publish and sell it limitless times and on various platforms such as Kindle and iBooks. Many people use a free eBook to gain blog followers (see Affiliate Marketing below).

Source

Make Money From Art

I'm not talking one off pieces~that's active income! One piece of art, no matter the format, has hundreds of possible uses...

Print-on-Demand Merchandise Shops:

There are websites that let you set up your own shop selling merchandise with your artwork on them. These are called print-on-demand websites. You upload your original artwork, design your own products (such as Tee-shirts and mugs) and sell them.

When an order is placed, the company print and post the products and you pocket the 'commission'~ they even handle the customer service.

Sites that offer this include;

Stock images:

Perfect for digital artists and photographers in particular. There are literally billions of websites in the world and each one normally needs two things above all else...words and pictures. Many people don't have the time, or simply don't want to create their own graphics and photos for their needs and so buy them from sites like iStockPhoto. Again the profits are shared, but they do most of the leg work for you. It's popular to see on stock image sites images of people, banner and buttons for websites, background patterns etc.

Which Passive Income Technique Do You Use Most?

See results

Affiliate Marketing

This is a hugely popular choice for those looking for a passive income...personally I didn't get on with it but we all have different talents right?

Affiliate marketing (also known as 'Internet Marketing') is when you set up a website for a specific subject, sell other people's products and you get a commission. The most common way to do this is to:

  • Set up a web site and offer a free digital product, such as a webinar, ebook or audiobook
  • Only give the said freebie out to those who sign up to your email list first
  • Once you have their email address, send regular emails promoting either your or someone elses (on commission of course) products, courses, webinars etc.

This of course can easily be combined with blogging for extra profit. Many set up web sites purely for 'funelling' potential customers to their email sign up form, in the hope they will become a repeat customer.

Source

Downloadable Products

I've already touched on this a little with the eBooks, but I want to make an extra point of just how vast the possibilities are for downloadable products. Most people assume (correctly) that products to download are:

  • Music
  • eBooks
  • Images for web sites

But there are SO many others, such as:

  • Sounds for phones (ringtones and alerts)
  • Sounds for games
  • Sounds for cartoons/videos
  • Wallpapers for phones and desktops
  • Designs for stationery
  • 'Printables' for crafts (paper crafts, colouring, t shirt prints etc.)
  • PDF's for patterns, tutorials, templates
  • Templates for websites, blogs, CMS
  • Apps for tablets and smartphones
  • Fonts
  • Brushes and shapes for image software such as Photoshop

So you see there are digital products to suit all talents and everyone could produce something to sell for a passive income.

Video

This is one I am just starting to get into myself after being inspired by the success of my other half and his YouTube Channel. He is now making a part-time wage from making videos about his favourite video game and says he can't believe he is making a living from playing computer games!

Virtually everyone has access to some sort of video making equipment nowadays~ from smartphones, to flip cameras, to webcams. But how can videos make you passive income? Sites like YouTube have adverts on the videos and as with HubPages articles, you get a cut of the revenue, making money while you sleep.

As with blogging there is also the added benefit of sending traffic to your other online streams of income and vice versa!

Not sure what to make videos about?

It can be anything and everything. Reviews, advice, information, or pure entertainment. You never know it might even go viral.

How To Make Money From Home

The above are just a few of the possibilities, where you can not only make money but actually create an online job for yourself~ ultimately doing part time work for a full time wage.

I wont lie, the only way to get there is to work hard and have patience...it will not happen overnight. But if you stick with it and constantly learn, you will reap the rewards. You will get to a point where you have more free time, as you learn the tricks of your trade and have a good online portfolio of work. You should even find that some traffic will generate itself as your reputation grows.

Other ideas for passive income include:

  • Game development
  • Membership sites
  • Subscription sites/products
  • Podcasts

Think about what you love to do and in which way you can turn that into a virtual product. It can work for any subject/niche and maybe think about outsourcing to free up even more of your time. This has the advantage of increasing your earning potential by including someone else's talents.

Please share your passive income experiences and questions below!

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    • Painted Seahorse profile image

      Brittany Rowland 3 years ago from Woodstock, GA

      Very useful information! Thanks for the new ideas.

    • KarenCreftor profile image
      Author

      Karen Creftor 3 years ago from Kent, UK

      My pleasure Seahorse, I'lad you found it useful :)

      Thanks for stopping by x

    • Alphadogg16 profile image

      Kevin W 3 years ago from Texas

      Very interesting and informative hub KarenCreftor. Some great ideas. Thumbs up on your hub

    • My Cook Book profile image

      Dil Vil 3 years ago from India

      Good info on passive income :) Useful hub.

    • elemenopy profile image

      Mary Rokhvadze 3 years ago from Oneonta, NY

      Great article to fuel the fire! Thanks!

    • KarenCreftor profile image
      Author

      Karen Creftor 3 years ago from Kent, UK

      Thanks for your lovely comments, they're much appreciated!

      Please come back and tell us how you get on if you try any of the methods mentioned :)

    • Express10 profile image

      H C Palting 3 years ago from East Coast

      This is a useful hub for those looking to set up multiple streams of income. I prefer downloadable products and affiliate marketing. I hope more people read this and put it to use.

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