What Exactly Is Passive Income? The whole truth…

what is passive income

This is a little tutorial showing you exactly what is passive income – and I’m going to be totally honest with you about the term ‘passive’.

So I want to debunk any myths or pre-misconceptions you have about passive income as I explain exactly what it is and how it can help you in your business.

First of all, the term passive income is also be known as:

residual income | recurring income | leveraged income

However, each term has a slightly different connotation to it.

Residual Income: 

Residual income is not actually a type of income, it’s a calculation that determines how much money an individual has after financial obligations and/or bills are paid out.

Recurring Income:

Think of a membership site or a subscription service. The same amount of money is paid monthly on a recurring basis.

For example, if you pay for web hosting then you are paying the web host provider a recurring subscription service.  They are receiving recurring income from their customers.

Leveraged Income:

This term is actually passive income in a nutshell.

You do the work once and then you get paid repeatedly for this work.

For example, if you create an ebook then you will have created an ‘asset’ and then you repeatedly make sales from this ebook passively.

Passive Income:

I tend to use the term passive income and it’s this which I fully explain in this blog post.

So a quick look up in the dictionary on the term passive income and it describes it as:

passive =
‘not participating readily or actively; inactive’

Meaning that you are inactive when it comes to this particular type of income.

So in our case as a woman in business, a passive income means that you can have a secondary income stream without being constantly active in order to gain the financial reward.

Or of course, you can create a whole business around passive income, i.e. a digital product business and have this as your main income stream.

Active Income

So if you run a service-based business such as 1-on-1 coaching, web or graphic design, virtual assistance etc., then you are actively trading your time for money.

And this part is the stinger – but if you don’t show up and offer yourself and your personal services, then you don’t get paid.

I’m sure that you’re already very well aware of this anyway, if you run a service based business or even run an ecommerce store, and I think that this is where the problem lies with running this type of business model.

Active Income = Trading Your Time for Money

It’s very easy to get burnt out, stressed and overwhelmed when you are only offering your services as your only source of income.

And on top of that, if your business is 100% reliant on YOU it’s not very sustainable (meaning if you get sick you don’t get paid), you’re not leveraging it and you are not giving yourself any margin, breathing space as I like to call it.

Passive Income

So in contrast, let’s take a look at what a passive income can do for you and your business.

By creating a passive income stream into your current business model, it will bring in an income for you 24/7.

Or as I mentioned at the beginning, you can create a whole business around passive income by creating a digital product business.

Once set-up, this is done passively and runs automatically in the background and best of all, you earn money even when you’re asleep!

Automated Systems

There are various systems you have to put in place for your passive income stream to run automatically for you such as automated digital delivery and email marketing, but again once these are set up, then you can forget about them.

These automated systems are what makes passive income via digital products a truly ‘set it and forget it’ business model.

Who Can Earn a Passive Income?

Basically anyone who does business Online benefits from passive income cash-flows and I truly believe that if you’re not creating at least one passive income stream, then you are missing out on money.

The term is ‘leaving money on the table’ (a term which I don’t particularly like), but it does sum up this situation.

Taking You Out of the Equation

So I hope that you’re starting to see that if you create just one passive income stream, you will be taking YOU out of the equation which results in less stress, less overwhelm whilst also growing and leveraging your business.

You don’t have to change your business model or stop what you’re currently doing – all you have to do is add, inject if you like, a passive income cash flow into your current business.

Leverage Your Knowledge

So how do you create a passive income for your business?

You do this by leveraging your existing knowledge and expertise. You simply package up and re-purpose your knowledge (ie. the service / subject matter which you are already selling) and sell it in different digital product modalities.

You put in the hard work up-front by creating a digital information product and putting in place automated systems.

Related Reading:
The Passive Income Blueprint for Female Entrepreneurs

But by doing this you will have just created a solid business asset in your business.

This is how you leverage and grow your business the smart way in that you grow your income without trading any more of your time for money.

How ‘Passive’ is Passive Income?

Now you’re probably wondering how passive / automatic this passive income stream actually is?

Well as you can see from this image, once you’ve created your digital product and put automated selling systems in place, then the selling side of it is 100% automated.

However, it’s the marketing of the digital product where the confusion and myths surround passive income come from.

Because it depends on your marketing techniques which make the passive income stream either semi-passive or fully passive.

Here are some examples of what I mean. These percentages are just a guide, please don’t take them literal.

Semi-Passive 50%

So if you were to fully participate daily in Facebook groups and are an active guest blogger and podcast participant, then you’re still working half of your time of actively promoting your business / digital product.

Semi-Passive 80%

If you were to create Facebook ads and put automated systems in place for social media, then you would only be actively promoting your business only 20% of your time because you’re still managing the ads and the social media posts for example.

Fully-Passive 100%

However, if you wanted to 100% fully automate your promotion and marketing strategies, then you could hire a social media or operations manager for your business.

But also, we can’t forget about customer care. Again, you could do this yourself or hire a Virtual Assistant to do this for you.

So really it’s all about choices, personal preferences and money (for hiring Vas and spending on ads).

Takeaway…

So now do you see exactly what is passive income and how it can help grow and leverage your business?

The main thing to take away from this is that there is no right or wrong way to do this. This is the beauty of the Internet and why I absolutely love running an Online business because you can literally cherry pick different systems and marketing strategies and create different digital products of your choosing.

Create Digital ProductsKeep slowly adding to your digital products collection and you’ll eventually create an amazing digital product suite (multiple streams of passive income) which runs alongside your main business, giving you an income 24/7 while you sleep.

Or, of course, start your own Digital Product Business from scratch and make passive income your main income stream.

 

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