A Practical, No-Nonsense Guide to Earning Passive Income Online

It sounds so enticing, right?

Tinker around on the side, creating a few websites, and before you know it, you’re earning hundreds or even thousands of dollars per month, giving you the freedom to quit your job, travel the world, and live like a millionaire without anything tying you down.

It’s the dream lifestyle, and everywhere you turn online, someone is offering to sell you a course, showing you how to do it.

You have to wonder, though… is all this Internet stuff real, or is it just a scam?

And if it is real, why isn’t everyone doing it?

Today, I thought I would take a moment to answer those questions for you. Normally, we only talk about earning money online from a blogging perspective, but I thought it might be helpful to step back and address the topic of “passive income” in general.

The sad fact is, there’s a lot nobody tells you. I wouldn’t exactly call it a cover-up because I don’t think most “gurus” are deliberately hiding the truth about how it works, but I do think they have a vested interest in not giving you the whole story.

So, that’s what I’d like to give you. First, a few important details:

This Blog Makes about $60,000 per Month in “Passive Income”

The reason I put “passive income” in quotes is I think the term is a little misleading.

Almost nothing is totally passive. While you may not personally be doing any work to receive the money, someone is, and there’s usually at least a little bit of management overhead.

For instance, I’ve gone on record saying this blog averages over $100,000 per month from selling online courses. From that total, about $60,000 of it is technically “passive income” because I don’t have to do anything to generate it. I could die, and the money would keep coming in month after month for years into the future.

But that doesn’t mean no one is working. It also doesn’t mean I’m personally receiving the entire $60,000.

The truth is, most of that money goes to paying my team. We have course instructors, customer support representatives, marketing specialists, and so on. All of them are working full-time to keep the “passive income” machine running, and they do it quite well.

But somebody still has to be the boss.

While I don’t technically do any of the work necessary to generate that income, I do spend about 10 hours every week on phone calls and meetings. I also spend at least another 10-20 hours a week thinking about how to improve the business and make things run more efficiently.

So, in reality, I’m working 20-30 hours per week for the “passive income.” In exchange, I receive a nice salary, plus the majority of the profits the business generates. If I wanted to, I could probably hire an outside CEO and cut it down to 5-10 hours per week, but that would also reduce the amount of profit I make.

And that’s how passive income really works.

Most of the people bragging about making millions of dollars per year online are being somewhat misleading. Yes, they might be grossing millions, but how much are they netting? In many cases, maybe 100-300K per year after paying for advertising, affiliate commissions, and salaries.

Granted, that’s still a pretty good living. It’s also work you can do from anywhere.

But is it “total freedom?”

Not really. For all practical purposes, you still have a job, you still have to do work, and you still spend at least a little time doing stuff you don’t really enjoy.

I’m not saying it’s a bad life. If you can make it through the learning phase (which I’ll talk about at length later), it’s still a hell of a lot better than having a regular day job, but I don’t know anyone getting paid tons of money to do absolutely nothing. While it’s theoretically possible, I don’t think it’s a realistic objective for most people.

You can earn a living online, but you will have to work for it. In time, you can also reduce the amount of work you have to do personally, but it’s almost impossible to eliminate it entirely, even if it’s only managing the people you delegate the work to. As any manager can attest, that in itself is a job, and it never really goes away.

That being said, how exactly does one generate this not-really-but-sort-of-passive income?

Well, let’s talk about that next.

5 Ways to Generate Passive Income Online

Technically, there are hundreds of ways, but I’ll give you the five most common ones I’ve seen work in the real world.

1. Selling advertising on your site

The idea here is to publish content that ranks for competitive search terms on Google, attracting a continuous stream of traffic, and then sell banner ads to businesses who would like to reach those people.

Of all the different strategies, this one is the most passive, but it also requires TONS of traffic to generating meaningful income. For example, a site getting 10,000 visitors per month might only earn $50-100 per month.

So, if you were planning to make enough money from advertising to quit your job, you can probably forget it. It takes too much traffic. In fact, one of the other methods below will almost always make you more money on a per visitor basis. Nevertheless, this is a legitimate model, so it deserves to be on the list.

2. Earning affiliate commissions

Similar to selling advertising, the goal is usually to rank for competitive search terms, but instead of selling advertising, you endorse different products your audience might be interested in, and whenever someone you refer buys, you get a commission. It’s kind of like the next generation of Amway, except instead of referring your friends and family to buy the products, you refer strangers who visit your website.

If you do it well, you can earn a lot of money. For instance, Pat Flynn is on record for earning over $100,000 per month in affiliate commissions. While that’s certainly unusual, I know quite a few people who make a few thousand dollars a month from it, and in my opinion, it’s the best model for a beginner.

Another variation of this model is to pay for advertising and then earn affiliate commissions from people who click on the ads. Years ago, when advertising on Google and Facebook was cheap, lots of people made a lot of money this way. Nowadays, it’s still possible, but it’s much more difficult, and you have to be much more sophisticated. Nevertheless, I thought I would mention it, because it’s still a viable approach, especially in certain niches.

3. Drop shipping

Here, you set up an online store, but instead of selling your own products, you sell products from other companies, you submit the order to them, and then they deliver the product to the customer. It’s called “drop shipping,” and it’s more common than most people realize. You’ve probably purchased items delivered via drop shipping and didn’t even know it.

While I don’t have any direct experience with it, I know it can be quite profitable, especially in niches where you have high profit margins and low shipping costs. Vitamins and cosmetics, for example, are two popular drop shipping industries. Anyone can theoretically start a “store” and have dozens or even hundreds of products to offer within a matter of days.

Needless to say, you have to find a way to differentiate yourself from everyone else, but if you can, the income can be relatively passive. Chances are, you’ll still have to deal with some questions and complaints from customers about other people’s products, which I’m guessing can be quite a headache, but you don’t have to deal with manufacturing, warehousing, shipping, or any of the other headaches of creating the product yourself.

4. Selling information products

Chances are, you’ve seen all the buzz about creating your own online courses, membership sites, e-books, online events, and whatnot. Collectively, these are known as “information products,” and selling them is one of the hottest online businesses to start right now.

Technically, the margin is close to 100%, because you have no product creation or distribution costs. You do everything online. You can also create the product once and then sell it to hundreds or even thousands of people, creating a stream of revenue that can last years or even decades.

The downside: it’s really difficult to get started. While information products are typically pitched as a “side project,” it’s really more like starting any business. You have to learn how to create products people want, promote them, support your customers, do your finances – everything businesses deal with.

It takes a special kind of person to wear that many hats, and in my opinion, the current positioning in the information marketing industry of “anyone can do this” is just nonsense. Everyone I know who has been successful creating information products is a driven, uber smart entrepreneur. If you’re one of those people, you might consider it. If not, I would look elsewhere.

5. Selling simple software (or apps)

In the past, most people wouldn’t have considered selling software to be a source of passive income, but I believe that’s changing. Thanks to tools like Bubble, creating simple web or mobile apps is easier than ever before. You can do a lot without knowing how to code or hiring a developer, and in the future, I think that’s only going to become more and more true.

Now, does that mean you’re going to develop the next Google in your spare time? Probably not, but you might create a simple app that makes you a few thousand dollars a month. I know quite a few people who have done it, and I even have a few friends who have become millionaires in the software business.

Once again, though, it’s like starting any company. While you might not necessarily need to know how to code, you do need an entrepreneurial mindset, work ethic, and personality type, and you’ll probably struggle for years, going through a string of failures before you finally get it right. If you’re successful, though, the passive income potential is enormous.

Now, you might be wondering how all of this relates to blogging

While you don’t technically need a blog to make these models work, it’s quite common to use one as both a traffic generation tool and a way of staying in touch with customers. In other words, the blog gets people “in the door,” and then you monetize that traffic through the above methods.

But here’s the thing…

None of this is easy. Some models are simpler than others, but all of them require extraordinary skill.

Here’s what I mean…

The Prerequisites for Passive Income

Let’s say I gave you a step-by-step guide to earning passive income by selling information products, breaking down everything you have to do with specific instructions, real-world examples, and everything you need to understand exactly how the model works.

You’d think you could become successful within a few months, right? Most people assume it’s just a matter of doing the work.

But it’s not.

It’s a matter of skill.

For example, here’s a list of skills that all the models require (assuming you are using search engines as a traffic source):

  • Creating better content than all of your competitors
  • Search engine optimization, including keyword analysis and link building
  • Copywriting to improve the click through rate on your headlines
  • Conversion rate optimization for your opt-in forms
  • Basic WordPress and hosting administration

And let me be clear…

Those are just the prerequisites for getting traffic. We haven’t even started on monetizing that traffic.

In other words, you need to be proficient in all of those areas before you earn your first dollar. All in all, I’d say it’s about the equivalent of a two-year degree in college.

And the monetization side of things? That’s another two years, assuming you’re only mastering one business model.

So, to learn everything you need to know to generate passive income online, you need to invest about four years, assuming you are studying full-time. If you’re only studying part-time, it’ll take you about eight years.

That’s just an estimate, of course. Some people will be faster; some will be slower.

The bottom line:

None of this is as easy as everyone makes it sound.

Don’t get me wrong, though. Despite the time required to learn everything, I still think it’s a fantastic trade.

The Trade of a Lifetime

If you’re willing to invest four years, 40 hours a week, into learning everything you need to know, you’ll have some extraordinarily valuable skill sets that will serve you for decades. The best case scenario? You never have to worry about money again until the day you die.

To me, that sounds like a better deal than most universities are offering. 🙂

Reading about how long it takes and how difficult it is, you might think I’m trying to discourage you, but I’m not. I’m actually trying to save you time.

Because what’s the alternative?

You tinker around on the Internet, reading articles, buying courses, trying this technique and that, running around in circles for years without getting anywhere. Four years later, you conclude it’s a lot harder than you thought it would be, and you’re forced to decide if you want to go further.

Wouldn’t you rather skip all of those years running around in circles and decide now?

If you read everything I said here and your response is, “Okay, that’s fair. I can give it four years,” then you’re already way ahead of most people. On the other hand, you might also say, “Jon, this is interesting, but I really don’t have that kind of time, so I’m going to bow out now.” In that case, congratulations, you just saved yourself a lot of wasted time.

Because listen…

Building a passive income machine that fuels the life of your dreams is only one path, and it’s not right for everybody. There’s absolutely nothing wrong with working for someone else. You can also become a freelancer, offering your services to businesses who need your skill set. Or you can start a more traditional company.

There are lots of options out there. This is only one of them.

Is it the right one for you?

Only you can decide. Now, at least, you know what’s required, and you can make an informed choice.

Good luck. 🙂

About the Author: Jon Morrow has asked repeatedly to be called “His Royal Awesomeness,” but no one listens to him. So, he settles for CEO of Smart Blogger. Poor man. 😉

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