passive income is one of the biggest dreams of entrepreneurs. The idea of starting a business that puts money in your business bank account every month with minimal effort can be intoxicating.
But is passive income a realistic goal for most entrepreneurs? Or would you be better off putting your time and energy into an “active income” business that pays by the hour? Let’s look at a few facts about passive income businesses, and see how much work it really takes to earn money “the easy way” as a small business owner.
Beware the risks of starting a business
Starting a business of any kind can be risky. According to recent Bureau of Labor Statistics data, 48% of small businesses opened in 2018 had failed by 2023. That means about half of all small businesses won’t survive to see their fifth birthday.
Although the BLS data doesn’t have a breakdown on how many of these business failures were “passive income” businesses, it’s important to keep in mind that earning passive income is not easy. If you have to spend a bunch of money upfront on an e-commerce store, marketing, and other expenses of launching a business, you need to be confident that you have a viable business model.
Choose the right business model for passive income
Some aspiring entrepreneurs get dazzled by the idea of “passive income,” but don’t have a clear plan for how they’re actually going to make money. Here are a few basic business models where you can earn passive income:
- Rental income
- E-commerce store
- Dropshipping
- Self-published books
- Digital products
- Online courses
- Subscriptions
- Blogging
- Podcasting
- Online advertising
- Affiliate marketing
- Content creator/social media influencer
These are all legitimate ways to make money with an online business (or with rental income, a brick-and-mortar business). But none of these passive income business models are guaranteed to be very profitable, and some are highly competitive (like dropshipping or e-commerce). You might need to build up a substantial online audience or find a lucrative niche website before you can make a significant amount of money with e-commerce or digital advertising.
Diversify your passive income streams
Another popular dream business idea is to make money as a social media influencer. Lots of people make money as online content creators and social media influencers, by monetizing their audiences on TikTok or YouTube or other platforms. It’s easier than ever to create and publish content and share your ideas with the world.
But most content creators and influencers aren’t getting rich, or even making a full-time income. For example, according to survey data cited by PYMNTS, in 2023, 48% of content creators earned $15,000 per year or less, and only 13% earned more than $100,000 per year.
This means that if you want to make a living with passive income businesses, you need to diversify your income streams. You might want to try a few different business concepts and marketing channels at once, such as:
- Starting an e-commerce site
- Launching a YouTube channel with product reviews and advice
- Offering online coaching in your area of career expertise
- Selling products online on eBay and Amazon
- Selling arts and crafts on Etsy
- Starting a podcast where you interview other successful people in your industry
Not every passive income idea needs to be a big hit. But by investing in a diversified “portfolio” of online business ideas, you can find the ones that work. For example, if you can create five different small business revenue streams that each earn an average of $1,667 per month, you’ll have $100,000 per year of business income.
Combine passive income (digital products) with active income (services)
If you own a business as a solopreneur, business consultant, or freelancer, your main business model is “active income” — selling your professional services. But you could also earn passive income by selling digital products on the side.
According to the HoneyBook Growth Guide, top-earning marketing and creative consultants (earning six figures or more) earn 25% of their business revenue from selling digital products. This could include online workshops, subscriptions, courses, and memberships.
Passive income takes active effort
No matter what kind of business model or marketing strategy you choose, keep in mind that passive income is not an overnight success story or a get-rich-quick scheme. You might need to invest many months and unpaid hours of hard work on your blog, online store, podcast, or social media channel before you start to make money. As a social media influencer, you need to constantly create content and engage with your audience to keep people following you and to stay in the public conversation.
The conversation about “passive income” is sometimes dominated by a few people who have experienced high levels of success. It’s true that some people make millions of dollars with online businesses. But the typical entrepreneur’s experience might be more modest and slow to build.
Bottom line
Passive income businesses are real, but getting results can take many hours of hard active work. And that’s fine! If you enjoy what you’re doing as a small business owner, if you’re making enough money to pay the bills, and if you see potential for future growth, being a lower-paid entrepreneur with active income is still a success story.
Source: AOL.com
