Web Based Passive Income Versus a Web Based Revenue Stream; They Are Very Different Animals
No matter who you are or what you do for a living, a steady revenue stream is a good goal to strive for. Freelancers and other self employed people find this to be especially true since they don’t have the built in stable revenue stream that a job provides. Without a steady stream of revenue or cash flow, many freelancers and entrepreneurs end up back in a cubicle wondering what went wrong.
Now, when I say steady revenue stream I am not referring to passive income, though passive income can be one part of your revenue stream. The difference between passive income and a revenue stream is that a revenue stream actually takes effort. Even though there are a slew of webpages that promise to give you the secrets of generating passive income, in truth there are very few investments (and no jobs) that qualify as being truly passive.
First I want to take a look at what passive income is and then we will go on to discuss ways to create a steady revenue stream. As you will come to learn, the latter is much easier to accomplish, especially in the short term.
What Is Passive Income?
Passive income refers to money that is earned with no effort (or very minimal effort) on the part of the earner. In fact, if you live in the United States, you will find that the Internal Revenue Service actually has a very specific definition of passive income.
Personally I find it interesting to see that in the eyes of the IRS there are only two situations in which income can be considered passive:
- a rental activity; or,
- a business in which the taxpayer does not materially participate.
I say that I find it interesting because the things that I would consider passive income; dividends, interest, and royalties are specifically mentioned by the IRS as not being passive income sources.
There is also no mention of any type of web based activities, but it is easy to see that web based activities don’t qualify as passive income no matter what definition you use. If you’ve ever tried making money online you’ll know that web based activities are very labor intensive and the payoff is a steady revenue stream, not a passive income.
So, how can you use the web (and more specifically websites) to create a steady stream of recurring revenue?
The Web Based Steady Revenue Stream
I am going to restrict this post to web based methods for creating a recurring revenue stream. Obviously there are other methods that can be used including investing in stocks and real estate, building an offline business, creating new products and inventions, and a host of other methods. In order to keep this post shorter than 20,000 words I am focusing on the common web based opportunities.
Web Advertising – This is a method that many people envision when they start a new blog or website. Basically it involves selling advertising space on your high traffic website. The most basic form of making money from website advertising is Google Adsense and similar contextual advertising programs.
These are the easiest forms of web advertising because they don’t require any specific volume of traffic, nor do they require any technological knowhow. The site owner simply adds a few lines of code to their website and the ad service automatically places appropriate ads. The problem with this type of advertising is that it requires visitors to actually click on ads. And as people become used to seeing these ads they are less likely to click. If you aren’t familiar with the Google ads, they look like this:
As traffic on your website grows, you will find that you can often make more money through other types of advertising such as CPM (cost per mille) which pays based on the number of ad impressions. Of course you need a LOT of traffic or your website needs to be in a highly profitable niche to really take advantage of CPM advertising.
Another method that works quite well is selling advertising yourself, but this can be quite time consuming. I’ve read estimates of anywhere from 30 minutes to 2 hours of your daily routine need to be dedicated to responding to inquiries, following up with advertisers, tweaking creatives, making changes, placating advertisers and on and on.
Affiliate Marketing – While there are some websites out there that claim affiliate marketing is like having your own money tree, i.e. set up a website, place affiliate links, watch the money roll in, the truth is that affiliate marketing is just as much work as the web advertising model. That being said, affiliate marketing has create quite a few web millionaires and can be very profitable when done properly.
If you break it down to the most basic definition, affiliate marketing is nothing more than selling on a commission basis. So, if selling turns you off affiliate marketing is not for you. Another point that many miss out on when attempting affiliate marketing is that in order to get customers (and repeat customers) you need to provide your website visitors with value. Not just a little value either, but massive value that is undeniable. Needless to say this involves quite a bit of work and time.
And even if you do become successful with an affiliate program it is far from passive. Successful affiliates will tell you that when you cease your marketing efforts your affiliate commissions will also slowly dwindle. Affiliate marketing may be a cash cow, but just like a real cow you need to continually feed and care for it if you want to continue to milk it.
Ecommerce – You may not be familiar with the term ecommerce, but you would know it when you see it. Amazon.com is by far the most successful ecommerce website out there. You don’t have to grow to the size of Amazon though to make money from ecommerce. Small sites exist in almost any niche that has products that are saleable.
To be honest, ecommerce is one type of web revenue building I have never tried, mostly because it typically involves stocking and shipping physical products. Oh wait, I did spend about 6 months selling used books on Amazon…admittedly not my own ecommerce site, but probably the factor that keeps me from starting my own web store.
Of course, you can make money by selling products from dropshippers, but in my mind that is little different from affiliate marketing. In either case, maintaining an ecommerce website can be challenging, especially as your inventory and number of offerings grows. I have a friend who makes a nice little income selling Thai amulets online, but he will be the first to tell you that it is far from a passive income source. He has to source the amulets, photograph them, post the photos and descriptions on the website, answer questions from customers and prospective customers, pack and ship when sales are made, and update the website when amulets are sold. Does that sound passive to you?
Creating and Selling eBooks – This is becoming more and more popular as Amazon has made it so simple to sell your eBook online. The problem with that popularity is that the number of eBooks available for sale is growing exponentially. Even worse, many eBooks are available for free, so you really have your work cut out for you in terms of competition.
I’ll freely admit that you can create a nice revenue stream from the sale of an eBook, but it is hardly passive. First of all, there is a lot of work that goes into writing a book, e or otherwise. Secondly, the book you write needs to be better than what’s already available if you expect it to continue selling. Third, you will need to continue to market the eBook if you want continued sales and you’ll also need to update the book occasionally (unless you’re writing fiction).
So, while creating and selling an eBook is a popular choice for additional revenue streams, it isn’t passive. And the chances of becoming the next Amanda Hocking or Joe Konrath are infinitesimally small.
Developing Web Themes – Just as creating and selling eBooks used to be easy, creating and selling web themes also used to be easy. Not so anymore. Competition is fierce and your themes need to be outstanding to become consistent sellers.
If you are considering this as a way to make a recurring income, you already know how much work goes into theme creation. This isn’t getting any easier and in fact it is getting more complex. Additionally, the web evolves rapidly, so you not only need to create themes, you also need to keep learning the new standards and enhancements in web design as they occur.
There’s also that annoying marketing thing again. It isn’t enough to simply make a theme and hope people will come to buy it. You also need to be the salesman and marketer for your themes. Sure, theme directories will help, but if you are just getting started you’ll need to market the hell out of your stuff to gain traction.
Finally, you need to continually update your themes to support new standards and to fix bugs. You will also need to provide ongoing technical support to your customers, which becomes increasingly time consuming the more themes you sell. Just look at the comments on some popular themes at Themeforest to get some idea of what I mean.
The fact of the matter is that there are no truly passive ways to make money online. Even the so called easy methods for online income require knowledge, perseverance and a lot of work. If you are willing to put in the time and effort though, you can build a nice stable revenue stream that allows you the freedom and independence that all entrepreneurs crave.
What about you? Do you have any other ideas for web based projects that can provide a steady stream of revenue? Are they labor intensive or are you able to make a full time income working just a few hours a day? I would love to hear about your successes in the comments below.