Women leading women

Passive Income – don’t believe the hype

Running a small business, being an entrepreneur – it’s a tough job. You have early starts and late nights, injecting your own time and money into your business, and struggling to get the right number of customers at the right time.

So, when someone tells you that it’s possible to generate ‘passive income’ and (gasp!) earn money whilst you sleep, of course you want to get in on the act.

I did – and I’m going to tell you here what I learnt.

The principle of passive income is that you create a product or service that doesn’t involve simply trading your time for money. This could be information products like recorded training courses, or e-books, or something like investment in rental properties.

The dream of many an entrepreneur is that they can develop a source of passive income, and that this will ensure their future and allow them to ‘work’ much, much less (if at all).

However, that’s not actually how it works, and many have been disappointed as a result.

What ‘passive income’ is really like

Let me give you an example:

Let’s say that you are a florist with a small shop and flower delivery business. You make money by selling flowers, creating arrangements, and delivering many of those arrangements to local addresses.

It means getting up before dawn to go to the flower market, getting home late at night after doing a few deliveries on the way, and working most weekends as that’s when your shop is busiest.

Then you go to an event. It’s probably an event pitched to entrepreneurs as a way to learn how to revolutise their businesses.

At that event, you hear the words ‘passive income’ for the first time, and decide to do as the speaker is suggesting and create a e-book based on your expertise (in your case, a beginners guide to creating elegant flower arrangements). It takes you a couple of weeks of hard work to create your e-book.

Again, following instructions, you create a mini-website for your e-book and ensure that people can buy it online for £20 or so. As you’ve never done that before, it takes you a few weeks (again) to create your mini-site and get it up live.

You sit back and wait for sales.

Your Mum buys one copy.

You wait for sales again.

After a week or so of checking for purchases in your PayPal account in an increasingly frantic manner, you realise that you HAVE to do something to get people to buy your e-book if you want to sell any copies at all (that’s if you don’t give up completely at this point).

This story may already have happened to you. I’ve seen it happen to several different people – none of whom could be called stupid – and this is why I say that there is no such thing as passive income.

What else is involved?

That doesn’t mean that you can’t make good money selling e-books (or investing in property), you absolutely can. However, you can’t expect people to just buy your ‘passive income’ product without you putting some work in – probably on a continuous basis.

The work that you put in will be on things like:

–        Marketing. You have to promote your product, either by doing it yourself, paying for advertising (like Adwords), or outsourcing your promotions.

–        Updating. You will need to update your product from time to time, whether that’s redecorating your rental properties, or editing your ebook content.

–        Management.  Even the simplest website needs management. There will be people who report  buttons not working, or days when your site host goes down – you get the idea. For things like property investment the management load is huge.

–        Customer service. Someone has a question? You answer them. You get a complaint? You put it right. A buyer can’t open your e-book? You talk them through the process.

So you can see that passive income is pretty ‘active’ after all – especially when you first get started.

What’s the answer?

I think that the answer is to assess other products and forms of income carefully. That includes developing a marketing plan and deciding how you are going to handle all of the customer service and management needed.

If you can, you should also test the market before you go too far with an extra product or service in order to ensure that you can actually sell it.

Once you’ve done that, you’re good to go!

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6 Comments
  1. Karen says

    Tamsin, it sounds like you have had a bad experience with the whole passive income thing. I think there are definitely two sides to this. I am a strong believer in making money while you sleep and I have been dong it alongside my day job for almost 3 years now. The money I make is not a full time income but it is definitely more than minimum wage in the UK and it is almost entirely passive.

    The issue I have with people who talk about how passive income can change your life is that they often make it sound like a get rich scheme. It isn’t one. You do have to put in the work upfront and the maintenance effort, just like you said. I don’t think this is a secret, I have known this ever since I read Rich Dad, Poor Dad almost 10 years ago. Robert Kiyosaki is big on passive income as you probably know but he wouldn’t go and just buy a house and let it sit there and expect it to make passive income. He factors upfront costs and maintenance costs into his passive income calculations. That’s the same as building a website or writing an ebook and marketing it. All of your costs and efforts should be factored into your calculations.

    To me, the true definition of passive income is something that makes more money than what you put in. My day job is not an example of that because, I work 40 hours and get paid for 40 hours (actually I often work more but still only get paid for 40 hours!). If you develop an ebook and it takes you 20 hours and costs £500 (including whatever value you place on your time), it will not make passive income until it makes more money than this. If your maintenance costs £100 a week, you need to be making more than £100 a week to be able to call this passive income.

    Passive income doesn’t mean set and forget or put in no effort and make millions. It simply means there is a way you can leverage your skills to make more than the money/effort you put in, on an ongoing basis. In the beginning, it might only be £5 but if you keep applying what to learn, this can grow. And that’s not hype! I’ve done it 🙂

    1. Tamsin Fox-Davies says

      Hi Karen,

      Thanks for commenting. I think we’re in agreement on this issue.

      I’ve had some great success with e-courses, and it’s smart to leverage your time, but you do need to put in continued effort to make it happen.

      What I object to is people being told that it’s super easy and you don’t have to do anything after you create your product or buy your first property.

      I’m really pleased that your strategy is working, but I wouldnt call it passive – you’re making it work!

      Tx

  2. Julie Hall - Editor says

    Great comment Karen! It’s true that a passive income takes a lot of hard work. I have just launched our Simply WordPress course and it took me almost an entire month to put it together … however it’s now selling really well and this is just the beginning 😀 … My advice would be to build or be active in a community that is passionate about your topic and use that as a launch pad – the marketing is definitely what takes the most time.

    1. Tamsin Fox-Davies says

      Congrats, Julie! Sounds like you’re doing great with your course.

      You understand the point exactly – marketing and management takes work, but if you’ve put in the time up front to connect with a community, then you will have a head start.

      Tx

  3. Felix says

    i absolutely agree with both replys
    I think everyone knows “we will build it , they will come” is an urban myth.
    It is exactly the same in music – you can make the most brilliant cd – put free tracks on your site for download..all the recommended things.. but you still have to create an audience – get a buzz going and promote the xxxx out of it (to quote my fave foul mouth webhero naomi dunford.)

    It is all about the marketing and the dark /fun art off “unmarketing” – but- what is great, is once your product is made cd/ ebook / audio download you can continue to sell it and then re purpose.

    As Tam is a fab marketeer and experienced webwrangler – spect this is what she is getting at !
    felix smartwomensrecordingclub

    1. Tamsin Fox-Davies says

      Only ‘spect’, Felix? You crack me up! 😉

      As you well know, that’s EXACTLY what I’m saying.

      However, I don’t think everyone knows it’s a myth, and that’s why I wrote this piece.

      For those of us that are really tied-in to digital marketing and the like, it’s easy to forget that there are loads of people out there who are just coming across this stuff for the first time, and they can fall foul of the “passive income” trap.

      Tx