Intro to Passive Income Systems

Custom Hourly Work

I pay you $60. You work one hour for me.

Problems with this system:

• Your income is capped by the inescapable limit of the number of hours in a day.
• You have to keep working day after day, year after year.
• You get no return for each hour of work except the wage you have assigned yourself.
• You are basically a wage-slave to yourself.

This is what most self-employed creative service providers do. Until they burn out or get smart.

Streamlined Service Packages

I pay you $60. You work 30 minutes, because you have created a system that allows you to implement $60 worth of work in 30 minutes. I am happy (I got my $60 value).

How to do it:

1. Figure out a particular type of client that has a particular set of needs.
2. Create (or find) a tool or system that you can implement for each of this type of customer that will meet or exceed most of those needs.
3. Customize it for each customer (add value).
4. Charge a flat fee for each project, rather than an hourly rate. (Price on value rather than on the number of hours you work).
5. Each time you do a project with your system, use it as an opportunity to refine it and add value, so you can charge more next time.

Examples:

1. For Red Acorn Design, I created a website back-end for small e-commerce sites. I customize the front-end for each one, and I drop in the new design each time.
2. If you don’t want to create your ow, you can sometimes re-brand other peoples. Search for “white label software” or “rebranded software” on Google.

Product + Automated Delivery

I pay you $30 for an ebook you wrote. You worked for a month to write it and get it up on your website. But you work 0 minutes for each sale, because the payment and delivery is set up automatically. Furthermore you can sell a potentially infinite number to a potentially infinite audience. You focus your time on marketing and drinking martinis.

How to do it:

1. Turn some of your creative capital into a packaged product that you can sell.
2. Automate the delivery of this product to reduce overhead.

Examples:

• Ebooks are a popular idea right now because they involve very little overhead to produce or distribute. (They still require marketing of course).
• Photography: selling your photos through a stock photo site and getting a royalty every time an image sells.
• Write a book, or make a CD and get royalties from each sale.
• Write term papers and sell them on the internet (no kidding! I made a few hundred dollars selling some papers I wrote in college through Academon).
• Set up a regular product store but automate fulfillment through drop shipping or similar solutions. Amazon offers order fulfillment services now—they will stock and ship your products for you.

Recurring Income Model

I pay you $10 a month to provide an ongoing service. You work 10 minutes the first month setting up my account. I ask you a short question once every 6 months or so that takes you 2 minutes to answer. Over time, you build up a client base of around 500 customers also paying you $10 every month. You make $5000 a month and spend 2 hours a day setting up accounts and answering questions. Eventually you hire a monkey to do that so you can nap more.

How to do it:

1. Find a product or service people have to buy every month or year. Try to find ones with minimum recurring work to go with it. For instance, most of my web hosting customers, once they are set up, have few questions. However, I do have to support them in an ongoing capacity and make sure the servers don’t crash.
2. Outsource or hire people to do the recurring work (like support), making sure it is cost-effective.
3. Create automated systems for billing, etc.

Examples:

• A classic example of this is rental income: buy a property, charge rent, and hire a property management company to deal with the tenants. You have to make sure the rent covers the cost of that for it to be generating income. If not, it could still be a good way to build capital (equity). Read Rich Dad, Poor Dad for more on this.
• Create a popular website and sell advertising on a monthly or yearly basis. (As well as using Google AdSense of course.)
• Resell a service that is related to your normal offerings. That’s how I started with web hosting: reselling it to my web design customers. Many online services offer this option. They sell you the service wholesale and you resell it to your customers at a higher price and pocket the markup. Search for “reseller” or “white-label” services. For instance if you offered a newsletter writing or development service, you could resell a system that lets people send out the email newsletters.

Affiliate Programs

I click on a link on your website to a product you recommend, and I buy it. You earn $5 from the sale. You did no work at all. Furthermore, you have a popular site so that happens about once a day so you make $150 each month for that link.

How to do it:

1. Figure out what products you can promote to your customers that offer a commission.
2. Put links to these products or services on your website (with your recommendation).

Examples:

• I link to/recommend the following things on my web design website:
  • Merchant account (for e-commerce) and PayPal
  • Shopping cart software
  • Stock photo sites
• I have a hobby site about beading where I link to a beading magazine, several bead stores, and many bead books and beading supplies from Amazon.

Workshops

I pay you $60 to attend a 4-hour workshop. Forty people attend. You make $2400. You have worked 4 hours giving it, 6 hours preparing it, and 8 hours promoting it, which averages out to $133/hour. Although that’s not much more than your hourly rate, you are happy because your promotion efforts also promoted your website, where you resell services and recommend affiliate products. You also used some of your workshop notes as part of your new ebook, and the rest as keyword-rich content for your website, attracting more search engine traffic.

While this isn’t passive income directly, it can help your passive income efforts if you leverage everything you create.

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