Many entrepreneurs, unfortunately, misunderstand any online income as passive income. This isn’t the case. Due to technology, there’s a much easier way to create passive income. This in-depth guide covers everything you need to know to create a sustainable business model that will keep generating cash for the rest of your life.
Let’s start from the basics by understanding what exactly passive income is (and what it is not).
What is Passive Income?
Passive income is earned on semi-auto pilot mode with minimum continual effort. In short, it is an income source that generates while you are asleep.
Here are the key components of online passive income:
- It is an online income source
- The money is generated consistently in regular intervals
- It generates money with no or low effort
- It is scalable and sustainable.
If an online income method doesn’t fulfill all these conditions, it is just another online income generation method, but it isn’t passive.
The only best way to generate passive income from the internet is via a subscription-based business where you earn recurring income at regular intervals.
It is online (obviously), it is consistent (subscriptions generate a regular income stream), you make money with minimal effort (the product/service is there, and the business model is all up and running), and it is fully scalable (driving more traffic will translate into more conversions and sales).
Let’s find out how to do the same with minimal cost and effort.…
How to Create Passive Income Online
When deciding on what to do to create passive income online, you need to consider 3 things:
- How much time it takes to set up your online business and how much effort do you need to put in monthly?
- How much does it cost to set everything up?
Ideally, you should look for businesses that need minimal time initially (and regularly) and have no setup cost. We have covered the top methods to generate passive income online below based on these two criteria:
- Create a digital product
- Create a membership site
- YouTube channel membership
- Create and monetize a blog
- Create an app
- Buy an established blog
- Invest in a business.
1. Create a Digital Product
Setup time: Instant setup with Subkit and then 2-3 hours per month
Upfront cost: $0 with Subkit
A digital product is one that only exists in the digital form such as an online course, newsletter, or online coaching delivered through your membership site. We are living in a digital era and there is nothing better than creating a digital product and becoming part of the digital economy.
Gartner reported that 91% of businesses are engaged in some form of digital product and 87% of businesses say that digitalization is their top priority. Around 10.2% of US GDP in 2020 was attributed to digital goods that accounted for over $2.1 trillion:
Coach Chuck Turner is a great example of a passive income model that offers free articles on weight loss, virtual classes, and 1-on-1 online coaching. Their model is a perfect example of how to generate passive income from a digital and service product by offering a low price point plan at $20 and tiering up to $670 per month for private coaching sessions.
Creating and selling a digital product has several key benefits that make it better than other online passive income methods:
- Minimal resources are needed.
- It starts generating revenue quickly.
- Maintenance is easy and quick. You can tweak digital content quickly and update your course.
- It is scalable. You can create upsells and cross-sells based on customer feedback and grow your business exponentially.
- Cost-effective as it does not require special tools or equipment.
How to Get Started?
Follow these steps to create a digital product for your audience:
- Choose a niche within your expertise
- Decide on the product type (newsletter, videos, checklists, 1-on-1 coaching, etc.,).
- Choose a platform such as Subkit to set up subscription tiers, gate content, and promote.
2. Create a Membership Site
Setup time: Instant and then 2-3 hours per month with Subkit
Upfront cost: $0
A membership site is where you offer gated content to the members. A membership website is more of a community and a group of people while a subscription service lets you use the service or product for a certain period.
When creating a membership site to generate passive income online, there must be a valuable product or service for the members. This is the only way they will pay the fee to be a member.
Mark Manson has a membership program that offers free content and articles. And then he has a special member-only gated content including courses. For $12.49 per month he offers to the members:
There are 3 benefits that Mark offers to its members to keep them hooked:
- Book commentaries
- Special events and updates for members only
- Monthly live sessions with Mark.
This is exactly what you can replicate and this model provides pure passive income that’s fully scalable. If you are offering enough value to the members regularly, they are most likely to stay with you for years.
How to Create a Membership Site
The best way to create a membership site is via Subkit. It is an all-in-one platform that lets you create subscription-based businesses for digital, service, and physical products. The best part: You don’t have to pay a cent until you start making money. It is free to start.
If you already have a website, you can convert it into a membership website via Subkit.
Setting up your membership site is a quick process with Subkit. With as low as 3-4 hours per month, you can kickstart and manage your services easily.
3. YouTube Membership Channel
Setup time: Instant channel monetization with Subkit. YouTube setup is also instant
Upfront cost: $0
This might sound too mainstream, but your YouTube channel is no less than a goldmine of passive income. YouTube is the second largest social platform in the world with 2.5 billion active monthly users. It has a huge and loyal audience so getting started on YouTube is easier as you can leverage its popularity.
You can monetize your YouTube channel and earn money from views, sponsorships, and/or use Youtube’s Channel Membership program that lets you charge a monthly membership fee to viewers in exchange for member-only perks such as badges, emojis, live chats, and more.
While the earnings are passive, it does require consistent input in the form of new video content if you want your subscribers to stick. In the case of Rachana, she updated her channel 2 days ago:
So, you need to do two things to grow your earnings exponentially:
- Acquire new members with marketing.
- Regularly update or create new content.
- Offer subscription plan tiers so customers can upgrade and pay more.
This sounds good but it’s challenging to use Youtube’s channel membership program requires big follower numbers to get approved.
So, if you are starting out and don’t have a big YouTube channel, your chances of getting approved for channel membership are very slim.
You can create a channel membership for YouTube via Subkit without any minimum number of followers. Monetize your videos, create a subscription plan using Subkit, and start making money right from day one. You don’t have to follow rules, rather you can create your own rules for your business with Subkit’s all-in-one subscription business model platform.
How to Create Channel Membership?
Here is how to create channel membership for YouTube followers with Subkit:
- Create a channel in your field of expertise
- Request access to Subkit here free of cost and set up your business, digital content, and pricing strategy
- Start publishing videos on YouTube with a link to your subscription business in the description
- Promote video content via YouTube and get subscribers
- Drive traffic to your membership program on Subkit where you offer your subscribers exclusive content
- Make passive income from subscriptions.
4. Create and Monetize a Blog
Setup time: 1 day
Upfront cost: $100+
You can’t go without a blog when it comes to how to create passive income online.
Creating and monetizing a blog is sure to give you access to passive income, but it isn’t predictable like a membership site. You can, however, run ads that pay per thousand impressions, and this makes your revenue predictable and passive.
So, it comes down to how you monetize your blog to generate passive income online.
Ezoic, for instance, is an ad network having an average RPM (rate per 1K impressions) between $10-40. You can choose other ad networks like Google AdSense for monetization to generate passive income from your blog.
The RPM increases over time as your blog ages:
Earnings also increase as you publish more content:
There are a few characteristics that make blogging a great passive income source:
- Setting up a blog is easier and requires minimal resources and budget.
- Possibility of exponential revenue growth.
- A blog needs minimal maintenance and no fixed commitment per week/month.
- You can add more revenue streams with time such as digital products, membership, etc.
You can use your blog to generate multiple streams of passive income.
However, a blog won’t generate income right away. You need to work on it a lot initially before it starts generating money. Once it starts going, there is no end to it.
How to Create a Blog?
Follow these steps to create and monetize your blog for passive income:
- Choose a niche that you have an interest in so you can write high-quality content with expert opinion
- Buy a domain name and hosting plan for your blog. Companies like Bluehost and HostGator offer a free domain for a year with hosting plans
- Install a CMS on your blog. WordPress is the recommended free open-source CMS
- Choose a free or premium theme for your WordPress blog
- Customize your blog.
Follow these steps to create and promote content:
- Use a keyword research tool like Ahrefs to find target keywords
- Target low competition keywords that you can rank easily
- Write detailed content using a pillar content strategy
- Promote your content on social media
- Write guest posts to acquire backlinks and generate referral traffic
- Acquire backlinks to improve search engine rankings.
5. Create an App
Setup time: Indefinite
Upfront cost: $1,000+
Apps and software are your best bet for passive income online if you are tech-savvy.
App creation requires a high initial investment (whether you create it from scratch or buy an established app). But it also generates passive income in two ways:
- Ad revenue.
You can grow your app revenue exponentially by increasing subscriptions, driving more traffic to it, and adding more revenue streams. Here is an example of a fitness app that offers group workouts and 1-on-1 training sessions:
Once you start getting customers and a decent retention rate, there is a lot of room to expand and grow your app. The best part is: You can create an app for anything. You need to pick a niche in your field of expertise, find a problem, and offer a solution via your app.
How to Get Started?
You can create an app from scratch, or you can buy an established app on Flippa.
Flippa has tons of apps on sale including established ones with active subscribers, downloads, and revenue. If you find a good one in your niche, you can get started right away. Follow the tips in the previous section to buy an app on Flippa.
If you are interested in creating an app from scratch, follow these steps:
- Create an idea using competitive research, market research, and survey.
- List the key features and unique selling proposition of your app.
- Choose an app builder software such as Appy Pie or Shoutem. These are no-code app builders that allow anyone to create an app.
- Submit your app to the relevant app store.
- Promote your application using social media, ads, and content marketing
- Use micro-influencers for app marketing.
- Iterate and improve the app based on user feedback.
6. Buy an Established Blog
Setup time: 1-2 days once the deal is finalized
Upfront cost: $2,000+
If creating a blog from scratch seems a daunting task, you can buy a readymade blog that’s already making passive income.
A new blog needs time and decent traffic before you can start offering digital products and/or memberships to your audience. An established blog or website is already earning a decent income per month.
Buying an existing blog has several benefits:
- Instant passive income right from day one.
- Zero wait time.
- You can start selling your digital products, coaching lessons, and other services to the target audience.
- Create membership or subscription-based services to diversify your income.
For example, if you are planning to start a membership site, you will need to promote it to acquire members. It won’t happen overnight. Buying an existing website or blog in the same niche and then launching your membership site on the blog will give you instant subscribers.
That’s passive income right away.
Sounds great, right?
There is one issue, however.
An existing and established blog needs a high initial budget. Unlike a new blog that you can start for under $100, an established blog with decent traffic and income will cost you 24-36 times its monthly revenue.
If a blog is making $500 per month, it will cost you between $12,000 and $18,000. If you can afford it, you can generate passive income right away. On top of that, you can diversify revenue streams and add your products and subscriptions.
How to Buy an Established Blog?
Flippa is the leading marketplace to buy and sell websites, businesses, and apps. It is an established platform where you will find lots of blogs and websites across categories.
You can filter blogs based on several variables including revenue, age, monthly profit, monthly users, industry, and more.
You can bid on the blogs you are interested in and once you win an auction, you will need to add the funds in escrow. Once you get the blog transferred, you can release funds.
Things to consider when buying an established blog or website:
- It should be in the same niche you are targeting or planning to offer digital or subscription products
- Verify the blog including its traffic, revenue source, and other metrics
- Ask the seller to give you access to Google Analytics so you can verify traffic
- Focus on organic traffic. The higher the organic traffic, the better. Analyze what keywords it is ranking for and in what countries. Match this to your target audience and look for a fit
- Look for Google AdSense blogs instead of affiliate blogs. Google AdSense income is passive and predictable
- Verify the seller’s authenticity and put funds in the escrow.
7. Invest in a Business
Setup time: Variable
Upfront cost: Over $5,000
Nothing works better than investing in an existing business to generate passive income online.
The trick here is finding the right business that generates a passive income in the form of subscriptions. If it pays you a return at the year-end and you are OK with it, you may proceed.
Though you will be investing a high initial capital to generate enough passive income, it is totally worth it if you end up investing in the right business. The best part: There is nothing you have to do. You just have to invest your money and take your share.
The cash inflow starts immediately.
However, the downside is that the growth isn’t in your control. As an investor, you only get a return on your share and the business can go anywhere in the future. You need to invest in multiple businesses to diversify your portfolio and reduce risk.
How to Get Started?
Where do you find businesses to invest in?
Platforms like Wefunder, SeedInvest, and Mainvest are good starting points. These are the platforms where you can invest as low as $100. When you use one of these platforms, you might not receive monthly payments; rather you will receive the dividend, convertible notes, or stocks.
Alternatively, you can find businesses via your network and invest directly as a partner. This is where you will generate passive income with regular paychecks. For example, you can find startups on Crunchbase to get started. Contact relevant startups, reach out to them, and see if there is any mutual fund.
You will also find a lot of established businesses on Flippa. Contact the new owners who purchased a business recently on Flippa and see if they need an investor. New buyers usually need immediate funds to get the ball rolling.
Passive Income Generation Isn’t a Dream
The best passive income online is one that has the potential to grow exponentially. If it lacks scalability, you need to reconsider it.
How to create passive income online isn’t a big deal as there are several proven methods. The challenge is creating passive income that requires minimal effort and is consistent. If you have to spend 30+ hours a day to generate income, you can’t call it passive – it’s a job.
Don’t just look at the revenue. Analyze resources and your effort too.