Passive Income Systems

To generate passive income, you need a way to maintain your income without having to do so much grunt work to keep it going. If you have to keep working each day to avoid seeing your income drop, then you’re earning active income, not passive income. Passive income continues to flow even when you aren’t actively working.

Many forms of passive income still require daily or weekly maintenance activities, such as fulfilling orders or handling customer service, but this doesn’t mean that you have to perform those maintenance tasks yourself. You may delegate such tasks to other people, to businesses, or to technology. For your income to be passive (meaning that you don’t have to do much to maintain your cashflow), you need to remove items from your plate, but those items still need to get done.

A passive income system is a form of delegation. What is being delegated, and to whom? How will the necessary active tasks being handled if you won’t be doing them yourself? Your passive income system must provide these answers.

I love delegating to technology because it’s fast, efficient, consistent, and inexpensive. Technology also tends to scale well, meaning that you can add more computing resources, which generally requires little more than paying for those resources. This works well for an Internet business.

Notice then that when you rely on technology to communicate, you’re already taking advantage of passive systems. Your messages pass through equipment that’s designed, built, and maintained by others. You may not be paying those people directly, but they’re working for you every day. You’re already taking advantage of these systems now. So if you currently rely on such systems for your communication needs, then why not leverage them to handle your income as well?

You can also delegate tasks to other people and to businesses to get them off your plate. In a typical affiliate deal, you may delegate the order processing, fulfillment, and customer service to another company. For example, if you use Amazon’s affiliate program to sell items, you’re effectively delegating a significant portion of the work to Amazon. From your perspective an affiliate sale may seem very passive, but that’s because Amazon provides the active labor to make your affiliate commissions possible.

Build or Borrow

To employ your own passive income system, you have several options:

  1. You can design and build your own passive income system from scratch.
  2. You can learn how other people earn passive income and try to copy their approach.
  3. You can use someone else’s system as-is (usually by paying for the privilege).
  4. You can do a combination of any of the above.

I’ve used all of these approaches at different times. I can’t offer a general recommendation for one of these above the others though. The most intelligent choice depends on a variety of factors including time constraints, budget constraints, personal strengths, and personal goals.

If you’re up for a real challenge, it can be very rewarding to design and implement your own passive income system from scratch. The upside to this approach is that you invented it, so you know its inner workings, and you can customize it all you want. The downside is that this method can take a lot of work, and it may be quite a while before the first income streams start flowing. Innovation is risky. Sometimes the risk pays off. Sometimes it doesn’t.

More commonly, people borrow ideas from each other. Why reinvent the wheel? Learn what works for other people, and use similar methods for yourself. There are plenty of books and systems authored by entrepreneurs who are happy to teach you how to do what they did. Some people are willing to share details of their systems for free, while others only share this info for a fee. Even when there is a fee, buying someone else’s system can save you a tremendous amount of time and energy.

When I was trying to build some sales for my computer games during the 1990s, I bought a book called How to Sell Your Software by Bob Schenot. Bob shared the details of his system, and I was able to adapt much of his advice to my own business, which saved me a lot of time. That system would seem very dated today (it was largely pre-Internet), but it got me off to a good start in building my own direct sales system.

A seemingly inexpensive approach is to use someone else’s system as-is. An example of this is licensing your book to a book publisher or selling your book via Amazon. This may seem like a good deal since you don’t have to pay anything up front, but it can be a lot more expensive if you do well because you may have to give away a significant percentage of your sales to the system provider. This approach tends to be the easiest for getting started. System providers in this category may be very good at processing orders and handling customer service, but they usually don’t provide much marketing assistance, so it may be hard for you to get noticed with them. That said, they can do an awful lot of work for you, making your income streams very passive.

The good news is that you don’t have to understand how to build a passive income system from scratch in order to use one, just as you don’t need to know how to build a computer from scratch in order to use it.

My personal favorite is the hybrid approach. I pick up many good ideas from others, but I like to put my own spin on things and keep tweaking my passive income streams as I go. I rarely use other people’s systems as-is, often because I find their marketing methods a mismatch for my audience, so at the very least, I still need to tweak the marketing elements even if the underlying product or service is a good fit.

To Buy or Not to Buy

One question that will surely come up for you is whether or not you should buy into someone else’s system, such as by paying for their knowledge or resources.

Generally I do think this is a good idea, especially when you’re first starting out, but only if you’re cautious about it. You can waste a lot of money buying low quality money-making systems from random Internet marketers. On the other hand, paying for a good system can also deliver tremendous value. You can learn in a short period of time what took someone else years or even decades of painstaking work to piece together.

I used to be a bit over-eager in paying for what seemed like premium knowledge in this area, and I wasted money on what turned out to be fluffy or outdated info. Then I cut back massively and became very stingy, which caused me to miss some easy opportunities. And finally I settled into what I feel is a more practical and realistic attitude. I’m willing to pay for systems know-how if I think I’ll be able to apply it effectively and if the info comes from a quality source. For me a quality source is someone who seems to genuinely want to help people understand and apply the methods they teach, rather than just selling low-quality info to make more money. Also, a quality system is one that’s already been proven to work under real-world conditions.

Usually when I pay for systems knowledge these days, I’m not looking to implement someone else’s system as-is. I’m simply looking for a few fresh ideas I can use to upgrade my existing systems. What are the latest and greatest ideas I might otherwise miss?

I know that when it comes to marketing, the people who sell these systems may try to push my emotional buttons and offer extra incentives to get me to buy. I do my best to ignore those sales tactics and look at the potential value more objectively.

Since I know people are going to ask me this, I’ll share a couple of specific recommendations for systems you can use to generate passive income streams online today. (Stay tuned to my “Life Lessons” email series for specifics).

I used a combination strategy when I ran my computer games business. I sold the games through my own website, but I also posted my game demos to hundreds of software and game download sites. The download sites helped drive traffic to my website, where people could buy the full versions of my games.