; Date: Tue Sep 10 2019
Who wouldn't want a magic box that gives you free money. The passive income dream is almost like owning a box that automatically gives you money every day. Let's look at what's required to build a niche website that brings in passive income, where the website traffic and income are relatively stable.
First we must start with defining Passive Income, since I've seen so many people define it in different ways. Namely:
Passive income is income resulting from cash flow received on a regular basis, requiring minimal to no effort by the recipient to maintain it. Passive income is generally defined as a stream of income earned with little effort, and it is referred to as progressive passive income when there is little effort needed from the individual receiving the passive income in order to grow the stream of income. [Wikipedia]
That much of the Wikipedia definition I agree with. You're setting up a thing, whether it is a website or a pool of investments or a business, where there is little effort on your part, and from which you earn money. The Wikipedia page goes on to discuss other attributes, and I think Passive Income may be a term in accounting with a specific meaning.
The potential of creating passive income is amplifying your earning potential. You invest some effort up front to build a resource, and then the resource makes payouts over time.
For many the goal is to gain financial freedom and to have more control over ones life.
Websites as passive income sources
How does all that passive income stuff apply to a niche website? Simple - there are lots of methods to monetizing a website which require little effort to receive the income. Some examples:
|Advertising programs like Google Adsense or BuySellAds||Advertisers pay to have access to your traffic|
|Affiliate product referrals||Merchants pay a commission on sales resulting from traffic you send|
|e-Books||There are many avenues for selling electronic books|
|YouTube video||Google pays out revenue from advertisements that run against your content|
|Training courses||Folks will pay to receive training|
|Membership fees||Some folks will pay to "join" certain sites to gain access to protected material, or to join a conversation in a private forum area|
These have varying degrees of involvement. For example operating an online discussion forum entails some work to manage the forum, to block spammers or resolve arguments or to solve technical issues. But generally these activities require very little ongoing work.
Obviously writing e-Books or creating YouTube videos takes effort up front. But if you've done a good job selecting the topic, and creating the content, then it will pay out for years with little effort.
Similarly the niche website that is the focus - that, too, requires some effort. You must build the technology stack on which the website lives, you must keep that technology up-to-date, you must write the content, and so on. But once you've put together a good quality website, you "sit back" and watch the traffic arrive. If only it were that easy.
The basic equation is that the more traffic comes to your website the more opportunities there are to earn revenue. Some opportunities require active involvement, while others are passive and require very little involvement.
Some examples of non-passive online income:
- A daily lesson or chat with students requires a daily scramble to put together teaching material
- A daily newscast requires a daily scramble to find the days news, researching its significance, etc
- Any online "store" selling physical things -- even when drop shipped -- requires daily attention to handle orders, possibly pack and ship, and any customer support requests
- Any form of consultancy means you are meeting 1-on-1 with clients
Stable income from nice sites
All that passive income is good. How do we make it so the income is more stable?
The answer to that is very large and this post is already pretty long. Some ideas:
- Diversification (see the next section)
- Having good quality content that answers honest organic questions
Diversification: Multiple sources for traffic, Multiple streams of income
It is best to diversify the website for both traffic sources and income sources.
- If one source of traffic dries up, the other methods are still bringing in traffic
- Search engine ranking algorithms change all the time
- Payout structures can change
For example it used to be that Facebook pages were an excellent way to bring in traffic. But a couple years ago Facebook changed things so that Facebook pages do not easily/organically appear in peoples' news feeds. At the same time Facebook started barraging Page administrators with messages to promote posts - which involve spending money on Facebook advertising.
Geee.... is Facebook twisting the rules of the game to squeeze out more revenue? Probably. The bottom line is that a Facebook page is now not a given for bringing in traffic.
Likewise the search engines routinely change the algorithms. If you've followed the advice of SEO artists over the years, you may have optimized the content to match some aspect of Google's search ranking algorithm. But you'll find website traffic taking a nosedive when the algorithm is tweaked.
Amazon changes the affiliate commission structure from time to time. Google Adsense changes the payout ratio from time to time. YouTube changes the monetization policies from time to time.
Contrasting an online e-commerce store selling physical products versus affiliate passive income
Relying on 3rd parties like an advertising network or an affiliate program leaves you at the mercy of their policy changes.
As a result many folks suggest - run your own e-Commerce store. Your profit margins will be higher, and you have better control over the results of your business. But ... consider:
- You have to handle order fulfillment, meaning packing things in boxes and taking them to the post office
- With a "drop shipping" business, someone else handles fulfillment, but you are still handling customer support requests, and are taking orders to pass to the drop shipping provider
Even with a drop shipping business you are not earning "passive income" because you are materially involved with operating the business.
With e-Book sales, affiliate sales, advertising revenue, etc, your involvement is to create the thing, and other people handle order fulfillment and customer support.
Personal passive income - investments
While we're talking about passive income we should at least briefly mention personal (non-business) passive income sources. There are plenty of ways to earn side money with little or no involvement.
- Stocks or bonds that pay dividends or interest
- Other sorts of investments like mortgages or Lending Club
- Renting space in a driveway (for areas where this is in demand)
- Rental properties can be passive, so long as you have a property manager to handle tenant requests
The equation here is that you have income from a job or a business, and you can amplify that income by investing the money to earn even more money.