Many people start an online business with the goal of earning a passive income. Online business passive income is certainly possible but it tends to be oversold. Today we’re going to look at exactly what online business passive income is, why are you should be wary of it being oversold and also how we can realistically achieve it.
What is online business passive income?
According to Wikipedia passive income is “income that requires no effort to earn and maintain”
I do not fully agree with this definition.
A more accurate definition would be that passive income is income that requires no effort to maintain.
Importantly, passive income still requires effort to earn but not to maintain. There is often a great deal of work or investment up front which leads to the effort-less maintenance income.
From a practical point of view though passive income means waking up each morning after a good night’s sleep and finding that you have earned money overnight without having to lift a finger. This is entirely possible and in fact is very common for many online businesses.
Online businesses, by their nature, tend to be global rather than local. This means that many of your customers will be in other places around the world and you’ll be earning 24 hours a day. This is indeed, I can personally confirm, a wonderful feeling as it can be truly passive earning. But, importantly, that does not mean that it requires no effort to get to this point!
Overselling passive income
Unfortunately passive income has become a bit of a buzzword in the online business and internet marketing circles.
“Passive income” is used to sell a dream.
Whilst the situation I’ve just described of waking up having earned money overnight is entirely possible with an online business a lot of people online tend to sell the idea that this is easy to achieve.
This is an extremely powerful sales message for the simple reason that many people are very lazy.
They want to earn something for nothing!
Passive income scams
Sadly, this is the same psychology that leads to a lot of scams working. For example think of the infamous foreign prince wire transfer scam.
In this scam a wealthy individual from overseas will contact you saying that he needs to transfer a large amount of money into your country. He needs help doing this and in return he will allow you to keep a percentage of that wealth, often a very hefty sum because the prince is transferring potentially millions of pounds.
However, before the prince can transfer you his tens of millions he’ll often require you to send a little bit of cash beforehand to his account.
The reasons for this vary: sometimes for “bank verification”, sometimes to create a wire link between the accounts and sometimes just to cover some fees which for some reason or another cannot be paid from that side.
Whatever the reason the person falling for the scam goes ahead and transfers this small amount of money over to the wealthy prince.
They only need to transfer maybe £100 or £1000 and they’re about to receive millions so why on earth not?
Of course once this preliminary sum has been sent over the princesuddenly disappears. Or, if the scammer is sophisticated, there are additional requests for more money due to unforeseen back difficulties on their end!
Passive income: something for nothing?
Sadly these type of scams work because people exist believe that it is possible to get something for nothing.
This is the same motivation that many online “gurus” tap into in order to sell the dream of passive income.
Whenever the dream of passive income is sold it is generally a secret technique that once applied will generate hundreds of thousands of pounds without you lifting a finger or investing a single penny.
It’s a hard truth but let’s think about this. If this opportunity really existed and truly required no effort then who would take the opportunity?
This is a trick question: everybody would do it. If there is a positive return for no risk it’s truly something for nothing. It would be stupid NOT to.
If everybody is doing this then what happens?
The product, service or geegaw that is being sold has its value reduced.
Because everybody is suddenly providing the same thing in value will drop to 0 as supply rapidly outstrips demand. The return for being involved in this type of business will also drop to 0.
We actually see this happening in commodity products where every single supplier in the market is providing exactly the same product. In these cases businesses tend to compete on price, always undercutting the competition. In return the competition reduces their price and so on and so on.
This continues until the price drops to the cost of the product and therefore the profit margin drops to 0. This is a common risk in commodified markets.
No Free Lunch
In economics and mathematics there is a concept of “no free lunch”.
Connected to this is the economics joke that goes as follows:
A £50 note is lying on the floor. An economist walks past and ignores the money. His friend spots the cash and asks “hey wait did you see that money there?” The Economist replies “I thought I saw £50 on the floor but I must’ve imagined it. If it truly was £50 just sitting there on the floor somebody would’ve picked it up by now.”
Effortless passive income: a defence
Often when I criticise online business passive income and how it’s oversold I’ll face objections.
The main reason for this is that people truly, honestly genuinely want it to be real!
If it’s real then they can partake and get something for nothing! So I’m just a spoilsport for saying it’s B.S.
I tend to have three common objections:
Secret sauce
First up, it’ll be argued that passive income with no effort is possible as long as you know the right secrets. There is a secret cabal of people who have worked out the perfect formula, cracked the code or deciphered the mystery of effortless passive income.
And for the low low price of £100 per month they’ll share the secret with you!
Guess who is making the money here? The person selling the dream, not you.
In fact if they’ve really cracked the code they’d be making far too much money to bother selling you the secret. Especially if selling the secret dilutes the market.
By making online passive income seem like it’s some kind of arcane secret that can be achieved by the select few they’re just adding to the mystery and excitement surrounding the topic.
Be very wary of this kind of language as chances are they selling the sizzle and not the steak.
First movers
The second objection is that effortless passive income is possible but only for those who move fast enough.
This is actually more plausible! There may be certain strategies and tactics for making money that do work for a limited amount of time before everybody else jumps on the bandwagon.
Selling on Amazon, for example, was extremely lucrative for those who got in early. There was a period of time when it was Indeed possible to find any old crap, chuck it up on Amazon and make a return.
However this led to a lot of courses teaching people how to do this and gold rush of people seeking a similar level of passive income.
The result? Commodification of the products available on Amazon and a reduction in the overall returns for all sellers.
I was looking for a decent cost-effective tripod the other day on Amazon and found the same item being sold by hundreds of sellers. These sellers are undoubtably following a Fulfilled by Amazon course and buying from the same factory in Shenzhen. How do they compete? On price!
Me: I get a cheap tripod.
The factory in Shenzhen: they get to manufacture a lot more tripods!
The course seller: they sold a lot of pricey courses and mastermind packages.
The students now selling stuff on Amazon? They get the bum deal!
This doesn’t stop people from selling the dream. And maybe you will actually get into a niche early enough. If you do: awesome!
Just be aware that it may already be too late and that the techniques being taught may no longer be relevant.
This time it’s different
Third, Shiny object syndrome. This is the belief that the next new thing will truly be the goldmine that passive income seekers have been looking for.
“Yes, yes, previous techniques like selling on Amazon got saturated and returns produced dramatically but this time it’s different!”
Whatever the newest technique or technology is this time, it will be a game changer that makes certain that your passive income will be locked in for ever and never at risk.
Again, chances are a dream has been oversold and exactly the same patterns will occur.
Fundamental business (providing value to a market) will always override the newest shiniest technology or technique.
Whenever you hear the phrase “this time it’s different “rest assured that it will be exactly the same!
The rules of the market are ironclad. If you do not provide value to the market your business will not sustainably produced returns. Just because the latest technique is new does not break this rule.
How to secure online business passive income
Does this all mean that online business passive income is impossible?
Not at all! In fact I personally wake up each morning with new sales that have been made without my input, or any additional effort on my part. So for me to argue with the passive income is impossible in online business would be ridiculous!
We just need to be aware of the following three points:
Passive income requires effort
First, investment will be required. It need not necessarily be financial investment (money) because we can often substitute our time for capital. But it’ll still require an investment of our effort and our time, both of which are not free!
Any course seller telling you that no effort or investment are required is lying. The only person making money that relationship will be them, selling a dream to you.
Find a good strategy to follow
Second, based on this make sure you know what to look for when looking for a good online business course. I’ve covered it in a lot more detail and another article: what is the best online business course?
The main point here is to make sure that they have actually done what they are teaching and not just selling shovels during a goldrush.
Ideally they should provide proof of receipts to show actual earnings and they are currently running an active business. Pat Flynn is a great examples of this with his income reports. He stopped in 2016 but the concept was astoundingly powerful.
Learn to identify business opportunities
Third, business analysis. Detach the emotion of how much you’d like this to work and instead start to look at the business model itself.
This is obviously difficult when you lack business experience that comes with practice. Starting a business is a skill. This is yet another reason to not delay getting started in online business. Just start!
The more time you spend building your own online business the better you’ll be able to analyse opportunities and separate the genuine from the junk.
Online business passive income: Summary
In short you can certainly make passive income from online business. It’s one of the major benefits of an online business in fact!
However, it’ll require effort and investment. Nothing comes for free. Sorry!
It’s not a free lunch. Anyone who tells you so is trying to take your lunch!
If you are committed to spending time and energy building something valuable though then passive income is very possible and achievable online. Here at BBO.show we’re dedicated to showing you legit ways to get this done.