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An online business that earns passive income is the holy grail among people who follow lifestyle bloggers. It’s when you build a website, do some work once, and then relax on the beach while money floods into your PayPal account.
As someone who has built passive income through multiple online business models, I can give you the pros and cons of each.
Some give you huge profit margins, take minimal time, and scale easily. Others require a lot of time, overhead costs, and are difficult to grow.
I’ve tested 6 different models, so let’s walk through them real quick. Then you can decide what you want to take on.
Most popular big-name websites make money through ads. You’ve definitely seen them. They’re little advertisements — usually Google AdSense — on the sidebars of a website.
Here’s how they work: As you get traffic, some people will click those ads. When they do, you get a few cents, or even a few dollars per click.
I tried this for iwillteachyoutoberich.com. But I quickly realized ads don’t make much money. In fact, what I learned was that you need 50 million visitors — or more — per month to make a good income from ads. That’s a lot of traffic.
Back when I started in 2004, I decided, “If I can’t cover my rent with ads, why bother?” They’re ugly and distracting. Plus, I’ll end up spending more time optimizing the click-through rate on the ads than actually writing great content. That doesn't sound like passive income to me. So after trying that experiment for a little while, I checked the box and said I’m not interested in that business model.
If you have the skills to create new software, this can be a tempting option. The media loves to tell us stories about hot new Silicon Valley startups and the founders of tech companies who cashed out for millions after their company went public.
So we think starting an online business means you quit your job, seek venture funding, and spend the next few years trying to build the next Instagram.
But let’s face it, even venture capital firms know that most of the companies in their portfolios will go belly up.
I tried dabbling in software for online business with IWT, but the constant development resources needed to stay afloat were too much. I’d rather have my team working on other things like creating great products for you guys.
Although I’m not opposed to trying software again in the future, we killed it for now.
I’m wary of this business model because the profit margins can be terrifyingly low.
I know there’s some money to be made in this space. But I prefer fat, juicy profit margins. That puts cash in the bank that you can use to invest in your business, hire help, and much more.
Just to give you an example, we have a notepad that our designers created internally for I Will Teach staff. We would have had to price it at around $50 — for a teeny little notepad — just to break even if we wanted to sell it. And after we shipped it to people, our profits would’ve been decimated.
Physical products just introduce production costs, fulfillment, and inventory issues. I’m not interested in any of that.
Here’s an example of how affiliates work: A blogger will write a review of “My favorite credit cards.” And at the bottom they’ll say, “You can sign up for the card here — NOTE: this is an affiliate link.”
If you click that link and sign up, the credit card company is going to pay that blogger an affiliate commission. Sometimes it’ll be $50 or $75.
Over time, that can actually add up to a lot of money. And there are affiliate programs for everything — from audio books to weight-loss products.
For a long time, I avoided affiliates because I didn’t want people to think I was recommending stuff just to make money. I only wanted to recommend the best products.
But eventually I realized that my readers trusted me, and they were already going to sign up for the accounts I was recommending anyway. So I decided to try putting an affiliate link in with one of my recommendations.
When I did — virtually overnight — I became ING Direct’s number one affiliate in the world. I was making more than $10,000 a month — just by putting a link on my site.
But I soon learned this wasn’t a great long-term plan. My click-through rates tailed off and I ended up having to spend all this time dealing with advertisers.
In the end, I realized it wasn’t worth the time, so I stopped.
This comes as a surprise to a lot of my students. They’re looking to create an online information product. But as they build their email list, people message them saying: “Hey, I love what you do. Do you offer coaching?”
There are a few great reasons to take people up on this offer:
Now, my favorite business model: selling something you create. Typically, these are information products, like a video course or ebook.
You can create one that sells for $49 fairly quickly. But more expensive, high-end courses take a lot longer. For example, when we built Dream Job, we spent months on research, outlines, testing, creation, and design.
You can use them to reach thousands of people all over the world. It’s become the crux of our business and now we generate over 95% of our revenue through our own products. I can’t recommend it enough.
Many of my students have been very successful with this model.
When I started my online business, I had to learn through trial and error. This cost me years of time and money, as well as headaches and frustration.
At the time, I would have killed for someone to give me a blueprint. Any sort of map I could follow to make sure I was on the right track.
Lucky for you, I created one based on my experience. Enter your name and email below to see my step-by-step formula to grow an online business. This is the blueprint I’d follow if I had to do it all over again.