How to make passive income

What is passive versus residual income?

Everyone likes to make extra money with minimal effort. Luckily, there are opportunities out there where this is possible. It’s referred to as passive or residual income, which is income made after a one-time investment of time and/or money, and afterward, the product generates money on its own. 

Take for instance someone who invests in real estate and rents it out. This is a very traditional form of passive income in which an individual makes an initial investment to buy the property and hire a property manager, but from then on, the individual receives monthly rent payments with little involvement in day-to-day operations.

Passive income ideas

For many business owners, making passive income is a great way to earn extra money and put it back into the business to help cover expenses, support business expansion, and improve cash flow. 

Check out these six popular ways to start making passive income. 

1. E-commerce store

There are a few different ways that you can make passive or residual income with an e-commerce store. One of the easiest ways is by selling digital products online – this way you don’t have the added burden of shipping, which would make operating an online store not a means for passive income because you would be spending lots of time packaging goods and sending them. Some examples of digital products to sell include stock images, subscriptions, and software.

Another popular option is dropshipping. This consists of working directly with a warehouse to sell other people’s products online. So all you need to worry about is marketing the product and the warehouse takes care of all the shipping. Dropshipping can be tricky, however, and if you don’t do your homework before jumping in, it can turn into the opposite of passive, meaning you will be working around the clock to try to squeeze money out of your e-commerce store. 

However, for those who have an existing business, expanding into dropshipping offers fewer risks and bigger rewards. Read how to start a dropshipping business to find out more. 

2. Affiliate marketing

Affiliate marketing allows you to make a commission off of sales on other company’s products when customers use your affiliate link or code. For instance, if you own a marketing consulting business, you could include a discount code on MailChimp subscriptions on your website.

Related: How to update your business website

For every person who buys a Mailchimp subscription using your discount code, you get a commission. You can post your code across your blog and social media channels. And you can offer your audience all kinds of affiliate codes that they would be interested in. 

3. Create an e-book

Writing an e-book can yield great results if you’re looking for passive income. If you are an expert on a certain topic, such as marketing, finance, or investing, you can gather all of your knowledge into one place and write an e-book to sell online. It’s a one-time investment of time and effort to complete your e-book, but then you can market it to the world and start seeing sales roll in.

If you are not an expert in a particular field, you can do research on a hot topic – let’s say artificial intelligence (AI) – gather all of the most important information and put it in one place. Now, others can skip the research and go straight to purchasing your e-book to learn everything they need to know about AI.

4. Create an online course

Similar to an e-book is creating an online course. It takes a bit of effort upfront to write and produce a course, but then you make money off of it every time someone purchases your course. Again, you can choose a topic you know a lot about, like playing an instrument, and sell your course to those who want to learn.

5. Rental properties

This will always be a popular and trusted way to earn residual income. However, it takes a lot of money upfront to get into the game. One way to make sure you reap as much as possible out of your investment property is to purchase a multi-family home so you can have multiple renters under one roof. Instead of buying a property and renting it out to one family, you can purchase one property that is broken up into two or three apartments and have a few different tenants paying you rent at once. 

6. Airbnb

A modern twist on investing in rental properties is Airbnb. If you own your own home or a vacation home, you can rent it out while you are not there. Or, if you have a finished basement or a guest bedroom, you can even rent out those spaces while you’re home. Airbnb makes this easy and some people have turned renting on Airbnb into a full-fledged business. 

If you rent your house or apartment, you may not be able to legally list it on Airbnb. Check your lease or ask your landlord first. 

A note on residual income definition

In most cases, residual and passive income are used interchangeably. However, don’t get confused when you read about residual income in the context of the finance industry. In this case, residual income is a calculation based on the amount of money an individual or a business has at the end of each month after paying all of their expenses. In the case of a business, residual income is calculated by taking the amount of money you have left over at the end of the month after running payroll, paying rent, insurance, and any other expenses. 

Residual income is often calculated by banks when a business owner applies for a loan. The bank will calculate the business’s residual income and determine if it has enough money left over to afford a loan payment.

There are many opportunities available for you to expand your business and tap into other sources of income. Check out the Grow Your Business page for more resources.