Passive income is one of the biggest dreams of entrepreneurs. The idea of ​​starting a business that puts money into your business bank account every month with minimal effort can be intoxicating.

But is passive income a realistic goal for most entrepreneurs? Or would you be better off focusing your time and energy on an “active income” business that pays hourly?

Let’s look at some facts about passive income businesses and see how much work it really takes to make money “the easy way” as a small business owner.

Beware of the risks associated with starting a business

Starting any business can be risky. According to recent data from the Bureau of Labor Statistics, 48% of small businesses opened in 2018 had gone bankrupt by 2023. This means that about half of all small businesses will not survive to their fifth anniversary.

Although the BLS data does not specify how many of these business bankruptcies were “passive income” businesses, it is important to keep in mind that earning passive income is not easy. If you’re going to spend a lot of money upfront on an e-commerce store, marketing, and other expenses related to starting a business, you need to be sure you have a viable business model.

Choose the right business model for passive income

Sometimes aspiring entrepreneurs are dazzled by the idea of ​​“passive income” but don’t have a clear plan for how they will actually make money.

Here are some basic business models through which you can earn passive income:

• Rental income
• Ecommerce Store
• Dropshipping
• Self-published books
• Digital Products
• Online courses
• Subscriptions
• Blogging
• Podcasting
• Online advertising
• Affiliate Marketing
• Content creator/social media influencer

These are all legitimate ways to make money with an online business (or with rental income, a brick-and-mortar business). But none of these passive income business models are guaranteed to be very profitable, and some are very competitive (like dropshipping or e-commerce).

You may need to build a substantial online audience or find a lucrative niche website before you can make big money with e-commerce or digital advertising.

Diversify your sources of passive income

Another popular dream business idea is to make money as a social media influencer. Many people make money as online content creators and social media influencers, monetizing their audience on TikTok, YouTube, or other platforms. It’s easier than ever to create and publish content and share your ideas with the world.

But most content creators and influencers don’t get rich, or even earn a full-time income. For example, according to survey data cited by PYMNTS, in 2023, 48% of content creators earned $15,000 per year or less, and only 13% earned more than $100,000 per year.

This means that if you want to make a living with passive income businesses, you need to diversify your income sources. You may want to try several different business concepts and marketing channels at once, such as:

• Start an e-commerce site
• Start a YouTube Channel with Product Reviews and Tips
• Offer online coaching in your area of ​​professional expertise
• Sell ​​products online on eBay and Amazon
• Selling arts and crafts on Etsy
• Start a podcast where you interview other successful people in your industry

Not every passive income idea has to be very successful. But by investing in a diverse “portfolio” of online business ideas, you can find the ones that work. For example, if you can create five different small business income streams that each bring in an average of $1,667 per month, you will have $100,000 in business income per year.

Combine passive income (digital products) with active income (services)

If you own a business as a solo entrepreneur, business consultant, or freelancer, your primary business model is “active income”: selling your professional services. But you can also earn passive income by selling digital products on the side.

According to the HoneyBook Growth Guide, the highest-paid marketing and creative consultants (earning six figures or more) earn 25% of their business income from selling digital products. This could include online workshops, subscriptions, courses and memberships.

Passive income requires active effort

No matter what type of business model or marketing strategy you choose, keep in mind that Passive income is not an overnight success story or a get-rich-quick scheme. You may need to invest several months and hours of hard, unpaid work into your blog, online store, podcast, or social media channel before you start making money. As a social media influencer, you need to constantly create content and interact with your audience to keep people following you and staying in the public conversation.

The “passive income” conversation is sometimes dominated by a few people who have experienced high levels of success. It is true that some people make millions of dollars from online businesses. But the experience of the typical entrepreneur may be more modest and slower to build.

Conclusion

Passive income businesses are real, but getting results can require many hours of hard, active work. And that’s good! If you love what you do as a small business owner, make enough money to pay your bills, and see potential for future growth, being a lower-paid entrepreneur with an active income is still a success.