How to Make Passive Income & Build Automated Businesses Online: 4 Working Models

June 24, 2016.TomM.2 Likes.0 Comments

passive income & automatedbusiness_4 working models

Many nomads get started on the path to location independence by earning money through a skill set – often by freelancing or developing a service business.

For a newcomer, I always recommend this as the easiest way to go from zero to a full time, location independent income.

That being said, we all want to know how to make passive income online. The dream of money ticking into your account while you sleep beside a beach in Thailand is an alluring one.

I’m a big advocate of being a hustler. There’s a lot of hungry competition out there and you won’t get far if you’re not willing to put the work in.

But we didn’t get into this life to sit in front of a computer all day, so it’s important to make sure your automation game is up to scratch.

This is the only way to make sure you’re earning the kind of income you want without having to trade away your time freedom. The goal here is time AND location freedom.

(I can tell you from personal experience: achieving location freedom only to end up working all day long to maintain it is not much fun.)

In my previous post I broke down the difference between passive and active income for location independence. That’s a good primer for this post, so if you haven’t read it yet, check it out.

Now I want to get into the nitty gritty of several different methods myself and other nomads use to develop fully passive, 100% hands-free, autopilot income streams.

The Difference Between “Passive” and “Automated”

A quick note on terms before we get into the income models here.

Passive income is passive by definition – it’s income that ticks in from an asset, regularly, even if you aren’t working on it. You may work on it to grow the asset, but the point is that even if you don’t touch it, it will keep earning you money. That’s passive.

An automated model is a business that would normally require work and effort on a daily basis to maintain, but which you’ve “set on autopilot” through the use of software, outsourcers/employees, or some combination of both.

Some of the models below can easily become full time jobs if you don’t set them up with automation in mind. They are not passive by definition. This is why I have included a rough guide to how easy each one is to get to “full automation.”

Typically, automation simply means making these models “partly passive” – eg you might spend an hour a day working instead of four hours a day, thanks to your automation system.

With that distinction out of the way, let’s dive right in.

SEO + Adsense + Affiliate Products

This is a fairly classic method of making passive income online. It breaks down like this:

  1. Traffic is generated to a website via rankings on Google and other search engines – what’s called “organic traffic.” These rankings can be achieved naturally (the hard way) or via use of a private blog network (the easy but riskier way). The site will typically consist of content articles built around particular keywords and providing useful, quality information to searchers.
  1. Money is generated by adding zero-maintenance monetization to the website. Google Adsense is an example of this – you simply paste a code into your website and Google will display ads from its advertisers on your site, and you earn a cut for every click. Affiliate products work similarly – you are sending traffic to vendors via a unique tracking ID and you earn a commission for every sale you generate for them.

One of these sites takes time (or money, if you outsource it) to build, but once it’s up and running it is one of the few truly 100% passive forms of income you can earn online without building a complicated automation structure.

Note this model can also be applied to your own products (such as ebooks), which will generally be more profitable than affiliate products and much more profitable than Adsense or other advertising.

The big question is, can you create a product better than the best affiliate product you might promote instead?

If not, you may be better off saving time on product creation and simply becoming an affiliate.

(Note you can also use an affiliate product to test the market, and then create your own product if the results look good).

100% Automation Complexity Level: Simple

Facebook Ads + Dropshipping

If you’ve read Tim Ferriss’s Four Hour Work Week, you’re familiar with dropshipping already.

You take orders for physical products, and you only purchase the inventory from the supplier after a customer has placed an order. They then ship it out for you.

In this case, it works like this:

  1. You run a targeted Facebook ad campaign, sending visitors to a landing page – this may be an order page on an ecommerce site for your product, or it may be a squeeze page to capture their email address for future marketing purposes (more on email lists at the end of this post).
  1. Customers then order from your website, and the dropshipper fulfills the order on your behalf. You don’t need to order any stock in advance, which reduces the risk involved (ie, there’s no chance of buying a bunch of inventory you can’t sell). There is risk from the fact you’re using paid traffic – if you don’t convert enough traffic or your margins aren’t high enough, you can end up losing money (as opposed to the organic traffic model above, where virtually everything you earn from Adsense/affiliate commissions is pure profit on your end).

The trickiest part of making such a business “fully automated” is on the customer service side, and developing the advertising skill and knowledge necessary to run a profitable campaign.

100% Automation Complexity Level: Medium

Partnerships + Outsourced Services + Business Process Automation

Another option is to sell a service, such as SEO, social media marketing, web design or video creation.

  1. You form partnerships with other service professionals who offer complementary services, but don’t sell your chosen service (eg if you sell videos, your partners might be web developers or logo designers – anyone who isn’t a competitor, but whose clients would also buy what you sell). The partners get a commission on every sale they send you, so you only incur a cost when you make a sale.
  1. You build a team of freelancers or outsourced employees to deliver the actual service itself. For a video business this might consist of a script writer, several voiceover artists and an animator.
  1. You then use virtual assistants and software to automate the business as much as possible, removing your personal input from every element of the process, from client contact through to delivery and customer support.

In my experience, getting this type of business to the point where it’s anything close to “fully automated” is very difficult.

You can certainly utitlize assistants and software to automate large chunks of the business, but it will never be truly passive – you will need to keep a close eye to make sure your outsourcers are doing what they’re supposed to and your automation systems are running correctly.

That being said, you can grow a model like this to a large monthly revenue relatively quickly, so it’s a good choice if you want a bigger income and a bigger work schedule, rather than a relatively small income with zero maintenance.

100% Automation Complexity Level: Hard (due to heavy reliance on human resources input)

Affiliates + Paid Ads + Recurring Subscription Products

Creating a recurring subscription product can be a highly profitable way of earning something close to a fully automated online income.

There are different forms of this – for example a SaaS (software as a service) model, or a content membership website, or a dating site.

  1. You develop a membership site with a monthly subscription fee. This type of site is relatively inexpensive to set up these days, as you can simply buy a ready-made WordPress theme with most of the features you’re likely to need. It gets more expensive if you need to add custom elements.
  1. You drive sign-ups from paid advertising, from sources such as Facebook ads and Google Adwords. This requires a level of advertising skill to ensure your campaigns are well optimized and profitable. Again, the use of paid ads creates risk because you can lose money if you don’t know what you’re doing.
  1. You can also have affiliates drive traffic, offering a commission for any sales they generate. This is lower risk though it may end up costing you more per-sale than advertising traffic. On the plus side, with a recurring model you can attract affiliates by offering them lifetime monthly recurring commissions – an alluring prospect for affiliates trying to build their own recurring income.
  1. Again, outsourcing customer support completely can be tricky in this situation – you will have to provide oversight to ensure your customers are being treated properly, otherwise they won’t stay with you and continue to pay every month. This is important since if you’re using paid ads, a customer may not become profitable until the third, fourth or fifth month of membership or beyond, depending on your acquisition costs and margins.

100% Automation Complexity Level: Medium to Hard (depending on product complexity, type and number of subscribers)

Turbocharging Results: Email Lists + Autoresponders

Any of the above methods can be turbocharged by adding an email list and autoresponder series component to improve conversion rates.

In fact, in many markets you’ll struggle to compete profitably if you DON’T have an email list, because your competitors will convert much better, be much more profitable, and be able to pay a lot less for advertising than you do.

That is the basic premise of list building and email marketing theory.

By offering more free value to potential customers before you ask them to buy anything from you, they will be much more likely to convert in the long run.

Higher conversion rates means less time and expenditure on your marketing in order to achieve the same results.

It can also mean the difference between making money and losing money on your paid advertising campaigns.

Great conversion rates also make it easier to attract partners to promote your products on your behalf.

Email lists themselves can be automated with the use of autoresponder series.

Email marketing platforms (I use Aweber personally) allow you to set up automatic emails to go out to new subscribers to your list at times of your choosing.

For example, you could set up a free email course that will send each subscriber a new tip every day for seven days. The autoresponder series might include a link to a paid offer on the third and seventh day.

Done correctly, this will yield a better conversion rate than simply sending people directly to a sales page for your promotion without any prior relationship-building.

Location Independent Business Automation Apps, Software & Websites Useful for Digital Nomads

Below are some of the tools, apps and resources you may find useful for setting up and maintaining the above automated income models.

Leadpages – quickly and easily create landing pages from existing conversion-tested templates.

Aweber – cheap, reliable email marketing software.

Asana – team management software, useful for organising work with outsourcers (very handy for the outsourced services model).

Zoho – team management and customer relationship management software. Also has service desk and financial management features, useful for the outsourced services business model.

Salesforce – customer relationship management software for sales, marketing and support automation.

Infusionsoft – more advanced email marketing software, appropriate for bigger lists and established businesses.

Freshbooks – cloud-based billing and accounting software, ideal if you are billing clients in multiple countries around the world.

Upwork – large pool of freelancers, useful for hiring virtual assistants as well as virtually any other type of talent you may need (eg video editing, animation, web design, development, voiceovers, etc).

Fiverr – a wide range of small, one off services available from freelancers for $5 apiece.

(P.S. – This is just a handful of useful digital nomad resources. If you’d like to see another blog post with a list of 100+ apps and websites for digital nomads, let me know in the comments below!)


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