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Why Is Passive Income Important to a Business?

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Last editedJul 20212 min read

Active income is earned in real-time in exchange for a service. It requires attention to employment demands at the moment and is compensated by a salary, an hourly wage, sales commissions, and tips. Consulting and freelance services are also ways to make active income.

What is passive income then? Essentially, passive income is generated on its own after an income stream has been established. Passive income allows you to (eventually) earn money while doing other things.

How to make passive income

Although the goal of passive income is to “make money in your sleep,” it takes a lot of work upfront. This includes spending a considerable amount of time engaged in active income pursuits while getting your passive income streams set up. However, once you’ve learned how to make passive income in ways that optimize your business, you’ll be earning for years to come from this initial investment of time and money.

Passive income streams

Examples of passive income streams include rental property, investments, and dividends from shares, as well as affiliate marketing, creating courses based on areas of specialised knowledge and expertise, and writing books.

For those new to affiliate income, this is the commission earned when users purchase something through a link on a website. Display advertising is similar, in that displays can be embedded on websites or blogs with a lot of traffic. This passive income stream takes an especially long time to build before it generates income. However, the payoff can be substantial.

Passive income ideas

One of the most common ways to earn passive income is by selling things like photography, videos, music, and other digital products like graphic designs.

Another way to earn passive income, as mentioned above, is to create an online course based on a topic your ideal client would benefit from and that matches one of your proven areas of expertise.  Many businesses offer a free piece of content (a template, special report, infographic, etc) and embed a call to action within the material to entice potential course participants to sign up.

Passive income ideas that an online course can offer include:

  • selling recorded course sessions as a bundle upon course completion

  • condensing course teachings into an eBook

  • compiling course materials into an accompanying workbook

Why is passive income important for businesses?

Passive income enables businesses to build their wealth and improve cash flow, leading to increased financial stability and security. In effect, passive income increases bottom line profits, saves time and expands a business’s reach. For some entrepreneurs, passive income allows for location independence, as in the case of digital nomads.

Other benefits of passive income may include less stress, time to pursue other projects and passions, and early retirement. But remember, these benefits come from a significant amount of time spent in active income pursuits, sometimes for years, before passive income begins to stream in.

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