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What is passive income and how can my company generate it?

There may come a time when your active sales are faltering and you feel as though you need another source of income. This is where passive income can come into its own. Passive income is generated through the sale of online materials and the such, it's where you don't have to do anything apart from sit back, relax and watch the money come in.

Why generate passive income?

It may be that your company has a few large sales a month which are keeping you afloat. But what happens if you get fewer sales than anticipated in a certain month? Will your company be able to keep going even though there's less income? This is where passive income can come in. It can help to supplement your regular income and thereby help you through the tougher months.

What are the different types of passive income?

Like any form of income, there are different ways in which your company can generate it. The following sections will highlight some of the different methods which are commonly used.

Affiliate marketing

This is a kind of trading partnership which your company enters into with another business in which you sign a deal in order to promote their products. The kinds of deals can vary greatly though so be careful, you could be registering to become the official seller of their products through your website, or you could be posting a link to their site through social media, as well as everything in between.

This doesn't mean you selling your competitors products. It can take a little research but you'll find that there are businesses out there that will compliment what your company is offering without being in direct competition.

If you want to go down the road of affiliate marketing but are unsure about which business to partner with, then Google AdSense may be a good way to go. You've probably seen AdSense Ads but not realised it, they're the 'sponsored ads' on websites that you visit which usually show something that you're interested in. If you apply for AdSense and you're accepted, you'll be able to choose the size of the adverts that will appear, how often they'll appear and to a limited extent, the subject matter. All you have to then do is copy and paste some code into your website and you'll be set.

Each time the advert is clicked by someone, your business will receive some money from Google. All you have to do is make sure that your website is up to date and engaging to the viewer in order to keep viewers coming.

Create digital products

Don't worry, you don't need to be a digital expert or have to sell anything digital in order to do this. There are plenty of platforms out there which can help.

When talking about passive income digital products can range from mobile apps to e-books and sponsored podcasts. The digital material you produce should be related to the company. For example, if you're a coffee shop that sell baked goods, you could produce a recipe book for the baked goods you sell. No matter what your company does or what you sell, use your team's expert knowledge in order to create something useful that your website visitors will appreciate.

Spending the time to create a digital product that your viewers will be willing to pay for can take time, so it can be seen as not so passive. However, if you're hiring an external agency to create the product for you it can take a lot of the stress out - just make sure the product reflects your company and what you do.

Once you're created the digital product, you'll have to think about how consumers will purchase it, how you'll market it and how consumers will be able to use it. This can sound like a lot of things to consider, but there are platforms out there which can help.

Going back to the example of the recipe book, in order for consumers to purchase it, you could upload it to Amazon's Kindle Direct Publishing. This is a fast and easy way to self-publish an industry-specific e-book. Once uploaded, your book will appear in Kindle stores within 48 hours.

Also, Amazon takes care of everything for you and you'll receive a proportion of the sales when they start coming in. So, if your book is doing well, you could get a constant stream of passive income.

Don't think you have to use an external platform though, if you already have an e-commerce site, add it to your product list. This would mean you getting 100% of the profit rather than just a portion.

P2P lending

This is an option if your company has some cash to spare at the moment but still wants a passive income stream.

P2P lending sees business owners make a lending agreement with another company, or individual via a third party intermediary. Most loans are under £30,000 and the parties involved can set their own repayment terms. Registered lenders can expect a return of roughly 12% of the amount they give to the borrowers.

Don't be fooled though, this is a very high risk strategy for getting passive income. This is because even though the majority of P2P sites are regulated and secure, the loans your company offers peers will be unsecured. So if they fail to pay back the loan you run the risk of default.

If you do your research and try to mitigate the risks then P2P lending should be fine for your company. Just be aware that there are risks with it and always do plenty of research.

Summing up

It could seem as though passive income streams aren't that passive when you have to put effort in to make the products. But the more effort you put in, the more of a boost to your bank balance you could see.

Successfully implementing a passive income stream could have the added benefit of strengthening your band too.

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