Passive Income: Let's Bust a Myth

09 Sep 2010

pushkin passes out

Many business experts (although not Pushkin) will tell you that there are two kinds of income: active and passive. To be a successful entrepreneur, you need to cultivate some of both.

Active income, of course, is where you have to expend effort for every sale you make. As crafters, boy are we familiar with this idea! Every handmade product has hours of effort behind it.

Passive income, on the other hand, is where you create a product or service that you can sell over and over again without effort. So the idea is, maybe you put a bunch of ads on your blog, or maybe you release some PDF patterns. Then, as the myth goes, you can make money while you sleep.

Paper money, extreme macro
Image by Kevin Dooley, via Flickr

I guess you see where I'm going with this. In my travels around the web, I encounter crafters again and again who are hoping for easy ways to harness the power of the internet for passive income. There's still a lot of pervasive mythology out there about how, if you just find the right formula, the internet will hand you big bucks all day, every day.

Here's the thing, though: the longer I make my living on the web, the more I'm becoming convinced that passive income is itself a myth.

If some ebook orders or class registrations come through my online store while I'm sleeping, then yes, technically I made money while I slept. But then, I have to get up and do the work of being an online entrepreneur. And it's a lot of work…

One Reason I Married Her
Image by mtsofan, via Flickr

• For example, I have to keep up the stream of free content that draws people to this blog in the first place. If I stop posting, people go away. So I need to write posts and record podcasts and make videos and tutorials. Nothing passive about that!

• In addition, I need to stay present as a citizen of the online community. I need to respond to blog comments, converse on Twitter, read and comment on other people's blogs, keep up with emails – and while these activities may keep my rather inactive butt glued to this chair many hours a day, they're still not passive.

• And then there's the work of constant re-invention. Making a living online requires watching and reading your online community: what are they interested in? What do they need? What can you authentically offer them? Again: butt may be glued, but it ain't passive at all.

• Oh, yeah – and then there are all the learning hours! The web abounds with new ideas, new technologies, new websites. If you want to stay relevant online, you need to invest time regularly in exploration, reading, and understanding.

Easy Money
Image by FireChickenTA99, via Flickr

Can a blog earn you income? Oh, yes. Can you turn social media into cash? You sure can. But the only way it'll happen is if you actively put in the hours, every day, to make a name for yourself online. And then actively put in the hours to create good products and services. And then actively put in even more hours to maintain and build your online community, promote your work, and keep seeking new ideas.

So at the end of the day, the hours it takes to maintain (let alone grow) those seemingly-passive income streams may pretty closely resemble the hours it takes to knit a sweater or sew a quilt to sell.

pushkin_and_toy

It's not even that this work, online or handmade, is necessarily hard work – in fact, if you're of a compatible mindset, it's the best darn work in the world. But passive income? Easy money? Nope.

Sorry to be a myth-buster there. (Wait - who am I kidding? I would freaking love to be a Mythbuster!)

Comments

You forgot about the best part about making your living off the web at home! The dress attire.


HAHAHAHA!! Right you are! If there's one thing that IS passive about my work, it's my approach to fashion! :-)


sounds like you might need a walking desk!


Ooh, yes. If I had the bucks to invest, I'd totally go for one of those.


I agree that what you are explaining is not passive income. If get interest on a money market account, that is passive income, right? If you own a piece of property and rent it out, that can be passive income, too. What about affiliate programs? I suppose those don't quite count because you need to keep the blog or website active and popular enough that people are there to click on that link to your affiliate. I'm not sure what the passive income on the internet would be as a small business owner--maybe offering ad space on my blog? If you have a great blog that is good enough that people want to pay to advertise there, does that become passive income? I know you have to do a little, but I think it's pretty similar to what the financial people mean.
Interesting post today!!


You know, Cathy - I have a podcast coming out tomorrow that really opened my eyes to how active ad-based income really is. Jena Coray from Modish shared all of the work she does to run her ad program, and it's a lot! That interview was part of my inspiration for writing this post.


I'm pretty sure that in any industry, not just crafting, you're pretty much correct about passive income. For example, my boyfriend is a web entrepreneur who sells software over the web--something you'd think was the definition of a passive income source, right? But he's always improving his products, improving his websites, refining his advertising--in addition to serving as a one-man customer support team. I definitely agree with your conclusion that the difference between so-called "active" and "passive" income is minimal, maybe even a false (and dangerous) dichotomy.


The term "one-man customer support team" speaks volumes. That element alone can become a full-time job!


It certainly isn't easy - but I also think passive income is when you do something and continue to profit from it. Example - an ebook: sure it takes time to write, but then it could be sold until you decide to stop selling. Blog post with affiliate linking: you write a great blog post (and you, Sister D, definitely do!) and include an affiliate link - sure it took time to invest in a writing that blog post, but then you can continue to earn as people find it down the line.

I could go on and on about this! LOL


I completely agree with you, Stephanie - there's something really important about being paid partially in the quality of how your time is spent. (Here's a past post related to that idea: http://www.craftypod.com/2010/07/09/getting-paid-partially-in-time/

And, great point about how different money "feels" when you work hard for it.


It's definitely true, Tsoniki - although it's also true that, to keep that ebook or affiliate link producing income, we have to also keep up that good blog content and online relationship-building so people continue to know who we are and take interest in our work. So even though it keeps earning, we have to "make" it keep earning.


Heh! To Pushkin, it's ALL passive income. :-)


I respect your perspective, Amy. Definitely, it's helpful to have the backup income of a day-job as support. Although, I run a digital publishing business as well, and even though there's no work to generate the actual sale, I do think there's still a lot of work involved in keeping myself and my ebooks visible to the craft world, so people will find me and make those purchases.


A very wise self-employed friend of mine once said, "If this stuff were easy, a lot more people would be doing it!" I guess the whole "make money quick and easy" myth has persisted for a looooong time. Maybe the web just makes more of us feel like that might be in our grasp than ever before. Oops. :-)


Busted, indeed. Too bad we can't blow some things up! :-)


Great post, thanks so much!


Love this article! Thank you.


I guess we'll just have to unravel and entire sweater...explosively!


It's definitely not the easiest road to income, but I think the originality and superb execution of ideas you bring to your blogging has huge income potential, Scott.


I think you should change the name of your podcast and site to "Crafty Business Pod" There's a lot about business that relates to crafters who do craft as a job, but not a lot of content for the person who just liked the tutorials and the podcast on glue way back when.


Sorry it's not your cup of tea anymore, Amy. Since the podcast really is (and has always been) a hobby project, I've always followed my heart in terms of what kinds of content I produce there. I really found that, over time, interview shows were much more interesting to produce than the older tutorial shows.

...But that doesn't mean you can't start up your own podcast, and make it all about whatever you want to hear most!


You're absolutely right, it's an absolute commitment and not so passive after all! You have to keep pushing yourself, then pushing some more to see the downstream, residual impact. This article was really well put, so glad I came across it on Twitter!


Thank you so much, Courtney!


Thanks Diane, I really appreciate that comment. It's people like yourself that have made a massive impact on my blogging efforts - so thanks for your great posts, they are both helpful and thought provoking (as are of course your fantastic e-books). Scott


Wow great post Diane! I am learning that creating the content for sale is just a small piece of the income pie.


Thanks, Katie! True - the content is really the first step these days....


No, what you describe is not "passive income". Passive income is income that comes from a business or other investment in which you are not actively involved. Dividends from common stock or interest on a fixed income investment is passive income.

So, if you are successful entrepreneur, you may generate some cash and you don't want it sitting around doing nothing, so you could invest it in another crafter's business and be paid a return on the money you invest. That is passive income.

No matter how many object YOU make and how quick or easy it is to make those objects, even if you employ others to make them for you, that is still active income.


That's definitely an alternate definition of passive income, and I agree with you that that brand is truly "passive."


There's nothing passive about making money, whether it's working hard or running your own business. And nothing comes easy in life! There's no quick scheme to make money. This post is a great reminder of all the work that goes on behind-the-scenes, besides making the product to sell. This also reaffirms to me the hours I spend on my computer (and not at my sewing machine or sketchpad)!


Thank you thank you thank you for saying this. Totally true--and I think the draw to the (fake) dream is totally like crack (cheap, addictive, and you can make it at home). Great stuff. Can't wait to read and hear more.


Word. In that one moment when an online sale comes in or someone pays for a class it *feels* like making money while I sleep...but taking into account all the before & after work to make that happen puts it all in perspective!


Hi Sister Diane- How do I get Pushkin the cat's job? :) I haven't launched my online business yet (still just creating in my studio) but this is great information and a helpful reminder about the realities of launching my crafty businesses. Thank you so much!


Heh - Pushkin would say, "I work very hard all the time to be cute." I'm so glad you enjoyed the post - thank you!


Nothing money making is ever "passive" in the way the word is used by many get rich quick book authors. Even if you invest your money in someone else's business or buy shares or put it in the bank you still have to do your research, fill in the forms to open a bank account or share trading account and keep an eye on it to make sure its earning you some kind of dividend or interest return. That's not most certainly not passive - or doing nothing to earn you money- either though I've seen many books describe it as passive income.

By the way - I love & adore craft but frankly don't really want to listen to someone's podcasting a tutorial - your podcasts as interviews and interesting explorations on business are so much more interesting than someone telling me how to cut up a pattern!


This is true, Jennifer - effortless money is mostly the domain of people selling get-rich-quick schemes.
I truly appreciate your kind words about the podcast!


OhEmmGee... we should totally do some craft/blog mythbusters episodes! :)


And I completely agree with you. "passive" ad network income equals seven posts a week for me, plus tweeting and facebooking about them, plus making a newsletter and video each week. Wouldn't call that passive!


Dude - that's one heck of an idea. It would make a funny video series. Maybe a collaborative thing, where a bunch of people did them & each tackled one myth?

(Why is the number of great project possibilities UN-limited, while the number of hours in a day remains fixed?)


Whew! Not passive in any universe! :-)


It's true, Jessica - A whole lot of online selling is about reputation, and reputation is built day by day. All the best with the streams you're working on!


Wow, Pushka is a great name! Maybe they can be kitty pen pals. Or video blog pals. :-)


Loved, loved, loved this one, Diane.


Thank you, Kirsty!


May I butt in? The mentos and coke guys crack me up. Maybe there are sweater explosion possibilities there. ;)


Hmmm... what would happen if we combined Mentos and E6000? Resin and Diet Coke? :-)


You are so right about this. Of course, if you follow the advice in The 4-Hour Work Week, you can just hire a Filipino VA to do it all for you--NOT! I mean, some people could do that, but not me, and I suspect not you. Being a creative and reflective entrepreneur means that YOU are the goods people want access to, so you have to have a personal presence in the game. Actually, I wouldn't have it any other way.


I so agree, Sue! It's like the old "general store" model, where an entrepreneur would serve and have strong relationships with a small village of interdependent customers. It's lovely to feel that you're serving real people rather than a faceless mass audience.


Good for you Craftypod! There is no such thing as a free lunch. If you go into blogging for the wrong reasons, you will never be a success. If you are really invested in what you do, the possibilities are unlimited, for instance: classes, kits, books, appearances, videos etc. I think your post will be read all over the internet. Ann


Thank you, Ann! It's true - blogging is indeed a passion sport. :-)


Thank you for putting this down, I have been feeling the same way. The web doesn't sleep and it's getting harder for me as I realize that people feel that everything should be instantaneous. Even that text you sent wasn't instantaneous. I still love what I do, and the growth and change keeps me interested but definitely on my toes.


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