Freelance passive income: what does it take? (The unspoken truth)

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Congrats if you Googled “freelance passive income” and ended up here 😉 

We all LOVE the idea passive income — “gotta get that passive income going”, we’ll say.

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It’s hella sexy to be able to do whatever we want while earning money. Not to mention be able to tell our friends about it.

The hard truth is that when it comes down to it, most of us are not serious enough to do it and that’s probably why you’ll see so many other articles out there tell you to: 

  • Write a blog
  • Get affiliate income
  • “Just” write a book

A book can work but if it’s money you are after, it isn’t a great source of income (the earnings aren’t great and people rarely buy more than one copy). First, let’s make sure we are on the same page about what passive income means. 

People are entitled to their different opinions but since is a tiny no B.S. corner of the internet, let’s begin in the same place, shall we? 😉

The investing “dictionary” that came up first when I search on Google where Investopedia. They say:

“Passive income is earnings derived from a rental property, limited partnership, or other enterprise in which a person is not actively involved.” – Investopedia

The key here is the “not actively involved”-part.

Real passive income could be rental income (although I’m not sure short-term AirBnB rentals count unless you have someone to manage them), passively investing in stocks or businesses, etc. 

That means if you are the owner of a company and you are working on it, it is not passive income. Even though you don’t trade your time for money as we do with freelancing.

But if you are the owner and you are earning money but not actively involved in the company, it is passive income.

With that out of the way, let’s explore the common passive income advice for freelancers and see what works and what doesn’t.

Why most of the advice about freelance passive income is wrong

freelance passive income
Photo by Jordan Opel on Unsplash

During my research for this article, I collected a little laundry list of popular advice found in the wild. I’m sure the authors had their reasons for writing it as they did and I don’t want to hang anyone out to dry, so I’ll keep this anonymous.

I’ll be exploring each of these from the point of view of making a meaningful amount of money. That number is different to all of us but surely it isn’t $1. For most of us, it is likely in the hundreds or thousands of dollars.

Outsource your projects

The idea here is good and if you eventually want to evolve your business into an agency you’ll need to outsource your projects.

The reality is a little different, though. First of all, where are the projects going to come from? They probably aren’t just going to fall down from the sky, so you’ll need a system to drive them to your business.

That is totally doable but takes work and time to create that. Especially, because it will erode over time if you don’t continue to grow it. And you either need to do that or hire someone to do it for you.

Which brings me to my next point: even if you hire someone to do your projects, you’ll still have to manage them. And if you hire someone to manage them, who’s going to manage that person? Probably you.

Not to mention, that you’ll still be reliable for contact with the client and making sure that the project is delivered on time.

It’s easy to cruise when things are going well but what about when they are not? As you probably know, client projects can get delayed without warning from time to time. The challenge is handling the turmoil emotionally when things aren’t easy.

Build an audience (on Youtube, a blog, etc.) and sell ads

This one comes in different formats but the essence is the same: build an audience of and earn money from it.

My favorite part of this is that it often comes in the form of:

  1. Build an audience
  2. ????
  3. Profit and passive income

A genius approach.

Anyway, that could be writing a blog, creating a Youtube channel, or whatever your heart desires. The tiny detail that everyone seems to forget is that it is a huge project to build an audience.

We often hear of some random app that made millions out of the blue but that is extremely rare – that’s why it’s newsworthy!

And don’t forget that just because we have an audience, we still have to find something to sell – let’s imagine that is ads to keep it simple.

Now that could be by approaching businesses offering ads packages but must people prefer to connect an ad exchange that finds advertisers for you and takes a cut. That’s how we can buy ads on Google and Youtube, so let’s stick to that for now.

How much someone earns depends on how much advertisers want to pay. That in turn, depends on which country the audience is from, which platform you are on (e.g. Youtube, blog, etc.) and what the topic is about among other things.

This guy breaks it down and shows some different examples but the essence is that you can probably expect to earn a few dollars per thousand views of a video.

Sure, if you want to earn $1 per month, you can do that easily with ads. Anyway, those small sums are not going to make a meaningful difference in the grand scheme of things.

Again, the traffic will erode over time if you don’t continue to build it and so will the relationship with the audience, just like it does when we don’t speak with someone for years. It’s just natural.

A more honest way of calling that freelance passive income would be: spend a ton of energy building an audience, earn passive income for a bit, and then do it all over again.

Promote products as an affiliate

This is an extension of the point before. Affiliate income means promoting someone else’s product and earning a commission per sale.

There are two common ways to earn affiliate income. One is called traffic arbitrage where you buy ads online and send the people that click to someone’s product. If you can sell more than the ads cost, the difference is yours to keep.

For example, if you buy an ad for $100 and you’ll earn $10 in commission per sale, you’ll need to sell more than 10 items to break even.

The other approach is to build up an audience on Youtube, a blog, etc. and then promote someone’s product.

This is probably the most common “passive income” mentioned these days. As a freelancer, you could be suggesting your clients to use software like Clickfunnels or Photoshop and if they buy it via your affiliate link, you’ll earn a commission. 

To calculate your earnings, find out whatever your favorite software offers in affiliate commission and then multiple that by the number of clients you currently have that you think would want to buy it.

For example, if the commission is $50 and you have 5 clients that you think would buy it, you’ll earn $250. 

That’s nice… and then what? You’ll need another 5 clients so you can earn $250 passively on top of your active freelance income. Is that going to make a difference in the grand scheme of things? Only you will know.

Create products for digital marketplaces

I like this idea. I’ve seen some pretty cool examples like creating WordPress themes, Google Chrome extensions, Photoshop templates, ebooks, etc.

But there is a difference between creating a product and creating a product that sells well.

The second is significantly harder because you’ll have to understand what problem you are solving, build it, and market it.

People love the idea that if you build something great, customers will come and it will sell itself. It’s just not true.

I’m sure there are exceptions but it is rare. How are people going to find it on their own? Are they going to dream about it and go research as they wake up?

Refer work to other freelancers and earn commission

This is actually a great and fairly easy way to earn extra money as a freelancer. It isn’t passive but pretty close. 

It can work but still have to speak with the potential client and connect them with someone you trust. It is little work and it comes and goes here and there. 

It isn’t a sustainable source of income for most freelancers unless you get a ton of leads contacting you. To get that, you’ll need to build up a large audience or traffic which takes time.

Teach an online course

This has been one of the most popular industries recently and with good reason. It doesn’t cost much to do and you can earn great money.

…If you put in the work. It is an active income because it requires a lot of work to build an audience and teach something really great that people will actually buy.

You can certainly put on platforms like Udemy and they will help market it. You’ll earn some money but remember the customer service and help you’ll need to offer students.

Oh, and Udemy is basically the online course-version of Upwork, so there are plenty of rules to follow.

Create subscription products

This is probably the most common model that people call passive income. Don’t confuse it with recurring income, which is income that keeps coming from the same customers month after month.

It is a great business model but you have to create something great and continue to update it or people will usually leave (there are exceptions like cigarettes isn’t exactly a subscription product but close enough). You still have to create a way for new customers to continue to find your product month after month.

Selling unused work like guest articles

I don’t know why someone recommended this option – they must have been sleeping in class.

It is true that you can earn money by writing guest posts (and other formats) for other websites but again, you have to reach out to them, land the projects, and actually write the content.

You could sell unused work but what do you do when there is no more “unused” work left? You’ll have to produce something new.

As you can tell, freelance passive income isn’t as simple it is often made out to be. It is possible but it is like climbing mount Everest compared to a local hill.

It is an entirely different beast and requires a different set of skills than freelancing – like managing a team.

The good news is that as a freelancer, you are already in the process of learning the most transferable skill on the planet: sales. 

It has been one of the most important skills for centuries and that will never change. There are so many small sales situations every day, suggesting your ideas to a friend or commenting on something in a Facebook group.

It isn’t hard selling in the traditional sense but more like winning people to your point of view or presenting it in a way that other people will understand well. 

Later, I’ll cover an option that surprisingly hasn’t been mentioned often but first, let’s deeper into what you want exactly.

Is passive income really what you want?

Photo by Elizeu Dias on Unsplash

As we learned, passive income is often misused as an umbrella for a bunch of things related to income online. 

Before we dive into the best option for freelancers, it’s time to be honest with ourselves: is passive income really what you want? Why?

Often, it is because we want

  1. To earn more
  2. To work less
  3. To earn money in your sleep
  4. Build a second revenue stream

If we want to earn more, we can either take on more clients or take on more projects from our existing clients.

If we want to work less, we can work to increase our hourly rate, so we can work fewer hours while earning the same.

If we want to earn passive income while we sleep, we’ll have to first earn active income like with freelancing and then find a way to get new projects automatically while getting someone to do them. 

We also have to automate the entire process or pay someone else to handle it. More on than in the next section.

And if we want to build a second revenue stream, we can pick any one of them but there is something to be said about focus. As Oliver Emberton puts it, for each extra thing you add, you quarter the odds of succeeding.

Realistic ideas for taking your freelance business towards passive income

Let’s look at some great options for passive income for freelancers if you do want to climb that mountain. The three most popular models freelancers use today are:

  1. Scale your current freelance business idea and turn it into an agency
  2. Teach other people to do what you do
  3. Build software for your clients

Scale your freelance business into an agency

For this to work, you’ll need three ingredients:

  1. A way to get sales and manage clients automatically
  2. People to deliver the projects without your help
  3. A system or process to connect the two points above

You can get sales fairly automatically by building an audience, running ads, cold calling, or something similar.

And you’ll need someone to help grow that channel after you’ve found the initial success because things change quickly on the internet. So you might not have a way to get new clients next year even if it works today.

You’ll also need someone to deliver the projects that your agency gets hired to do whether that is employees or other freelancers. In an ideal world, these two components can work together easily but usually, that is not the case.

Sometimes it can be done with software if you are lucky enough to employ A-players. Often times, you’ll need someone to manage the projects and deal with ad hoc things like finding new help when someone doesn’t want to work with your agency anymore.

Teach other people to do what you do

Another option is teaching people what you do. That could either be your service like marketing, design, programming, etc. The other option is to teach people how to freelance.

Like above, you’ll need someone to continuously grow your presence and get new traffic and leads. You’ll also need someone to create the products, and do customer service.

Often times the owner is the star of the show and is the one in the educational programs but doesn’t have to be.

For this to be passive income, you’d have to find someone else who is willing to be on camera while not owning the business.

Build software for your clients

The third option is building software related to what you do. That could for example be something that can solve the problem you normally solve for clients.

That is particularly challenging because often they hired you because they couldn’t solve it with software.

If you end up with a great idea, you’ll need to either build it or pay someone else to build it and continuously update it.

And as you probably guessed… we’ll need to get someone to market it so new customers will actually find it beyond your current clients (otherwise, you just have recurring cost).

Takeaways

  • Most popular “passive income” opportunities are actually not passive or they will only be passive for a little while and won’t make a meaningful amount of income to make it worth your trouble
  • Passive income for freelancers is trickier than it seems on the surface but doable if you are willing to put in the work and manage employees
  • Check out this article to see if freelancing is worth it

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