Demystifying passive revenue

When Tim Ferriss’ 4 Hour Workweek came out, I admit I was just intrigued as the rest of you at the prospect of automating work, marketing and sales so that I could spend my time reading books, playing with my kids and listening to John Legend.

The natural cynic in me was suspicious of anything that sounded too easy. I was raised with a strong work ethic, and know that “instant success” is not realistic or likely. You can occasionally luck into a windfall with a viral video, product launch or first book success, but in general, if you want a strong and stable business, you need to take the time and generate the sweat to build a strong and stable business.

My friend Jonathan Fields summed up my feelings in his post http://www.jonathanfields.com/how-not-to-get-super-rich-the-passive-income-scam/

To further confuse my harsh judgment of the term “passive revenue,” I met smart, ethical friends who had efficiently implemented this model, and were making exceptionally healthy amounts of money with it. (The smartest (and nicest) person I have ever met who I consider a true genius at this is Jermaine Griggs, who has a brain for effective, humanized automation like no other. He runs a business teaching people how to play music by ear, Hear and Play, as well as Automation Clinic.)

Watching Tim Ferriss develop his body of work over the years, I decided that he was never about not working hard (few people put as much thought and energy into posts, podcasts, book launches and business endeavors), but rather he is fiercely dedicated to working effectively and efficiently.

My friend and client Rob Young is super talented at working with online product retailers (those who have physical products) and improving their sales conversion rates by targeted Facebook advertising, automation and well-designed online commerce processes. He has given me a peek into the backend of this work, and it blows my mind how much more efficiently and effectively you can make money when you know how automation and business processes work.

So I decided that my views on passive revenue were driven by semantics. There is nothing “passive” about this business model.

What passive revenue really is

In my playbook, the mission of an effective business is relentlessly focused on and passionate about serving the true needs of beloved customers.

Therefore, “passive revenue” is not a true business goal. That is a wonderful outcome that serves the needs of the business owner.

The true business goal has to be scalable and efficient delivery of a product that solves a real problem for beloved customers in the real world.

More like active, efficient revenue rather than passive revenue.

Here is the basic structure of an active, efficient revenue model:

Automated Offer:

1. Identify a specific audience (Susan Baier says to avoid using demographics (like “women” or “people over 35”), but rather to focus on common problems this audience has like “needs to find more clients for business” or “motivated to lose 20 pounds before 20th college reunion.”)
2. Identify the biggest problems or challenges this audience faces (this takes the general problems named above and breaks them down into smaller pieces).
3. Decide on a self-contained solution to a problem that people will pay for (by self-contained, I mean an e-book, self-directed online training, series of helpful audios or emails, etc).
4. Set up free offer on a webpage (like a webinar, or ebook, or checklist), that requests an email in exchange for the information.
5. Set up an automated lead generation strategy like paid Facebook ads or paid search engine optimization to drive ideal clients to this web page.
6. Set up a “nurture sequence” of follow up emails after someone downloads your freebie that continues to share some good free info, and also builds the case for the need for the paid offer (I am doing a variation of this for One to Many in this very article — during launch week, I write on topics related to explaining the subject of the paid class so that my ideal clients are clear about the benefits and outcomes of what I am selling).
7. Pitch a paid offer through compelling copywriting (this is one of those things that is SO MUCH easier said than done. I am convinced that truly effective, non-manipulative, engaging copywriting is the golden skill of the 21st century).
8. If people buy, set up communication so they can access and use the paid resource effectively, then, if it is in your business strategy, continue to nurture them into future paid offers.

When done well, I have no problem with this business model at all.

If someone finds me via a targeted Facebook ad campaign for:

“Fun, busy entrepreneur mom who is not crafty at all, yet is committed to spending quality time with her 8-year daughter who obsesses over YouTube videos with crafty moms making crafty things that make this busy entrepreneur mom slightly nauseous,”

I would not be upset, I would be thankful. I would gladly trade my email if ad was placed in front of me for a free:

“I will teach you how to make your 8 year old daughter deliriously happy by making this crafty thing that requires no skill and zero trips to Target or Michaels and takes no more than 15 minutes to make” free thingie.

(Because if I don’t have things spelled out with this criteria, Rosie will come to me at 9pm on Saturday night and say “Mom, let’s make this thing I saw on YouTube! We just need a hot glue gun, sparkly marbles, lumber, frosting, a specific color paint that is only found across town in a store only open on Tuesdays from 2-4pm, and yak wool.”)

If after receiving this amazing free thingie, I was given the opportunity to purchase a paid subscription to “52 weekly videos that teach you how to make your 8 year old daughter deliriously happy by making this crafty thing that requires no skill and zero trips to Target or Michaels and takes no more than 15 minutes to make,” I would gladly take out my credit card and pay for it.

This is delivering something truly useful and appreciated that solves a real problem for me, and results in a higher quality relationship with my precious daughter Rosie.

I have huge admiration for people who are able to effectively implement these Automated Offers. I plan on building my knowledge in this area in the next two years.

Licensing Business Model

Another business model that can actively generate revenue efficiently is licensing. Here are the basics of licensing:

1. Identify a process or program that has been highly effective when delivered by you in person (like a specific process for setting up a marketing program, or a workshop on leadership skills for new managers).
2. Identify an audience who would benefit from implementing this model in their business at scale (like a company who wants to implement your program with all 5,000 of their new managers, or a large group of coaches who can use your methodology to coach their clients).
3. Create a solid set of materials that stand alone (without needing you to deliver them). This can include professional and well-designed training manuals, train the trainer materials, a dedicated wiki or website page with resources, instructional videos, and/or worksheets.
4. Draw up an intellectual property agreement for people who purchase your materials. This lays out the exact ways in which they can use your materials with full permission (you maintain ownership of the intellectual property).
5. Set up a structured way in which you will orient your customers on the effective and proper way to use the materials (examples can include in-person classes, follow up observation of how they deliver the materials by themselves, and coaching, mentoring or testing).
6. Sell the program at at scale. When selling a licensed program, instead of a contract for you to deliver a day-long workshop to 50 people for $15,000, you would sign a contract to equip your client to deliver your day-long workshop to 3,000 people for $300,000. Or instead of coaching a client in your methods and charging $2,000 for an 8-week engagement, you charge $10,000 for them to participate in a certification program with a group of peers, and give access to your complete set of tools and methods for a year.

Other forms of “passive revenue” (active, efficient revenue):

• Affiliate promotions — you use a special link to promote someone else’s products or services. Anyone who purchases through your link is credited to you, and you receive a percentage of the sale.

• Sponsorships — brands pay you to sincerely and proudly support their products. I used the sponsorship model for my Community Tour, partnering with Infusionsoft, LucidPress, M3 Learning, Kahuna Accounting and Mailchimp to deliver an engaging workshop on community building in 25 cities across North America. (Thanks guys!)
• Authorized Partnerships — This is a specific kind of licensing model. For years, when I was a full-time leadership consultant, I was a licenced distributor of the DiSC assessments. I was able to purchase the assessments at wholesale cost (50% of retail), then charge clients the full retail. It was really a win-win — I loved the tool, and I was able to make supplemental (active, efficient revenue) with little effort.
• Business sale — This is definitely a very long-term strategy and goal for professional service firms, but some people build and grow their business with the intention of selling them. John Warrillow’s book Built to Sell is a great primer, and ever since hearing a speaker from Equiteq at a training conference, I am obsessed with the content in their newsletter. Even if you don’t plan on selling your business, their advice to grow consulting businesses is amazing.

What has been your experience, challenge or success with “passive revenue?” What other models should I know about? I would love to hear in the comments below.

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If you are a professional services business and want some hands-on help setting up your licensing program, check out One to Many — registration closes on Monday, April 4 at 12pm Pacific.