Passive and Active Income: PTR and Why You Need Both To Succeed Online

passiveactiveWhat is this site about? Building and monetizing Web Sites, of course. Irrespectively of the site’s size, this method of generating an income online is considered by most to be a passive one. Put together a Web site, have it rank in Google for some competitive keyword and wait for people to click on your advertisements and affiliate links. As long as the site stays ranked, it will keep generating money without the webmaster having to lift a finger. That is a big if, however. Even if a site gets ranked number one in Google, that does not mean that it is going to stay there forever especially in today’s search engines’ environment. Frequent updates, article writing, SEO, advertising, public relations and many more tedious tasks come into mind; they turn that “without lifting a finger” into a mere modern-age utopia. As such, this is not such a great definition of “passive income,” so it is best to seek another one. If we turn to the biggest expert in the field, Pat Flynn, we get this one: Passive income is income generated without trading time for money. This is unquestionable a much better definition, but one that does not convince me. Pat himself admits having very busy work days, and I am myself so exhausted that I would gladly sink into my bed and sleep for three consecutive days. On the other hand, when I was earning bread and butter on eBay, I was able to make a great deal of money without spending more than a few hours every day on the job, so I was trading very little time in exchange for cash. But no one would even dream of calling that “passive income“. Instead of using time as a means of distinguishing between active and passive income, I would rather use their “Power To Recur.”Let me elaborate by means of a few examples. Buying and selling on eBay is definitely not passive income according to this definition. The “Power To Recur” is not there at all; once the item listed is sold, the buyer pays the seller and no more income will be generated from that event. A money earning site, on the other hand, can generate clicks and sales ad infinitum. It’s PTR is close to infinite since the amount of times it can create a substantial amount of income is huge when compared to the amount of resources needed to set it up. Selling an eBook is also passive income because the PTR is high enough although experience teaches that once the book gets outdated sales will drastically decrease. For example, would anyone today buy an eBook on SEO that was a bestseller in 2009? I think not. A Web site can be updated with new content when it becomes outdated, but an eBook would need, at the very least, a new edition. This would be an entirely different product. Going back to the example on eBay, when I said that the PTR was “not there at all”, was that hundred percent correct? Sure, the item sold is gone but my eBay account, perhaps enriched with new feedback, and the templates I used to sell the item are still in my possession. I can use them again and again. While this is very little PTR compared to that of a Web site, it is PTR nonetheless. Readers who have enjoyed my other inbound marketing articles know what comes next. Money making methods cannot be classified as strictly passive or strictly active discretely. They all fall into a spectrum. This spectrum is not a direct function of PTR however, but evolves with the ratio between PTR and investment needed to generate that PTR. This investment can be either time or money. How much time and money is needed to create, rank and optimize a Web Site so that it can generate a decent income? Much, but still little compared to the power to recur of the source of income generated. I am not going to use an academic definition, but the passivity of a source of income has to be proportional to the PTR, and inversely proportional to the resources.

Measuring PTR itself is a complex mathematical problem. If the income by the end of the tenth year is very small (approaching zero), we want the PTR to also approach zero. Even if the payout for the first sale is very high but on the second one is low or non existent, we want the PTR to be low in this case too. The point is we cannot classify income as either passive or active. We should rather talk about

how much active and how much passive a given income is. Here is the spectrum I have in mind with some examples:

passiveincomespectrumTake note that it goes from light gray to white. That was done on purpose because examples of pure passive income don’t exist in real life. Even earning money through interest from a bank involves an investment of a much larger sum of money. While this may tempt some to go back to the definition of passive income in terms of time only, I feel that this one is more appropriate. Pure passive income should entail zero of our time and/or money. The only example I would feel confident putting on the extended end of the spectrum would be winning a lottery and being paid a certain sum of money every month for lifetime.

Generating Passive Income is Difficult

What can you infer from this discussion? The money making gurus would love to have their victims believe that generating a massive amount of pure passive income is just a click and a check of $49.99 away. The truth is that generating passive income is very hard. Even Pat Flynn, the biggest expert on this subject agrees on this and adds, “it’s difficult but possible.” That is unquestionably correct since thousands of people are doing it and there is no reason why anyone who wants to try a career in Internet marketing cannot do the same. However going back to our spectrum, the more “passive” a method to make money online is, the tougher it is to generate any income. Also, the income generated by strictly passive means tends to increase exponentially as time goes by. This means that to start with the returns are extremely low; there is a lot of work to be done and very little profit to be seen. It may take several years for any tangible profits to arrive in our pockets.

Why Beginners Should Focus On Active Income

Is concentrating exclusively on building passive income sources a good idea for beginners? The answer to this is short and sweet, and it is a drastic no. As opposed to passive income methods, active income ones are more immediate and way more rewarding, at least in the short term. On the other hand, becoming rich or wealthy with active income sources is very difficult. Generating more than $2000—$3000 using active methods is the most, which the majority of people can accomplish. However, there is no limit to the amount of cash that can be generated with passive methods. If all you want is to just earn a living online, and have enough to survive without a nine to five job, sticking with active methods may be for you. If you want true wealth you will need to try both passive and active though. Concentrating only on passive methods may sound like a great idea but it is not, and here is why:

  • mental well-being — working with passive methods and not seeing any results can be so much frustrating. With active methods, one should see results immediately. If not, there is something wrong, and the strategy should be revised. Getting some cash flow in the pockets will help any beginner psychologically; it will be the tangible proof that money can be made on line. When being mentally unfit, generating wealth can be much tougher than doing the same feeling self-confident. Engaging in generating active income also means having more options to explore if the passive efforts go wrong.
  • money made actively can be invested in the main business—some do not have any capital to invest in their money earning sites, eBook, software or whatever passive income method. Engaging in active income work can provide the funds to invest in the passive method and give that business a better chance to succeed.
  • success with active methods can open many doors to passive methods—for example if one is in the money making niche, one can make tutorials on how to earn cash online. This will drive traffic to the website speeding up the process of making it popular.

Finally, those who are somewhat phobic about trying purely active methods can use the spectrum I showed above. It is advisable out trying an eBook which is less passive than a Web site but more passive than writing for Constant-Content and move along the spectrum until something is found that works for anyone’s individual skills. It is important to not move from one thing to another before giving each a chance and time to work. Whatever one chooses to do, it is crucial for anyone trying to find fame and fortune on line to have several options spinning on several plates at the same time. Consistency is a must in any online business, but this does not imply doing one thing and ignoring possibilities.

One thought on “Passive and Active Income: PTR and Why You Need Both To Succeed Online

  1. Very enlightening. I like that you have a number of discreet passive income streams working for you. Hopefully if anyone ever read your blog they can start to see even the small start that you are coming from, and how it is helping anyone towards their future goals.

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