The One Thing You Must Know About Passive Income—or Else!

Automation is the key to setting up a passive income system that works for you. Here is how I have automated sales for my products.

If you don’t master this one thing, you will fail in earning a passive income online. What am I talking about? It’s something called automation. I like to say that automation is Passive Income’s best friend. Without automation, there is no real passive income. Let me give you some examples:

You work for a company. You work X hours, and you get paid X dollars. Are you earning a passive income? Obviously not. Next…

You own a small store at the mall. Customers come into your doors, find an item they like, pay your employed cashier, and leave happy. Are you earning a passive income? No. You’re still working and probably putting in a certain amount of hours each day. As a “brick and mortar” store owner, you may be working less in your store, but you’re working hard making sure your products are stocked, employees are paid, books are kept, managing your employees, etc. Next…

You sell figurines on Ebay. You start an auction, people find your figurines and place bids. The winners pay you automatically each time through Paypal. Are you earning a passive income? Nope. Once you get paid, you have to manually package and ship the item at the post office. Then, hopefully it gets there in one piece. Next…

You own a website online that sells toys. You don’t have any inventory as the toys are drop-shipped to customers by the manufacturer. Customers find your website, purchase toys with an online billing form and payments are automatically processed and the money gets placed into your business bank account. You tell the manufacturer the addresses of the customers and their orders, and the manufacturer ships the items out for you. Are you earning a passive income? Not yet. You are still needed in order for transactions to be completed.

None of these example are examples of an automatic business model.

An Example of Automation

Here is a true life basic example of how an entire transaction process is fully automated to provide a passive income. Below, you’ll see a flow chart of how I make money on my blog at Notice where I am in the equation:

Flow chart shows that sales automatically get processed without my intervention. Sales go from my website to the payment processor, which delivers the book to the customer.

I am NO WHERE within the equation in any part of the transaction. In the wise words of Timothy Ferriss of The 4-Hour Workweek [This link leads to Amazon. Full disclosure: As an affiliate, I earn a commission if you buy through this link.]:

“I am not a tollbooth through which anything needs to pass. I am more like a police officer on the side of the road who can step in if need be…”

—Timothy Ferriss, pg. 187

This work flow is truly automated because I could do anything I want and sales would keep going through.

I still answer emails from customers, and if one part of the cycle brakes down or stopped working for some reason, I’d have to step in and work around it. But the fact is, I’m not needed to complete the transaction and earn money.

(I could hire someone to manage all customer service emails as well as make sure everything was still working correctly, but I’m not at that stage yet. Still—I wake up each morning with sales, and it’s because of this business model.)

Note that membership websites also fit this business model.


Another way to find out if a business model is truly automated and earning a passive income is to see if it’s scalable. That means if I sell 10 items in one day or 100,000 items in one day (which would be sweet), I wouldn’t be any more involved either way.

Take a look at my flow chart. If 100,000 customers came through and bought my ebook, I wouldn’t have any problem handling that kind of influx. Now thinking back to the examples at the beginning of this post, you would not be able to handle that many customers at once. Passive income and automation is scalable.

Is Writing on eHow an Example of Automation?

Editor’s Note: This portion of the post is very dated. We no longer recommend eHow as a method of generating passive income.

In my thoughts, the actual act of writing on is a step toward creating an automatic passive income generator. Having articles already written on eHow is somewhat synonymous to having my ebook already written and on sale.

Here is a flow chart for you eHow writers out there:

This flow chart is not current. eHow is not recommended any longer.

As you can very well see, YOU are out of the “transaction” equation as well. As long as you have articles written on eHow, everything is automatic and you are earning a passive income.

Other Assessments that Can Be Made

First, let’s look at this flow chart. It’s the same flow chart as my ebook example from above, but instead with YOU in it, (because this is really all about how you can improve your earnings and lifestyle). This is what you should aim for:

A flow chart: Customer go to your website, then to your product page. When they decide to buy, they go to the payment processor, which delivers the product back to the customer. You get paid by the payment processor but are not involved in delivery.

I will eventually give you the details about each part of this chart, but for now, let’s analyze how we can increase your earnings with this business model:

  1. Increase the amount of customers: The more customers you have, the more people see your webpage and ultimately buy your product. This can be done by advertising, promotion, testing content, publicity, luck, etc.
  2. Increase how much money comes out of your sales page: To do this, you can either increase the price of your current product, or create an entirely new product to sell along with it. If it’s an ebook, why not create an audio guide too? That’s my plan…
  3. Duplicate the entire equation: Since you’re not involved within the transaction, you can start a whole new project and do the same thing in another niche. Then you’ll have 2, 3, 4 or more of these all running at once, and you can continue to sit back and relax (or go to Fiji with all the new money you’re making. And while you’re there, you’re still making money…awesome).

To The Readers

I hope this has shown you the power of automation and how it is the basis for all passive income that is made online. More automation equals more passive, and less YOU. This way, you can earn money while spending more time doing things that you want to do. The technology and services are out there to make your life a lot easier—why not use them?

If you have an online business already, try and draw a flow chart and see where you fit into your own business model. How often are YOU “a part of the equation”?

If you aren’t at this point yet, I’d like to know what you think. Does it all make sense to you and can you see the benefits of implementing such a business model? Is it something you’d like to do in the future? There’s no right or wrong answer here. Some people like to be on the front lines and in the trenches while running their businesses.

I hope you enjoyed this post. Until next time!

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  • Pat Flynn

    Hi, I’m Pat, founder of SPI and host of the Smart Passive Income Podcast. Let’s continue the conversation over in our communities.

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