Thursday, February 7, 2008

EBusiness and Passive Income

Introduction

When most people hear the term EBusiness they think of YouTube, Myspace, Facebook and other internet businesses that have been built up and sold off for millions, and even billions, of dollars. All of the media attention is on these big name company buyouts, but for every one of these attention drawing buyouts there are a hundread other entrepreneurs using the internet as a source of passive income.

What is Passive Income?

There are two types of income; active and passive.

Active income is the type of income that the majority of people make. The salary that you make at your job is active. The commission you make as a salesperson is active. The hourly wage that you get paid is active income.These are all sources of income because you need to be taking action (working) to be able to make money. If you left your job would you still get paid? No. If you stopped going in to sell cars would you continue to make money? Perhaps for a week or two as carry over from pending sales, but beyond that no.

Passive income on the other hand is a type of income that people dream of but don't know how to setup. Passive income is money that an individual can make without doing any effort aside from setting the income stream up.

Once you set a passive income stream up and it starts earning income you can walk away from it and it will still generate money with minimal management. Here are some examples of passive income:

  • Income from rental property
  • Royalties from writing a book.
  • Earnings from Network Marketing (Pyramid Schemes)
  • Physical advertising such as billboards that are rented out for the long term.
Because of all of the media attention on the large company buyouts, the internet isn't widely recognized as a medium that will reliably produce passive income for the general public. It is in face an extremely reliable and low cost way to setup a passive income stream for yourself. There are tons of businesses that you know and use that operate using a business model that could be used to create passive income.

Examples:

Amazon.com - Amazon is the worlds largest online book store that sells almost every product under the sun (home and garden tools, dvds, CDs, MP3s, software, diamond rings: EVERYTHING). Amazon rarely stores any goods in their warehouse and uses 'dropship merchandising' [which will be explained below] to be able to sell goods without storing them. When you buy a book from amazon, it is actually stored and shipped by a distribution company. Amazon takes your money, sends your information to the book supplier and the book is shipped straight from the supplier to you.

EBay - Even though Ebay has hundreads of employees as Amazon does, their model could also be used to create passive income for yourself. EBay is an online auction site where users post the goods that they want to sell and other users buy them. The beauty of this model is that it is user generated content and transactions that ebay makes a percentage on.

ProSoundEffects.com - A website that sells pro audio effect libraries for movie-makers. Movie makers come and purchase the products and they get they get 'dropshipped' samples of effects, sounds and theme songs from the biggest movies in the world. Here is how it works:

What is Drop Ship Merchandising?

The best way to explain dropship merchandising is to show you how an active company uses it to create passive income. (This example has been taken from the book "The Four Hour Workweek" - thefourhourworkweek.com)

ProSoundEffects.com

1) A prospective customer sees PPC ads on Google and other search engines and clicks through to the website ProSoundEffects.com
2) The prospect orders a product for the average order price of $325. A PDF with all their billing and shipping information is automatically emailed to the owner, Doug.
3) The times a week, Doug presses a single button in the backend of his site which charges all of his customers' credit cards and put cash in his bank account. Then he saves the PDFs as excel purchase orders and emails the purchase orders to the manufacturers of the CD Libraries. These companies mail the products to the customer - this process is called drop-shipping - and the company pays distributors as little as 45% of the retail price of the products up to 90 days later.

Doug, the owner, makes a pre-tax profit of $167.38 per product on average and spends 30 minuets on the site depositing orders into his bank account. He makes an average of $10,000 per months, spends two hours in a given week and there is no financial risks whatsoever. He started the company with $1200, spends $700 a month in PPC advertising and $90 for his shopping cart and merchant account softwhere.

How do I get started?

Posted by at

No comments:

Post a Comment

Subscribe to: Post Comments (Atom)