Business

**Rant Alert** – An Online Business is NOT a Passive Income Source

I warned you in the title that this is going to be a rant.  I have strong feelings about individuals telling others that an online business is a great way to earn passive income.  It is NOT (just ask my wife)!

Passive income is an income received on a regular basis, with little effort required to maintain it.

Plagiarism. (2013). In Wikipedia. Retrieved from http://en.wikipedia.org/wiki/Passive_income

Online Business is not a passive income sourceFirst, I wanted to define what Passive income is.  As you can see from Wikipedia, passive income is income received with little effort required.  A few examples of passive income include rental property, royalties, dividends, interest payments, and pensions.

While Wikipedia does list that passive income can include advertisements from websites and online businesses that don’t require direct involvement from the owner, I don’t agree with that part.  There are very few online opportunities that allow anyone to set it and forget it.  There are no “overnight successes” out there.  You may not know about them until they hit it mainstream, but most “overnight sucesses” that are coined by the media have been in the works for months or years.

I started an online e-commerce business from scratch.  From the first line of HTML code for the website to the last shipped order.  I ran the whole business from start to finish.  I even did an interview with Veronica from Pelican on Money about my business.  You can check it both Part 1 and Part 2.  I have been in the trenches of online business and it is not easy.

I have found that most of the time when you hear about people saying that an online business is great for passive income is because they are selling you something.  Maybe an e-book or an e-course about how they succeeded in business and how you can too.  It is simply not that easy.  Business in general is not easy.  Yes, you can setup an online business cheaper than you can a brick-and-mortar one, but you still have to work.

There may be parts of your business model that are passive, such as advertisements and monthly subscriptions, but you still have to work to get those.  They don’t just come to you right after you start your business.  You have to work day in and day out to get visitors, then get advertisers, then keep advertisers, then get more advertisers.  There is not magic switch that you flick on and BAM!, there are the visitors.

I am not selling you anything, I am just telling you the truth.  An online business is NOT, I repeat, NOT, a passive income source.  It just isn’t.  I am sorry to burst your bubble, but it had to be done.  I am tired of hearing people from other sites tell their readers that an online business is great for passive income.  They can be a great source of ACTIVE income.  This type of income is worked for and you have to continually work for it.

If you want to learn about making income from different online sources, then check out Michelle from Making Sense of Cents.  She works very hard each and every day to earn her extra income.  I doubt she will say that any of it is passive, except for maybe the rent she receives.  If you are interested to see how hard running a business is, then check out John from Frugal Rules and his Taking the Plunge series.

To conclude my rant, please stop emailing me asking for ways to make passive income online or asking for my opinion on a great passive income business strategy.  They don’t exist.  Most, if not all, of my replies are going to be centered around working your a** off.  I have had a couple of businesses since I got out of college and each and every one of them required me to work hard.  This blog requires me to work hard.  If you want to succeed by making extra income, work hard!  That is the magic formula.  No smoke and mirrors, not bulls**t.  I won’t attempt to give you the hopes and dreams that an online business will be for you.  If you go into it with the hopes of it making you constant money without having to do any work, then you might as well not start one.

If you want to earn passive income, then rent out a room or you whole house.  You can diversify your stock portfolio and invest in dividend paying stocks.  You can start investing in Peer to Peer lending like Prosper or Lending Club.  These two options are great passive income strategies if done correctly.  These are some of the few passive income options.  Remember, passive income is a source that you don’t have to regularly work to maintain.  An online business is not one of these options.

**End Rant**

Image courtesy of Idea go / FreeDigitalPhotos.net

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Grayson Bell

Grayson Bell

I'm a business owner, blogger, father, and husband. I used credit cards too much and found myself in over $50,000 in debt. I paid it off, started this blog, and my financial life has changed. I now talk about fighting debt and growing wealth here. I run a Wordpress management company, along with another blog. It is Empowered Shopper, which helps people get information about products they want to buy.

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74 Comments

  1. February 20, 2013 at 8:20 am — Reply

    Hmm you make a good point, but what if you were able to outsource all the work? I know someone in the political realm who owns an IT company and has a political blog/website. He has someone who manages it full-time and spends virtually no time on it (and did not spend much time at all in the beginning either). What do you think, passive income or no?

    • February 20, 2013 at 10:50 am — Reply

      It is still technically active income. He has to have a person manage it and run it full time. That is not passive income. While it may be technically passive for him, if he didn’t have a manager for it, then it wouldn’t be passive. The idea of passive is to not have to work on it at all. This is why dividend income is such a popular way, because you invest and then sit back and get your dividend checks.

      • February 20, 2013 at 2:14 pm — Reply

        I would consider it passive income because he has someone managing it. He doesn’t have to actively do anything. Same way there are managers at the company you get dividends from ;)

        • February 20, 2013 at 3:47 pm — Reply

          I would be willing to make an exception for this type of setup, but in 98% of the cases, online businesses are not passive income sources. They are very much active and I just want people to understand that they shouldn’t expect to go online and make tons of cash without lifting a finger. It is just not realistic.

  2. February 20, 2013 at 8:41 am — Reply

    You mean that it’s not the lollipops and rainbows fantasy that gets spewed on a semi-regular business?? ;) Seriously though, I could not agree more Grayson! Being in business for yourself in HARD I mean HARD work…not that you didn’t already know that. Most weeks we’re running around with our hair on fire because we’re so busy. It is absolutely hard work and not for the faint of heart. We’re ok with the hard work and like it because we get to see the direct result of it. That said, for those that think they can throw something up and fall a$$ backwards into a pile of cash will meet reality quickly. Love the rant btw. :)

  3. February 20, 2013 at 10:09 am — Reply

    I agree that it is active income. It is better than a 9-5 job, though. I love working in my pajamas!!!

    • February 20, 2013 at 10:51 am — Reply

      Oh, don’t get me wrong, I think it is a great alternative, but I have had too many people ask me how to start an online business to generate passive income.

      • February 21, 2013 at 8:39 am — Reply

        I totally agree. Actually, someone I know started a blog after me and quit within a few weeks because he didn’t have the time. I thought…”I told you so!”

        • February 21, 2013 at 11:31 am — Reply

          That happens ever so often. People hear stories about people blogging and making money, then they realize the work behind it.

  4. February 20, 2013 at 11:02 am — Reply

    Thanks for the mention! And I agree, an online business is not passive. Nothing I do is easy, except for the rent payment as you said.

    • February 20, 2013 at 11:06 am — Reply

      I figured you would agree with me Michelle. You are very busy and I know you would understand.

  5. Eddie
    February 20, 2013 at 11:13 am — Reply

    Great point.
    I often wondered why some bloggers call blogging “passive.” There really isn’t anything passive about it. Being in business online is a hard thing and something many newbies forget. It’s no wonder that the highest dropout rate for blogs is in the 6-12 month mark. The novelty wears off, and most realize that blogging (for example) is A LOT of work.

    • February 20, 2013 at 11:16 am — Reply

      With you there Eddie. I have received many questions lately about running an online business and how much “passive” income I get from it. Can’t call it passive if you have to work for it each and every night.

  6. February 20, 2013 at 12:16 pm — Reply

    LOVE this post! I recently made the jump to making more money through online avenues and it’s far more work than ever. I agree whole-heartedly that you’ll work your a$$ off to make the money you do online–I’m doing that each & every day!

    • February 20, 2013 at 12:45 pm — Reply

      Thanks for enjoying my rant. I don’t ever want to put a damper on people’s aspirations, but I just want everyone to be realistic.

  7. February 20, 2013 at 1:41 pm — Reply

    One of my most read posts early in my blogging career was called “The Passive Income Lie.” I join your rant, Grayson!

    • February 20, 2013 at 1:45 pm — Reply

      Awesome Joe. I am going to try and find that post and read it. Glad to have you on board.

  8. February 20, 2013 at 1:59 pm — Reply

    Great article Grayson. I’ve never considered an online business a completely passive income at all. I earn money from the online world like a financial bloggers do but it takes a lot of work to get that far. Sometimes I think people just wan to take the path of least resistance but they would better off pick one thing and working hard at it because they would be ten times more likely to see success.

    • February 20, 2013 at 2:10 pm — Reply

      I have never considered anything online really passive. There is a lot of work to be put into any business, but apparently people just want the set-it-and-forget-it. It just doesn’t happen.

  9. February 20, 2013 at 2:00 pm — Reply

    Rental property is not passive income either! I used to be a landlord and I owned several apartment buildings and a shopping center. Even if I used a management company to manage the properties, you still are involved.

    • February 20, 2013 at 2:11 pm — Reply

      Good point Krant. Some consider rental properties passive, so I figured I would include it. You still have to work though.

      • February 20, 2013 at 5:42 pm — Reply

        Real estate is part passive, part active. I consider that I get paid for my work when I look for tenants, have the heater fixed or handle other house things. But most months I just get rent and the bills are automated, that is passive income.

        • February 20, 2013 at 9:00 pm — Reply

          I agree Pauline. You still have to work for tenants, take care of issues, and other things that comes with real estate. Yes, you collect checks every month (hopefully), you still have to keep up the property.

  10. Girl Meets Debt
    February 20, 2013 at 2:01 pm — Reply

    So once again, you’re trying to say an online business IS passive income? ;)

    I’m kidding Grayson!

    I can tell you work hard at this blog and it inspires newbies like me (with debt) to work hard to pay it off asap :)

    • February 20, 2013 at 2:12 pm — Reply

      Yep, spot on! I think everyone should start an online business for passive income….:). I work hard and so does every other PF blogger that I know, including you. If you want to succeed, then work for it!

      Technically, I am still a newb because I haven’t hit the 6 month mark yet. There are many things to learn.

  11. February 20, 2013 at 3:32 pm — Reply

    Couldn’t agree more. I work way more than I ever did at my full-time job.

  12. February 20, 2013 at 4:05 pm — Reply

    Love your rant, Grayson! I always laugh when people say they were an overnight success. Sure, yesterday I never heard about them and today nobody will stop talking about them, but they have been working their butt’s off for months and/or years to become an overnight success. But the allure of easy, passive money is just so tempting for most. Honestly, if I could earn a great living without needing to do anything – I’d say sign me up too. When I started my blog, I foolishly thought people would just show up. They didn’t. :) Now things are on a upswing, which I’m incredibly grateful for, but I’m also spending a lot of time on my blog and networking. Thankfully, I love it.

    • February 20, 2013 at 4:47 pm — Reply

      Thanks Shannon. Trust me, if I could work on something that would allow me to just do what I wanted and not have to worry about money, then I would have signed up a couple of times.

      You example about blogging makes me always think of the “if you build it, they will come” scenario. So many think this is the case when creating a website. Too bad there are billions of websites on the internet, and you are just one of them.

  13. February 20, 2013 at 5:10 pm — Reply

    I often wondered the same about passive income and blogging. I’ll be honest I didn’t start my blog to make money nor do I still but I also didn’t realize how much work it is. I’ve worked my arse off for over a year at my hobby to spread the word, engage people to get them thinking about their finances and I certainly would call that full-time work nothing near passive even if I was monetizing my site. Even if you hire people to do the job someone is still working. So, in other words when you do nothing at all… and money falls from the sky .. that’s passive income. I can dream can’t I!

    • February 20, 2013 at 8:58 pm — Reply

      I would like to be a part of that dream Mr. CBB! Having money fall from the sky would be awesome.

  14. February 20, 2013 at 5:49 pm — Reply

    The only way an online business, whether it’s eCommerce, blogging or anything else could ever be considered passive is if you could set it up, walk away, and get a check from google every month. I’m afraid I don’t have the formula to that website and I doubt it exists!

    • February 20, 2013 at 8:59 pm — Reply

      I thought you had the formula Jose! Maybe you figured out the secret formula….No?

  15. Justin@TheFrugalPath
    February 20, 2013 at 9:09 pm — Reply

    Great rant Grayson! I agree that blogging is definitely not passive income. Heck, I haven’t even found the income yet (haven’t really tried at that though).
    I think that any form of passive income is a lie. Every source of income requires some amount of time and effort to be successful. Although blogging is definitely more active than many of these sources.

    • February 20, 2013 at 10:06 pm — Reply

      I am with you on that one Justin. Everything requires work, but some require more than others. Blogging is one of those, especially if you want to make it into a business.

  16. February 21, 2013 at 12:23 am — Reply

    Good rant! I’ve seen a lot of VERY loose definitions of passive income.

    • February 21, 2013 at 11:33 am — Reply

      Haha, thanks Alex.

  17. February 21, 2013 at 2:18 am — Reply

    Totally agree! Too many bloggers claim passive income from things (virtual assisting, blogging, ghost writing, etc.) that are a lot of work! Even our rental condo, which is mostly passive, requires a bit of work, because we have to attend strata meetings and occasionally do repairs.

    • February 21, 2013 at 11:32 am — Reply

      Yep, all of those things are not passive income. They are very much active.

  18. February 21, 2013 at 10:01 am — Reply

    Totally agree with you. Having a business, online or otherwise is definitely not passive income, nor is blogging. With most things in life, if you want to make money doing it you have to work hard. If there were more passive income opportunities everybody would be rich and nobody would work.

    • February 21, 2013 at 11:31 am — Reply

      That is so true. Everyone would blog and everyone would own a business. Now, where is that money tree that I planted last year?

  19. February 21, 2013 at 4:21 pm — Reply

    Having run my own online business since 2009, I can say that I agree 110% with you, Grayson! Even if you outsource a good bit of the work, those workers have to be actively managed. In my experience, it’s much tougher than a 9-5 (or 8-6) job. Sure, you have more flexibility, but it’s VERY tempting to work 24/7, and Google has rolled out more algo updates in the last couple of years than they did in the previous decade – so you definitely can’t sit on your laurels. Passive, yeah right! :)

    • February 21, 2013 at 4:27 pm — Reply

      Thanks for the feedback Taylor. Running a business is hard work and I am glad you agree with me. If it was so easy, then wouldn’t everyone be doing it?

  20. February 21, 2013 at 6:43 pm — Reply

    Great post Grayson, there’s a few bloggers sticking there neck out this week and saying the unsayable! I agree no online business is easy, hopefully it becomes more financially rewarding as time goes on but I’ll have to wait and see about that. You have me intrigued about your ecommerce business now, I’m going to have to take a look!

    • February 21, 2013 at 8:33 pm — Reply

      Haha, I don’t mind sticking my neck out. If you have any questions about ecommerce, let me know. I don’t run it anymore and it just sits there and gets affiliate income, but very little.

  21. February 23, 2013 at 11:07 am — Reply

    I think many people consider it passive if it’s not 9-5 wearing nice clothes in an office. Even being a landlord isn’t passive unless you are renting to a family member. Everyone else requires some things to keep them happy. Good rant. You’re allowed.

    • February 23, 2013 at 11:58 am — Reply

      So true Kim. Since I wear jeans and a T-shirt at work, does that mean it is passive?

  22. February 24, 2013 at 11:54 pm — Reply

    So true Grayson! I think we get the skewed idea that a website is passive income from the media who sugarcoat the success stories of companies like AOL, Zappos, and the Huffington Post. They highlight the earnings and successes but fail to illustrate how difficult it is to get to that point!

    • February 25, 2013 at 10:38 am — Reply

      Yep, overnight success stories. Too bad, nothing like that is done overnight.

  23. February 28, 2013 at 12:56 am — Reply

    I tend to agree with you that “passive income online” is a bit of a unicorn, but having owned several rental properties when I was younger I can tell you they didn’t feel very “passive” when we were looking for new tenants, repainting the house to prepare for new tenants, fixing bathrooms, etc.

    I also think that people should stop trying to build online businesses and instead build “real” businesses that just happen to have their marketing channels online! Many think that their blogging constitutes an online business which is clearly not the case…it’s simply a marketing channel you use to sell products, services, etc…or a creative writing hobby that happens to have a bit of monetization through AdSense or something similar!

  24. February 28, 2013 at 11:45 pm — Reply

    Just reading this post now. I never thought of an online business as being passive. The thing that attracted towards this venture is that you can work from anywhere and you are your own boss. But like any other job or business success is largely dependent on how hard you work.

  25. March 2, 2013 at 4:13 pm — Reply

    Grayson, that was a great article and I only hope that people read it. It’s pretty much status quo for websites to pitch their “passive income” strategy. It’s as easy as writing 200 quality posts, engaging with your readers constantly, tirelessly working to help people find that your site even exists, etc… If that’s no work than I obviously suck at this.

    At least once a week my fiance has to say to me “I don’t want to hear about any more blog stuff today”, and I have to make a conscious effort to not make her have to drag me out of my office to hang out.

    Like you said, there is no easy set it and forget it money, if there was we would all be doing it. The main way to make passive money is to put existing huge piles of cash to work for you (buy a rental property, a business, invest, etc..). Of course the step that most beginners forget is that you had to work your butt off to get that pile of cash so… put on your big boy/big girl pants and get to work!

    ( BTW, I love rants, you should do it more often so we can all chime in with you :P )

  26. March 3, 2013 at 12:20 pm — Reply

    I agree, I agree, I agree! As the old saying goes, “There’s no such thing as a free lunch!” To make money, effort is required in nearly every case. That’s it. There are no magic ways to make a living. Successful people generally are incredibly driven people with a vision and a passion. Thank you for an honest post (rant)!

  27. Cat
    March 4, 2013 at 9:12 pm — Reply

    Seriously! I agree with you. If it was just as easy as setting up a blog we’d all be set. But I started a blog in 2010 and have only made 3.00 off my active Google AdSense. Essentially you have to have something really interesting to offer, consistency, followers, etc. So totally not passive. Not to mention, I need to find interesting things to write about or else people don’t come by to say hello, and 500 people may have come by, but they didn’t all click on my ad. Now I write about travel, people seem to like that more, and it gives me a reason to take a vacation :)

    Hopefully all the people who emailed you are reading your rant :D

    • March 4, 2013 at 10:14 pm — Reply

      It takes work and knowledge to make money. You can’t just set up a website and expect it to make money or have visitors. Good luck to you Cat.

  28. March 6, 2013 at 2:52 pm — Reply

    Grayson, I have to amen to this post. I started an e-commerce site as you did. I did not know a single line of html or any other code. I built a site with HTML for Dummies in one hand and some hope in the other. The easiest part was finding suppliers…at least in the beginning. I had no clue about SEO, on page optimization, etc. As quick as I would catch on to one thing, I would have trouble with a supplier or an order not arriving on time. It wasn’t even passive to close the site and terminate the EIN. I actually enjoyed the brick-and-mortar I owned more. Again, amen to this post.

    • March 6, 2013 at 3:25 pm — Reply

      Thanks Jerry. Not glad to hear that you struggled through it like I did, but glad to hear that you dealt with the same issues. It was a constant learning experience that I am glad I went through.

  29. March 6, 2013 at 4:58 pm — Reply

    I’m glad you to see that you actually defined passive income. The term is hot and people want it but they either don’t really understand what it is, or don’t want ot put in the work to get it. I would also argue that unless you have a major amount of rental property, with another firm managing it, it is far from passive income.

    • March 6, 2013 at 11:01 pm — Reply

      You are right John. Passive income is the hottest term right now, but it is far from a reality.

  30. March 8, 2013 at 1:54 am — Reply

    I agree with you 100%. Having any kind of business, online or not, is going to be active in some way, shape or form. But I think that having an online business can require even more time than a 9-5 job! At a regular job, you clock in, clock out and go home, and usually you’re not bringing your work home with you. But with any kind of online business, you have internet access 24/7! I think it can be hard to leave ‘work’ behind with smartphones, tablets, laptops, etc. But some forms of ‘passive income’ ventures are better than others. I plan on owning rental properties in the future, and like it was mentioned in a previous comment, there is still work to be done, but for the most part, collecting the rental checks each month is fairly passive if you have good tenants!

    • March 8, 2013 at 9:57 am — Reply

      Thanks for stopping by Sharon. I appreciate your comment. You are correct. It is hard to get away when your business is online. You can fire up the laptop at anytime and deal with issues or work longer hours. I found many times that I would work until about 3am because I was on a roll.

  31. March 9, 2013 at 1:42 pm — Reply

    I had an online e-commerce business and it was a ton of work, like you I did all of the programming and website maintenance myself. I would argue that owning rental property is not passive income and can become a huge time and financial drain unless you have a property management company handle all aspects of the property.

    • March 10, 2013 at 11:38 pm — Reply

      Yeah, I am rethinking the rental as passive. Unless you have a rental company, it is not passive and then it might still be a stretch. Good to hear about your business.

  32. March 14, 2013 at 2:32 pm — Reply

    Definitely agree. I’ve often debated with folks who claim they’re making “passive income” meanwhile they’re working extremely hard. It’s almost like they’re writing off their hard work as worthless.

    • March 14, 2013 at 3:03 pm — Reply

      You are so right Joe. I don’t like to discount my work and I am surely not calling it passive. I know my wife wouldn’t call it that!

  33. March 14, 2013 at 4:28 pm — Reply

    I have several articles that rank well for specific keywords or phrases and they each bring in $50 to $100 a month in Adsense revenue. I wrote these posts a few years ago and I’ve done nothing to actively maintain them.

    Obviously I’m actively working on my blog by publishing new content every week, but I’d suggest those older posts are earning passive income. That may change with the next Google algorithm update, but for the time being they are earning passive income.

    The same can be said for an article that ranks well for an affiliate product (credit card, discount brokerage, etc.). Once the post has been established on the front page in search it can earn passive income with little to no effort.

    That’s the holy grail of blogging, when your old posts can earn an income without any ongoing effort.

    • March 14, 2013 at 5:26 pm — Reply

      You are indicating that part of your online blog is passive. If you put up those posts and then never updated your site, you wouldn’t earn anything. The key to your passive articles is that you continue to update your site, network, and build links each and every day. These are not passive techniques for building income. If you were to stop doing these things, then your “passive” articles will fall quickly from the results. I think there are parts of an online business that are passive, but any business or blog as a whole is never close to passive income. The same goes to niche sites. You can put up a few articles, then build links to it and start earning income. In order to keep income, you need to update the site a few times a month in order to please the search engines.

      I do agree with you on the holy grail for bloggers. If you can create a post that continues to bring in revenue, then it is the best position to be in.

      • March 15, 2013 at 12:25 am — Reply

        You are speculating that if I never posted something new again that those old posts would fall in the rankings, but I’d argue that we don’t really know for sure what would happen. If they are authority posts already established with solid links then there’s no reason why they wouldn’t continue to rank.

        I do agree that the online business as a whole is not passive (not even close), but there can certainly be aspects of the business where you can earn significant passive income.

  34. March 15, 2013 at 1:37 pm — Reply

    So very true…. and even renting rooms or houses isn’t really all that passive – you have to market it, clean it, fix it and respond to renters….hard work.

  35. March 21, 2013 at 6:50 pm — Reply

    I agree blogging has been featured all over the place as some sort of joke where regular folks can make a living. But the hard work and dedication to put into a site is no joke. I will agree with the rant my friend.

    • March 21, 2013 at 9:09 pm — Reply

      Thanks for stopping by and enduring my rant.

  36. May 18, 2013 at 5:25 pm — Reply

    I agree that Peer-to-Peer Lending is a great way to earn passive income.

    For your readers that are looking to get the superior returns of Peer to Peer Lending but don’t know how to get started, I have a service that will facilitate your investments for a small fee. Check out http://www.peerlendingadvisors.com

    • May 20, 2013 at 10:10 am — Reply

      Thank you for the reference. This sounds like an interesting service.

  37. October 27, 2013 at 10:05 am — Reply

    Yes. Someone who is brutally honest. I think people who think they can find some “hustle” to skate by in life are deluding themselves. No matter what you do, if there is income to be made from it, you are going to have to work for it.

    • October 28, 2013 at 8:57 am — Reply

      Thanks Chad. If I am one thing, it is honest. People are always looking to make a quick buck with little work. I don’t know if that really exists. Everything does take work.

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