So, when someone tells you that it’s possible to generate ‘passive income’ and (gasp!) earn money whilst you sleep, of course you want to get in on the act.

I did – and I’m going to tell you here what I learnt.

The principle of passive income is that you create a product or service that doesn’t involve simply trading your time for money. This could be information products like recorded training courses, or e-books, or something like investment in rental properties.

The dream of many an entrepreneur is that they can develop a source of passive income, and that this will ensure their future and allow them to ‘work’ much, much less (if at all).

However, that’s not actually how it works, and many have been disappointed as a result.

What ‘passive income’ is really like

Let me give you an example:

Let’s say that you are a florist with a small shop and flower delivery business. You make money by selling flowers, creating arrangements, and delivering many of those arrangements to local addresses.

It means getting up before dawn to go to the flower market, getting home late at night after doing a few deliveries on the way, and working most weekends as that’s when your shop is busiest.

Then you go to an event. It’s probably an event pitched to entrepreneurs as a way to learn how to revolutise their businesses.

At that event, you hear the words ‘passive income’ for the first time, and decide to do as the speaker is suggesting and create a e-book based on your expertise (in your case, a beginners guide to creating elegant flower arrangements). It takes you a couple of weeks of hard work to create your e-book.

Again, following instructions, you create a mini-website for your e-book and ensure that people can buy it online for £20 or so. As you’ve never done that before, it takes you a few weeks (again) to create your mini-site and get it up live.

You sit back and wait for sales.

Your Mum buys one copy.

You wait for sales again.

After a week or so of checking for purchases in your PayPal account in an increasingly frantic manner, you realise that you HAVE to do something to get people to buy your e-book if you want to sell any copies at all (that’s if you don’t give up completely at this point).

This story may already have happened to you. I’ve seen it happen to several different people – none of whom could be called stupid – and this is why I say that there is no such thing as passive income.

What else is involved?

That doesn’t mean that you can’t make good money selling e-books (or investing in property), you absolutely can. However, you can’t expect people to just buy your ‘passive income’ product without you putting some work in – probably on a continuous basis.

The work that you put in will be on things like:

-        Marketing. You have to promote your product, either by doing it yourself, paying for advertising (like Adwords), or outsourcing your promotions.

-        Updating. You will need to update your product from time to time, whether that’s redecorating your rental properties, or editing your ebook content.

-        Management.  Even the simplest website needs management. There will be people who report  buttons not working, or days when your site host goes down – you get the idea. For things like property investment the management load is huge.

-        Customer service. Someone has a question? You answer them. You get a complaint? You put it right. A buyer can’t open your e-book? You talk them through the process.

So you can see that passive income is pretty ‘active’ after all – especially when you first get started.

What’s the answer?

I think that the answer is to assess other products and forms of income carefully. That includes developing a marketing plan and deciding how you are going to handle all of the customer service and management needed.

If you can, you should also test the market before you go too far with an extra product or service in order to ensure that you can actually sell it.

Once you’ve done that, you’re good to go!