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How to Make More Profit From Your Passive Income Sources

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Read Time: 10 min
This post is part of a series called How to Create Passive Income (Complete Beginner’s Guide).
How to Make Residual Income for Financial Independence

In the previous tutorial, we looked at how to turn your passive income—income that’s disconnected from actual work—into actual wealth so you could become financially independent

Are you ready to optimize your passive income sources?Are you ready to optimize your passive income sources?Are you ready to optimize your passive income sources?
Are you ready to optimize your passive income sources? Image source: Envato Elements

While it’s a worthy goal, there’s also a lot to be said for making sure your existing sources of passive income are running efficiently and generating as much profit as possible. In this tutorial, we’re going to do just that.

Optimizing Your Passive Income Sources

The simplest way to make more money from your passive income projects often isn’t to try and sell more, but instead, it’s to make sure everything runs as efficiently as possible. Wasted money is easily saved, while bringing in new business can be hard.

1. Look For Wasted Costs

The first step to optimizing your passive income sources is to look for any obvious wasted costs. These could be anything. Here are a few examples:

  • Is the hosting plan you’re paying for way more than your blog needs at the moment? 
  • Are you spending a fortune on Facebook ads and seeing very little return? 
  • Are you paying for premium services that were useful when you were researching the project but, now that it’s up and running, you don’t need them? 
  • Do you have a virtual assistant on retainer that you’re not using?
  • Are you hosting your files in an expensive location like Amazon S3 when a service like Dropbox would do?
  • Are the t-shirts you’re using worth the extra $2 a unit over a different one?

There are thousands of more possible ways you could be wasting anything from $20 a month, to tens of thousands of dollars a year. Sit down with your business bank statements and go through every cost and look if there is a cheaper alternative that would deliver the same service. 

Even if there isn’t a cheaper service available you might be able to get a better deal from your current provider. Contact them and say that you’re considering switching to a competitor. Ask if they’d be able to offer you a better rate in return for staying. You’ll be surprised by how many companies will say yes.

2. Look For Things to Automate

As we looked at in the tutorial on how to stop trading your time for money, each hour of your day is valuable. Once you trade it away for money, you can’t ever get it back. Cash is just one of the things you can waste on passive income projects; you can also waste your time. They are meant to be passive after all. 

Over the course of a week or two track every hour you spend on each source of passive income. Take note of what you’re doing, how long it takes, and how many times you do it. After a week or two, it’s time to perform a full audit of your time. 

What you’ll normally find is that there are a few tasks that take up the bulk of your time. These could be things like:

  • Scheduling ads on social media.
  • Responding to customer queries.
  • Fixing bugs.
  • Paying contractors or services.

Once you’ve got a list of how you spend your time, you’re going to start automating it and taking yourself out of the equation. 

If you spend a few hours every week scheduling ads, buy them in longer blocks. That way, you’ll only have to spend a few hours every three weeks. You might miss out on a little bit of extra revenue, but the time saving will be immense.

If you spend a lot of time responding to customer queries, identify the most common question and write an FAQ. Set up an auto-responder that sends any customer who contacts you to the FAQ. Tell them that if their question isn’t answered, to reply to the email. Ignore any emails that aren’t replies to your FAQ auto-responder.

If you’re still spending time fixing bugs, consider hiring a developer to go in and give a full audit. It might be expensive, but it will solve the problem once and for all.

If you’re taking time out of your day to manually transfer money to contractors or enter your credit card details into websites, stop it. Set up direct debits from your bank account to the contractors. Sign up for longer subscriptions with the websites. Financial transactions are one of the easiest things to automate.

And keep going down through every action you take on the business like this. Find a way to make it all run without your direct input. Passive, remember. Once you’ve fine tuned everything once, start tracking your time again but this time, at longer intervals like three months. When the three months are up, go back and assess everything again. 

Increasing Your Return

Once you’ve cut out the wasted money and time, you can start to look at how to grow your business if you want to increase your profit. This will take reinvesting your time in tasks that can’t easily be automated, but that’s a large part of generating passive income.

1. Remove Customer Friction

Optimising your side of things is only one way to increase the profit of your passive income sources. Another is to optimise things on the customer side. 

Sit down with a few people you trust and ask them to go through the process of buying your product while talking about how they’re finding the experience. Make sure they’re addressing things like:

  • How easy is it to find what they’re looking for?
  • Are they being given more information than they’re comfortable with?
  • Is it taking too long?
  • Are they surprised or disappointed by any point of the process like extra taxes or fees tacked on at the end?

You can also use data from your website and shop analytics to work out at what point in the process people are leaving the sales funnel. 

Once you’ve got a good idea of what, if any, problems there are with your sales process, it’s time to start optimising. Go in and eliminate things that people had issues with. Do you need three pages on the website or would one suffice? Are the prices really clear up front?

You can also consider investing in A-B testing software which will test two different versions of your site and evaluate the differences. If you’re not sure what button placement, tagline, or discount has the best effect, it’s a great way to find out.

You need to make things as easy as possible for people to buy. Getting more people who look are already interested in buying to make the purchase is easier than getting more people to look at your product.

2. Try New Marketing Strategies

Marketing is any activity you do to promote your product. It’s everything from guest blogging to running ads on social media. If you’ve mainly limited your investment in marketing to one or two areas, have a look at some of the others and try them. They won’t all work, but some might.

Here are a few ideas:

  • Run ads on Google, Facebook, Twitter and relevant Sub-Reddits.
  • Reach out to bloggers in your niche and offer them a guest blog.
  • Set up an affiliate program. Reach out to bloggers and ask them to join.
  • Start a podcast interviewing successful people related to your source of passive income.
  • Email previous customers and offer them $10 (or a discount or whatever) for every new customer they refer.

By branching out into new marketing areas, you increase the odds of new people discovering your work.

3. Evaluate the ROI of Every Marketing Campaign

Testing out new marketing channels is a good idea for a month or so, but after that, you need to seriously consider how it’s going. It’s worth trying anything, but if something isn’t working, you need to cut it.

Go through every source of marketing you’ve used and try and correlate it with a number of products you’ve sold. For some things like affiliate links or Facebook ads, this will be easy. For guest blogs and customer outreach, it may be trickier. 

Learn how to track your marketing and social media ROI in these Envato Tuts+ tutorials: 

You need to work out how much time and money you’ve spent on each source of marketing and calculate how much profit it’s brought in. If it’s cost you more on marketing for each customer, either seriously rethink that option or cut it. If it’s cost you less per customer, then it’s had a good return on your investment.

Once you’ve identified the marketing options that have a positive ROI, it’s time to start trying to increase your profit. Some things can have a linear relationship between spend and profit: if every $1 you spend on ads brings you in $1.50, just keep pumping money into ads. You’ll obviously hit a limit at some point where it will stop being linear, but it might be a lot higher than your current ad spend.

Other things might not be linear at all. Maybe spending $100 on ads gets you $150, but spending $150 on ads only gets you $151. You need to play around and find the optimal point where you get the biggest bang for your buck. 

What marketing works best at any given moment will change throughout the year. Christmas sales are always possible for example. Every few weeks, reevaluate how your marketing is doing. If something is no longer working, rejig it or cut it. If something is still bringing in a positive ROI, increase your spend.

4. Add Similar Products

Once you’ve done the work to create one product or other source of passive income, it can be quick and easy to twist it into similar, related products. Perhaps you can offer it in different sizes, colours, formats (both digital and physical; t-shirts and vests; etc). If you’ve written a book, it’s not too much work to turn it into an audiobook. If you’ve got a kickass t-shirt design, why not turn it into a poster?

All these simple innovations build on the work you’ve already done and don’t add too much in the way of extra ongoing work.

5. Add New Products for Existing Customers

Existing customers are often the best customers. 

You’ve already invested in getting their business so anything else they buy is, beyond your fixed costs, pure profit. 

Unless you’re selling something inherently disposable, they probably won’t buy the same product again. They might, however, be interested in products that build on your already existing work at a more advanced level.

We’ve looked at this idea in more detail in the tutorials on evaluating your passive income ideas for opportunities and how to generate multiple sources of passive income.

Wrapping Up

When it comes to generating more profit from your sources of passive income you have two good options: cut any waste and increase your revenue. 

Start by cutting waste ruthlessly; you want to run a lean and efficient operation. Once you’ve done that, start looking at ways to get more visitors, get more conversions, get people to buy more, and reengage existing customers.

Editorial Note: This content was originally published in 2017. We're sharing it again because our editors have determined that this information is still accurate and relevant.

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