Today we have a showdown between two of my favorite passive income sources; royalties and business automation. Both of these passive income sources fall under the business pillar of our Retirement 4-50 plan. For a refresher, Retirement 4-50 consists of four separate pillars- retirement income, investment income, rental income, and business income. Read the book “The Millionaire Fastlane” and “The 4-Hour Work Week” for more on these important business practices.
I have started to receive royalties from books I have been writing on the Amazon platform. Now that I am a big player (not) in the world of royalties, I wanted to do a rundown on what business income you should concentrate on first.
First, I want to discuss the two very distinct categories of royalties and business automation. Luckily, I have written a couple of articles on these topics separately, so I can link to those for further information. After a quick review, we can help you make a decision on what method is best suited for you.
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Royalties. Royalty income is received from content, trademarks, or patents that you created. In order to receive royalties, you will need to create something. The most used methods to build royalties are creating music, writing books or articles, and recording videos. You can also create a patent on the idea. Someone would have to pay you to use your patent. You can read more in the article “How to Create Passive Income from Royalties”
Royalties require you to do the work mostly upfront. It will take some time to build an audience. You usually have to have multiple products in order to start the snowball effect of popularity. One of the drawbacks is that you will need to “put yourself out there.” In order to make money from royalties, most of the time you will have to put yourself in front of the public. However, there are ways to remain hidden from the spotlight. You could write as a ghostwriter or under a surname. You could create YouTube videos and music without showing your face. But, the real money comes when people know you and see you.
Most people do not want to entertain the idea of presenting themselves to the public. They say that public speaking is a fear greater than the fear of death. Yikes. So these methods are not for most people.
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Automation. Automation is the process of creating a business and removing yourself from the equation of running the business. You may have to assist the business from time to time, but you are not running it all day, every day. I will further break down this category into 3 separate sections- fully automated, outsourced, and hiring a manager. You can read more in the article “Automation and your new business.” For this article, I will use the concept of opening a laundry mat business.
Fully Automated. For a fully automated business, you are almost completely hands-off. If you had a software business, the robots (automation) would handle the sales, sending emails, some customer service, updating websites, checking and adjusting stock, etc… This will take some time to perfect, however, you start your business with this as the end goal.
For our business idea of the laundry mat, we would still have to travel to the laundry mat to pick up our coins. However, most of the day-to-day work is done by the laundry machines. We can have a phone number that people can call for maintenance. When the maintenance person is done, he can send an invoice that is automatically deducted from their bank account. We receive an email when the transaction is finalized. (I wonder if they make washing machines that take credit cards?)
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Out-Sourcing. Out-sourcing is the process of hiring someone else to conduct some of your business operations, usually in a different country. This could be customer service, research, personal assistant, and any task more complex than our robots can handle.
In our example of the laundry mat, we can out-source the task of picking up our coins and checking on our facility. It would have to be someone local, but we are further removing ourselves from the process of making the money. We are slowly working towards making our business passive.
Manager. Hiring a manager is the ultimate passive income idea. However, it literally comes at a huge cost. You will have to pay for your manager out of your profits. The residual business income will be completely passive. It is a good idea to build your business the way you prefer, and then hire someone who can run it just like you.
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Our single laundry mat probably doesn’t need a manager. However, when we want to expand to 4-6 laundry mats, we can hire a manager. All we need now is to collect our profits in the mail. Obviously, we would need to do taxes and stay on top of the business, but we can do all that from overseas.
Now to the big question, which one should you build first? Actually, that is a very hard question. I guess it is personality-driven. If you have something of interest to talk about, you can start with building royalties. If you have more business ideas, you can work towards building an automated business. Then you can create content based on how you built your automated business. It is a nice loop.
Don’t worry if you become a content creator first. You can eventually automate your content creation process as well. I hear about it all the time. As YouTubers become more popular, they out-source video editing and replying to mail and comments. Bloggers also hire ghostwriters so they can move on to other things but keep their brand alive. Music artists put their money on royalty-free websites and people pay to use their music in other content. They make their business royalty income passive.
The possibilities are wide-open for both methods. The key takeaway is that you NEED to start branching out into these forms of income. It is not going to be long before our “real” jobs start to become more automated or go away altogether.
Have Blog, Will Travel
I heard something profound the other day. “Creativity is the only thing that can’t be automated.” For instance, can laundry mats be monetized in different ways? Is there a way to make laundry mats cool or social hangouts? Can you put restaurants or skating rinks inside? There are more and more people moving into apartments, how do we leverage this to our advantage?
These are the questions that entrepreneurs ask. We need this creativity to survive and thrive in today’s world. Also, tomorrow’s world is already heading towards automation. We can either hire the robots, or the robots can hire us. Which way would you prefer?
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Disclosure: I am not a financial advisor or money manager, and any knowledge is given as guidance and not direct actionable investment advice. I am an Amazon Affiliate. Please research any investment vehicles that are being considered. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.
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