Digital products – Why they are a great source of Passive Income

One of the absolute best sources of passive income is digital products. There’s an initial investment in making the product, paying for website hosting, and getting it all set up. However, after that, it’s largely a super passive source of income. Today I’m going to go over all the reasons I think Digital Products are in the top 5 of my passive income ideas.

Personally, I sell digital sheet music, tabs, and music e-books. I must say it is a great feeling when I’m out somewhere, no matter the day, and I get that email notification that I sold a digital product.

Digital products – One of the best sources of passive income

Advantages of Digital Products

  1. Infinite Supply
  2. Small Initial investment
  3. Better for the Environment
  4. The entire world is your marketplace
  5. You don’t have to physically store the product
  6. Insane Profit Margin
  7. Low overhead

Infinite Supply

With Digital Products you don’t ever have to worry about running out of inventory. You’ll never worry about, “Did I order enough?” You upload it onto your website and it is there forever.

Small Initial Investment

You’ll need something to create your digital product with (computer/phone/software/etc). On the other hand, you won’t have to buy a whole bunch of capital-intensive equipment.

Better for the Environment

Overall, digital products are better for the environment. I’ll give you an example for my world of music. Most of my bandmates are bringing their ipads or tablets to gigs now and are reading the music off of those. They no longer print out music, wasting valuable resources. Imagine how much paper and printer fluid a 200 page e-book would use.

The World is your Marketplace

With Digital products, the world is your marketplace. You no longer depend on whether someone walks by your local shopfront. You can put your product in the path of millions of people. Where you used to only have a few thousand people that were your potential customers, now that has been seriously multiplied.

No physical storage needed

You don’t have to worry about running out of room at your house or business. The only thing you’ll need is ample hard drive space. Large Hard Drives with Terabytes of storage are pretty cheap these days! Always keep backup copies. Always backup your website.

Insane Profit Margin

Once the product is up, the profit margin on digital products is insane. Besides the fees you pay for your website, hosting, whatever online store-front you use, there are no costs. There is nothing else you will find that has such high profit margins.

Low Overhead

You don’t have to pay a bunch of extra utility bills to have a place to host your products. All you are out is the price of a domain, website hosting, and whatever online shop front solution you use (some are free!). I’ll talk about that more below.

Cons to Digital Products

  • Not as passive as dividends and interest
  • You still have to answer customer questions and do support
  • You need a funnel to drive traffic
  • Initial investment of time and money
  • Lack of real customer interaction
  • Price per item
  • No way to know 100% what the customer will want/like

Not 100% passive

It’s true, digital products aren’t 100% passive. At the same time, once you get the ball rolling, very little time is involved. It sure beats all the work you are doing in your normal job.

Customer support and help

You will deal with customers. It won’t be a regular thing, most will buy the product and you’ll never hear from them unless you reach out yourself. However, there are some people that aren’t tech savvy, and they will make mistakes when downloading your product. They’ll require additional service.

Funnel to drive traffic

This is where I give it to you straight. Many will tell you-just put up a website, post the products, and the money will come rolling in. That’s hilarious and out of touch with reality. You have to get your product in front of people. There are a number of ways to do that-via social media, Search Engine Optimization, paid advertisement, and more. It’s going to take time to get yourself out there. I recommend starting a YouTube or TikTok channel, I’ve posted my advice for both.

Initial Investment

As the old saying goes, “You have to spend money to make money.” It’s true in this case. To sell digital products you’ll need a domain name ($10-12), a website hosting company ($9-20 a month), and whatever shop front you wish to use. I personally just use Easy Digital Downloads linked to a paypal account and that is 100% free. Using my setup, the initial investment is less than $150 a year.

Customer Interaction

I’ve sold things online, ran online channels for years. Perhaps this is a weird thing to say, but it can be a bit “lonely” from time to time. You’ll go through periods where you will make lots of sales but not really even know who your customer is. They won’t reach out to you and if you reach out to them, they won’t really say much. In a real life sale, you’d at least feel like you knew your customer a bit more. This is certainly not the case in every niche. However, if all you are doing is selling e-books or downloads, it can be the case. You have to put a lot of effort in if you want to develop those customer relationships.

Price per item

If you are only charging $1.00 per download, it will take forever to generate any serious income from it. Not to mention, most payment methods take their cut. In my case, I charge anywhere from $3 to $8 per digital download. One of the ways I got around this was bundling content together and up selling customers products. It depends on how you want to do it. You could try to VOLUME sell your way out. In other words, just create a ton of products, eventually it will add up.

Customer Interests are unpredictable

You can do all the research you want before creating your product. However, the customer may still not buy what you’re offering. Products can literally be a game of hit or miss in the beginning. I have stuff that went over huge that I NEVER thought would do so well. I also have digital products that I’ve barely sold any of after five years. My advice-put up materials and see what people like, use that to inform the next thing you create. It’s market research in real time and what has worked best for me.

Closing thoughts

I hope you enjoyed this article on Digital Products. I truly wished I had concentrated more on Digital Products when I first began my Passive Income journey. They present one of the best investments you can make when compared to some of the other options out there. It may take a year or more to get the ball rolling, but once it does, you’ll have yet another source of cash flow!

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