When I first started my online business I wasn’t too concerned about the work I had to put in to make it work. I just wanted to be able to quit my job and work from home or wherever I wanted to. I wanted cashflow. If I had to answer all of the support questions all day long and design all of my sites, I would do it. After all, I needed to build my systems, test my ideas and tweak everything as I went along. Once I had the cashflow, I quit my job (now over 11 years ago) and we have been refining our systems ever since.
More time freedom = less moving parts in your business
Elimination, streamlining and automation. These three things have been my goal for the past number of years. Reduce the number of moving parts in our business to allow for even more time freedom. Today it’s all different. Now I hire designers, virtual assistants, writers, etc. which covers most of the daily tasks. But it’s still not 100% passive income. There’s still a business to run. The bottom line is, if you own a business there is still going to be a number of moving parts. It usually still requires your day-to-day involvement. But there is a different business model. This other model can be used to remove all of your day-to-day operations entirely. This model is called – “licensing.”
Most of you probably haven’t noticed yet, but we’ve been quietly shifting our business over to a licensing model. The licensing model is simply this… you own an asset (in this case digital assets – ebooks, videos, software, etc.) and you license someone else to sell it and you collect the royalty. In other words, you don’t deal with the front end sales. You only deal with the creation or acquisition of the asset.
One author stated it perfectly when he said, “own the trains and let someone else make sure they run on time.” Naturally the train refers to your asset. If the asset was an investment property you would own it and have a property manager make sure everything is taken care of. If you’ve written a book you could have a publisher make sure this train runs on time (orders are filled, customers taken care of).
To me, licensing is the true path to 100% passive income. It doesn’t require my involvement (apart from any marketing activities) once the product/asset has been created and licensed out.
Licensing Vs owning a business
One of the best examples of licensing is Hollywood. If you think of a film maker or actor, they create the content (a movie) and then that movie is licensed out to distribution companies, video on demand – such as Netflix, iTunes, etc. You won’t see the actor in the DVD store serving customers or in the theater selling tickets and popcorn. Their job is to create or help create the content/asset.
Another great example are bestselling authors. You won’t find JK Rowling or Steven King taking orders and shipping books to customers, or checking for lost orders, etc. Nope, they just get a royalty check (a very big royalty check).
Let’s look at the advantages and disadvantages of licensing Vs owning a business
- No sites to design or maintain
- No advertising expenses
- Very little business expenses
- You can focus on creation and leave everything else (sometimes even the marketing) to someone else. That someone else can oftentimes do a better job than you (for example – Amazon)
- Almost 100% passive income
- No involvement in the administration and day-to-day operations
- Almost no moving parts
- Total time freedom
- You give up a lot of control
- It can be a bit slower building your list (as not all customers will end up on your list). You actually won’t have customers, they will be someone else’s customers. You instead will have fans.
- Your initial profits can be smaller – you will only be getting a royalty, and splitting the rest with the seller/licensee of your asset. Naturally you won’t have the same expenses, if any. So although your gross profit is smaller your nett profit may not be that much different.
- You retain more control
- Can build your list fast as all customers are your customers and on your list
- Potentially make a higher nett profit
- Is easier to track advertising
- Usually requires your day-to-day involvement (even if you use outsources and support people, you still have to monitor things)
- Expenses: You have to pay your support people, etc. even if you’re not making any sales.
- Maintenance: You’ll need to maintain your sites or contract someone to maintain them.
- Administration: You’ll have a lot more bookkeeping work and require more cashflow management
- Customer support: You or your support team are responsible for making sure orders are filled, customers can login, customers’ questions are answered, etc. (most people over look this as a major business and time expense)
Now you might be thinking you can outsource a lot of the day-to-day stuff, and for the most part you can. But ultimately if someone does something wrong or doesn’t do their job, you and your business have to pick up the slack. And I can tell you from experience it will happen from time to time. With outsourcing you can get close to the licensing model, but not all the way.
The reason I’m moving over to full licensing is because of all the advantages listed above. I want the extra freedom to develop and work on other projects (like our upcoming feature film project and other books). I also want to focus a lot more on this blog.
How I plan to license out all of my products and how you can do the same
So the question is why didn’t I just start with licensing instead of a business? For two reasons: 1. I knew I would have a higher cashflow in the beginning and would grow my list faster. 2. It was harder to license products when I first started out online. You usually had to work hard to try and sell your product’s license. It’s a lot easier to license now. There are so many platforms available that anyone can license their product. Providing you maintain a decent degree of product quality you are guaranteed to get distribution.
The two main sites I’ll be using for my licensing platform will be…
- Amazon.com (both the retails section and Kindle books).
- Udemy.com A number of my membership sites will be moved over to Udemy. I’ve already started moving Bloggers Creed over to them (you can check it out here).
I will keep some of my membership sites and still sell on ebay and Clickbank (ClickBank technically falls under licensing, as you license them as a reseller, but because you have to deal with building the site and customer support, I don’t count it under the true licensing model). But my other sites will be gradually shifted over to one of the above.
With regards to Amazon, I will convert the membership sites into DVD courses (something we’re already in the process of doing) and also have them in digital format on Udemy.com
The great thing about this model is that anyone can now do the same. You can list your content on the same platform as me or any other product developer. It’s a much more equal playing field. You no longer have to beg or hard sell to get distribution – and the royalty payments are the lion’s share!
Let me know what you think in the comments below? Do you think I missed any advantage or disadvantage points on the list above?