A growing number of people are making money off of the gig economy. According to recent figures, around 36% of the workforce is making a living offering various freelancing services. It is easy to see the appeal of freelancing, but making money through an online passive income business can be preferable for many people.

You can make a lot of money of money from passive income businesses like running a website that generates revenue from AdSense and affiliate offers, like this 27-year-old millionaire. On the other hand, this path isn’t for the faint of heart.

I have met at least a dozen freelance writers, web developers, linguists, musicians, computer programmers and editors that wanted to turn to a passive income ideas instead. Some of them were glad to make the transition after making a massive amount of money, while others lost a lot of money and abandoned the idea after failing to make any progress.

You need to understand the pros and cons before pivoting from freelancing to creating a passive income business.

What are the benefits of creating a passive income business over freelancing?

There are a number of reasons that many people prefer making money through passive income to freelancing or holding a day job. Here are a few.

Your revenue can be much more scalable

When you are making money freelancing, you are trading time for money. You can either try to increase your revenue by charging higher fees or completing work more quickly (assuming you are billing on a piecemeal basis, rather than charging by the hour). Unfortunately, you will experience diminishing returns from either of these approaches.

This is one of the main appeals of making money three passive income. The amount of money that you can make is virtually limitless once you come up with a great system.

You have more flexibility with working hours

Freelancers understand the pressure of deadlines. They have to be available to their clients at inconvenient hours and often need to work for extended periods to meet timetables.

This isn’t a concern with most passive income businesses. You can work at your own pace and take time off as you need it.

You have a lot more control over your business model

Many freelancers don’t like many aspects of their careers. They are paid to do whatever their clients tell them, which can involve a lot of monotonous and unpleasant work.

When you create a passive income business, you have a lot more control. You can design your business model, so that you can spend your time doing more interesting things.

You don’t have to feel guilty about taking vacations

There is an opportunity cost with taking vacations as a freelancer. You don’t get paid leave, so taking a vacation means you have to leave money on the table. That isn’t as much of a concern with passive income businesses. You’ll keep earning money, even when you take a week or two off.

Drawbacks of passive income businesses

There are countless benefits of running a passive income business. Unfortunately, there are also a number of frustrations that you will need to deal with as well. A few of them are listed below.

You can take a long time to generate revenue

I first started freelancing when I was in California. It took me just two weeks to start generating revenue, which was great considering I needed immediate money. Sadly, it is very unlikely that you’ll make money back quickly with a passive income business. It can take several months or even a couple of years before you start consistently generating revenue.

You could lose a lot of money in startup costs and ongoing expenses

Many passive income businesses have a lot of expenses. You might need to invest in paying for web hosting, SEO, paying people to create content, testing advertising networks, paying to build relationships with suppliers and other variables. You won’t need to spend as much money to build a business online, but there will still be a large investment.

You need to be able to adapt to competition

Passive income businesses tend to be much more competitive than typical freelancing services. If you are in a competitive vertical, you will need to have an aggressive strategy to get traction. You aren’t going to be able to pull that off just by being nice. You need to be willing to be a bit ruthless to avoid losing money to competitors.

Is a Passive Income Business for You?

There are a lot of great reasons to consider running a passive income business. Unfortunately, it isn’t for everyone. There is also a lot of risk involved, so make sure you are ready to handle it before abandoning your freelancing gig.

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Ryan Kidman is a startup-investor and serial entrepreneur. Founder of Catalyst For Business and contributor to search giants like Yahoo Finance, MSN. He is passionate about blogging and covering topics like big data, business intelligence, startups & entrepreneurship. Follow him on twitter: @ryankhgb

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