The Internet has changed a lot of people’s lives. These days it’s infinitely easier to start a business online than it is to build a brick and mortar one.
Creating an online business is a lot less capital intensive, and it has a much lower barrier to entry. Also, the return on your investment of time and/or money can be absolutely insane!
But what are all the different online business models that exist for people to choose from?
And which is the best one for you?
In this article, we’re going to take a look at which model you can leverage to create a fulfilling business that will help you achieve your goals such as time, money, or location freedom.
Each of these models is simple to follow, and you can use it to get started right now building a presence online that will fuel your business to success.
There are basically three business models that are commonly used online:
- Selling Physical Products
- Selling a Service
- Selling Digital Information Products
Which model best fits the vision you have?
Let’s take a closer look at each of them:
1. Selling Physical Products
This is the business model that comes to mind when most people think of starting a business online. You can create a physical product that is shippable and then sell it online.
You can sell it through your own eCommerce store or you can use auction sites. You can even list your products on third-party sites like Amazon and eBay.
There are a lot of benefits to selling such products online as compared to selling from physical locations. For instance, your customers can easily check out what you’re offering without having to go all the way to a physical location.
They get to see every option you have, and they have access to customer reviews, product specifications, videos, photos, FAQ sections, and much more. This gives them a lot more information than they’d probably have gotten from a physical store!
However, there are also some drawbacks to this type of business model.
For instance, when you sell physical products online, you actually have to:
- Create something
- Rent warehouse space to house it
- Ship it
- Replace damaged goods
- Deal with inventory
- Handle returns
- …the list goes on
All of this can be extremely time-consuming. And inventory control can be a nightmare because if you produce too much and some of your product spoils, you lose.
On the other hand, if you produce too little and run out, you lose out on potential sales and you’ll probably even lose customers who will go elsewhere where they will get a supply that is more reliable.
A different way of selling physical products online without having the hassle of producing, shipping, and so on is to use the drop-shipping model where you don’t keep goods in stock.
Instead, whenever you make a sale, you simply transfer the orders and shipment details to another retailer who then ships the products to the customer.
2. Selling a Service
Services are very well suited for online sales.
There are basically two ways you can sell services online:
One is by using your website as a marketing tool to sell services that you deliver in person. In such a case, your website will serve as more of a business brochure than an actual storefront.
For instance, if you’re searching for the best dentist in your area, you can find them (and qualify the person) through their presence online.
For those people whose services need to be delivered in person, this is a great way to generate leads for their business.
The second way you can sell services is by selling and delivering services online. This can be anything from web marketing, entertainment, and travel to health care and personal development.
All these services are sold to clients – and delivered to them – through the computer.
Customers get instant gratification when completing their purchases online, instead of having to make an appointment or wait to speak to someone.
Advantages of Selling Services Online
Selling a service is one of the quickest ways to start making money online.
It’s also a lot less costly to get customers and leads if you have a well-built and well-marketed site than it is to do it through the traditional offline marketing methods.
Also, customers get a lot of information about your product that helps them make their decision to buy, and they can easily check out all their options without having to travel anywhere.
A well-designed site with a lot of valuable content is going to outperform a weaker competitor every time.
Setting up this business model is much faster and easier than selling physical goods (regardless of whether you use the storefront or brochure platform).
Drawbacks of Selling Services Online
One of the main disadvantages of selling services online is that there is an extremely high level of competition, particularly when it comes to important keywords.
For example, if you’re a plumber from Arkansas, you might have a difficult time ranking your business for ‘Arkansas Plumber’.
If you perform a search for that term, you’ll be met with almost two million results.
Because of this, you may have to consider creating an extremely aggressive content marketing plan.
Since you typically don’t get the opportunity to establish in-person relationships with your potential customers, you absolutely need to have a blog that is engaging and filled with videos if you want to succeed with this type of business model.
Facebook advertising is a particularly effective way of promoting service-based businesses.
You can use geographic location to target your audience, as well as using targeted interests and demographic information.
Compared to most other advertising channels, Facebook is still very cost-effective and inexpensive for small businesses.
3. Selling Digital Information Products
This is the online business model of choice for Internet marketers and lifestyle entrepreneurs.
A lifestyle entrepreneur is someone who creates an online or physical business with the goal of changing their personal lifestyle.
Profits aren’t their sole purpose, but rather they consider the life rewards of doing what they’re doing. They have a passion for what they do, which usually helps in ensuring that the business does well.
When selling a physical product or a service, a bottleneck typically develops when business owners hit a level of sales that it’s impossible to grow beyond without them changing their business in some way.
For instance, they may have to hire more staff, buy more equipment, rent more space, etc.
But with information products, you never have that hassle that the majority of traditional businesses have such as overhead, employees, inventory, confinement to a single location, and so on.
The products are delivered electronically and, in most cases, automatically.
Your shopping cart and the payment gateway you use will automatically handle payments and invoicing. You can just as easily process a thousand transactions as you do a single order.
This business model can be separated into two categories:
You can sell things like ebooks, which are still extremely popular and range in price from just 99 cents to $49 and up.
Other types of downloadable material include audio, video, and worksheets. The higher priced courses that you find online typically include a combination of audio/video files and PDFs.
Since these products are delivered digitally, there aren’t any costs involved and you get profit margins that are insanely high on products of this nature.
These can range from online access to magazines and newspapers to training sites with audio and video content, and interactive forums, and so on. If you create a membership site, you can bill monthly, annually, or charge a lifetime membership fee.
These sites can be set to deliver a set amount of content to members automatically, such as course lessons over a period of a few weeks. This ‘drip’ method helps to prevent new members from getting overwhelmed by too much content. It also helps to keep them paying for a longer period of time.
Having a site where you charge members a monthly fee is a great way of creating stable, recurring income for your online business.
Advantages of Selling Informational Products
A lot of online service vendors offer ongoing information, so they have a recurring billing model.
With such a model, you require much fewer clients to be successful. Also, this business model needs very little maintenance and doesn’t take up a lot of time, once you’ve created the product.
It’s a scalable model, so you’ll be able to easily handle growing numbers of paying clients without hitting that bottleneck commonly experienced in product/service-based businesses.
Drawbacks of Selling Info Products Online
Most information sellers struggle with being able to convey their material’s real value to potential clients. There’s just so much free information available online already, and more being produced every day.
It’s a real challenge to convince people to pay for yours instead of searching for free alternatives.
Digital content is also notoriously easy to steal or copy.
If you choose this business model then you have to give serious thought to how you’re going to protect the content you produce – as well as how you’ll handle any theft of your information.
Selling Information Online
This is obviously the business model I’ve chosen to go with, but the truth is that people are not willing to pay their hard-earned dollars for just any information.
Your material needs to solve a problem they have or might have. So think along the lines of ‘how to’ when using this online business model.
If there’s a confusing or difficult task that you know how to accomplish, this is a great basis for an information product. People won’t pay for information that looks like a typical blog post.
Make sure that any information you intend to sell not only solves a real problem but also that it’s comprehensive and served in an attractive format that makes it easy to consume the information.
When it comes to selling information products online, the real secret to success is being able to write great website copy that compels your audience to take action. To be truly successful with this business model, you need to master copywriting.
In fact, this is a skill you should hone no matter what type of business you have.
Which Model is The Best One for You?
Each of the online business models we discussed above gives you the opportunity to make six or even seven figures with your online career.
Your choice might be based on whether you’re just starting out in digital business and you want the easiest model to implement, or you could base it on how quickly you want to start making an income from your business.
You might choose a model for its scalability so you can grow your online business easily without having to sacrifice even more of your time and energy.
Either way, consider all the pros and cons of each model before deciding what will work best for you.
And while each of these models can be incredibly lucrative on their own, you can also combine them to create a hybrid model that could prove to be even more profitable.
Here’s an example of how you can use all three models in one business:
Say you had a great recipe for pasta sauce. You could create the physical product and sell it online. You can then sell your services offering coaching to individuals who want to learn how to make authentic pasta meals, or offering in-house training to restaurants, and so on.
Your next step would be to set up an information product in the form of, say, an e-book on how to make delicious sauces, or you could create a membership site to teach people how to cook and grow your content as your site grows.
The Bottom Line
As you can see, the options are endless. You just need to pick one and start from there.
And remember, if you want to avoid having to deal with the manufacturing, shipping, storage, etc. associated with physical products and if you also don’t want to offer services, then you can try a different form of business that is becoming increasingly popular online: Affiliate Marketing.
So get out there and get started building your new online business around the model that is best for you so you can start making a real income online.
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Updated: Originally published April 2nd 2019