3 Most Common Online Business Models

Choose the Best Business Model for Your Idea

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3 Online Business Models. Copyright Gregor Schuster

Let’s say that you make the most amazing spaghetti sauce and your friends tell you that you should turn it into a business. What business model will you use?

“Well,” you say, “I’ll make a product and sell it.” This is one option, but certainly not the only one. 

Take the time to consider the best business model for your new idea and you will dramatically increase your odds of success.

What’s Your Business Model?

There are three basic business models for online businesses.

  1. Sell your product
  2. Sell your service
  3. Sell your information product

All of these models can benefit from an affiliate program. Check out these options for affiliate tracking software

Sell Your Product Online

Sell a product: This is probably the first model that comes to mind. Create a shippable, physical product and market it online. It could be sold via your own e-commerce storefront, an auction site, or as a third-party seller in an online mall (like Amazon) that sells products from different vendors.

Benefits to selling products online: Compared to selling from a physical location, there are several benefits to selling your goods online. First of all, customers can check out your product offering without having to go to your physical location (if you even have one). Customers get to see all of your options including things like customer reviews, ingredient lists, and related recipes or uses.

Videos and photos of your product in use and FAQ sections can give customers more information than they would ever have in a brick and mortar store.

Drawbacks to selling products online: You have to actually make something. And warehouse it. Then ship it. Physical goods can spoil and are time-consuming to produce, inventory and ship.

And then there are the returns. With physical goods, inventory control is a challenge. If you make too much and it spoils, you lose. If you make too little and you run out of stock, you lose potential sales and maybe clients who will look elsewhere for a more reliable supply.

There are 9 reasons to put your (offline) business online

Sell Your Service Online

Sell a service: Services are ideally suited for online sales. There are two basic ways services are sold online.

  1. Site as a Sales Tool: Offline business use their site as a sales tool for services delivered offline. Many offline businesses use the internet as a sales tool for their service. Their site serves as more of a company brochure than a storefront. You can find (and qualify) a carpenter, dentist or massage therapist all through their online presence. The one thing they have in common is that you physically receive all of these services.
  2. Site as a Storefront: Services are sold (and delivered) online: Examples of these services include web marketing, travel, and entertainment. All these items are sold and delivered via the vendors server.

Benefits to selling a service online: It can be much less expensive to capture leads and customers via a well built and marketed website than through traditional, offline methods.

Customers receive lots of information about your product and don’t have to travel to check out their options. Well built sites with lots of content will outperform weaker competitors every time. Regardless of if you use a brochure or storefront platform, this business model is faster and easier to setup than one selling physical goods. 

Drawbacks to selling a service online: There are high levels of competition - especially for specific keywords. If you are a plumber in Seattle, you might have a hard time ranking for the keyword “Seattle plumber”.  A Google search serves over 2.5 million results. Because of this, you’ll have to consider an aggressive content marketing plan. Read the Content Marketing for Dummies review for factors to consider. Because you generally don’t get the chance to establish an in-person relationship with your customer, an engaging blog with videos plays an important role in this business model.

Online Service Vendors: Streaming video, web hosting, email marketing, airline tickets, local offline service providers.

Sell Information Online

Sell information: This is the business model of choice for lifestyle-designers and internet marketers. When you sell products or services a bottleneck often develops. Business owners frequently hit a level of sales that they can’t grow beyond without changing their business - hiring more staff, buying more equipment, etc. With information products, you are limited only by the capacity of your web host’s server.

Products are almost exclusively delivered electronically and automatically. Payments and invoicing is automatically handled by your shopping cart and payment gateway. You can process one order per day just as easily as one thousand transactions.

Information sales can be broken into two categories.

  1. Downloadable Material: The most common downloadable material is an ebook. They range in price anywhere from $3.99 to $49.00 and up. Other downloadable material can include audio (MP3), video (MP4) and worksheets. The higher priced courses often include a combination of pdf and audio/video files.
  2. Membership Sites: These range from online access to newspapers/magazine to full blown training sites with video, audio and interactive forums all behind a membership gateway. These often bill monthly or annual membership fees. Sometimes they are set to automatically deliver a set amount of content to each new member - like course lessons - over a set period of time. The goal of this “drip” method is to avoid overwhelming new subscribers with too much content and to keep them paying for a longer period of time.

Benefits to selling information online: Many of these online service vendors provide ongoing information which means a recurring billing model. With monthly or annual billing, you’ll require a much lower number of clients to be successful. This business model requires very little maintenance time, once the product is actually created. Because of the scalable model, you can easily handle large numbers of buying clients without hitting the typical bottleneck that is common in product and service businesses.

Drawbacks to selling information online: Information vendors struggle with conveying the real value of their material. With so much free information available online, it is a challenge to convince someone to pay you for your content. Also, digital content is easy to copy and steal. You will need to think about how to protect your content - and how to handle the theft of it.

Tip for Selling Information Online

People aren't willing to pay for just any old information. Most frequently the material needs to solve a current, pending problem. Think along the “how to” line. If you know how to accomplish a difficult or confusing task, maybe this would be a good basis for an information product. Don't think that people will pay for information that resembles a typical blog post. Make sure that it is comprehensive and that it solves a real problem.

Examples of selling information products: GoDiaperFree.com  (Andrea Olson) OnlineVideoToolkit.com  (Jim Kukral) and Facebook Marketing Inner Circle (Mari Smith).

What Every Online Business Needs

Regardless of the business model you choose, you’ll need a content strategy. Without solid content on your site, you’ll never attract search engine traffic. And potential customers won’t have the information they need to make an informed purchase - so they probably won’t make one at all. What is Content Marketing?

Learn how to Use Content Marketing In Your Online Business

What Online Business Model Will You Choose?

So back to your delicious spaghetti recipe. What business model will you choose?

Sell a product: Your delicious spaghetti sauce could be produced in volume, packaged, warehoused and shipped to pasta lovers worldwide. You can offer a variety of bottle sizes (individual, family, party), flavors (meaty, spicy, organic) and styles (sauce only, with noodles, dry spice mix). You’ll need to either set up a factory or outsource the production. Either way, this is expensive. You’ll need to consider: payment gateway, drop shipper, manufacturing, claims, and returns.

Sell a service: Your special recipe could be the basis for an Italian-styled catering company. Using a brochure styled website you could market your catering business. Or you could offer in-house training to restaurants. Maybe you could offer personalized coaching to individuals who want to learn to cook an authentic and delicious spaghetti meal. Setup time and investment will likely be less complicated and less costly than with an actual physical product. It should be easier to differentiate your offering by selling a service.

Sell an information product: This is probably the least complicated (and thus the least stressful) option. You could write a simple ebook teaching the process and ingredients in your famous recipe. Or you could turn this into a full blown cooking membership site complete with videos and member forum. Your content can grow as your membership does. 

Check out: 21 Online Business Ideas