Business Model – How to Make Money Online
There are a number of things to consider when you decide that you want to work online from home. Finding a good marketing niche is one of them, and we previously discussed how you might go about doing that. Once you decide what your site and business is going to be about, you need to decide on a business model. If the marketing niche is the “what” of making money online, then the business model is the “how.” It represents the process that you’re going to use in order to generate revenue on your Website. Needless to say, choosing a business model is an important step in creating your online business and there is no right, wrong or “best” way to do it. Each method has its pros and cons and you need to find a business model that works best for you and your chosen marketing niche.
We’ll take a look at a few of the different options that are available and give you an overview of the advantages and drawbacks of using that particular business model.
Direct Retail Business Model
Selling physical products at retail – Selling retail products, packaging them, and shipping them to your customers is the oldest and the most traditional way of doing business. You will be, in essence, operating an online store. When someone buys one of your products, you will need to put the product in a box and mail it to them. There are some good reasons to use this business model including the fact that it’s one that most everyone understands right away. You list something for sale on your Website, someone buys it, and you send it to them. That’s pretty straightforward. On the downside, there are some issues to consider – do you have space to store merchandise? If not, where are you going to keep your inventory? There are companies that offer dropshipping, and they will warehouse merchandise for you and ship it to your customer. All you have to do is pay them the wholesale price and provide the name of the recipient. There are fees for dropshipping services, but it’s the best way to run a retail business from your home. The downside of dropshipping is that you’re buying from a large wholesaler who will be selling the same merchandise to lots of other retailers, so you’ll have lots of competition. A good workaround to that is to sell unique merchandise, and while that method is outside the scope of this site, we can recommend a great book on building an online store. While selling at direct retail is a well-established business model, it can be a lot more work than most people want to do, and there are ways of making money online that don’t involve packing and shipping merchandise.
Affiliate Marketing Business Model
A great alternative to selling items directly would be to use a business model known as affiliate marketing. Affiliate marketing is a system where you don’t sell products directly, but instead recommend someone else’s products to your customers. In the online world, this is usually done by putting a link to the Website of the product’s seller on your own Web page. This special link will identify you personally, so if a visitor to your Website clicks on the link, goes to the seller’s site and makes a purchase, you will receive credit for the sale. You won’t get all of the money, of course, but in affiliate marketing, you will receive a commission.
The beauty of the affiliate marketing business model is that you don’t have to touch any merchandise yourself. There’s no creating or manufacturing of products, no warehousing and no shipping. How much do you get for referring a customer? That varies, depending on the product and the seller. Commissions for physical products, such as those sold at Amazon, are somewhat low, and can vary from 4%-8% of the purchase price. That can add up over time, however, as some Amazon products cost thousands of dollars. Commissions are higher for non-physical products, and that’s why a lot of people who want to work online from home prefer to work as affiliates for information products. These may include ebooks, video courses and more, and the products are usually downloadable, rather than something that needs to be shipped. Even though they aren’t physical products, information products can still sell for a lot of money, sometimes hundreds or thousands of dollars, yet commissions are higher. In fact, sometimes, commissions for affiliates for downloadable products can be as much as 75% of the sales price. A great place to find information products to promote is a site called Clickbank. We’ll discuss Clickbank further in an upcoming post.
How do you become an affiliate? You can use your favorite search engine and type in the type of product you’re looking for, followed by the word “affiliate”. Many large companies have affiliate programs and they’re usually free to join. We mentioned Amazon, but there are literally thousands of companies that have affiliate programs. Most of them will even offer information about how you can go about promoting their products and they may even supply ads or banners that you can use on your Website. They’ll also provide the special links you need to put on your site in order to get credit for the sale.
The License Business Model
We’re not going to dwell on the license model at length, but we include it here in our discussion because it’s quite popular right now, thanks to programs such as MOBE (also known as My Top Tier Business) and Income Society. While this model works like an affiliate marketing business, the products are high-priced ($1000-$20,000) “licenses” that allow you to earn huge commissions when you persuade others to buy those same licenses. There aren’t any products to speak of; the licenses are the products. In many countries, this business model is also known as a “pyramid scheme” as there really isn’t any business taking place and sooner or later, you’ll run out of people to buy licenses from you. We don’t recommend this business model, but the sales pages make it sound quite appealing as the commissions from the sales can be in the thousands of dollars. The downside is that it’s quite difficult to persuade someone to part with thousands of dollars to buy a license, especially when you tell them that they must then themselves persuade others to do the same or they won’t make any money. Most people who participate in a license model program earn nothing!
By far, the most popular business model for those who want to work online from home is to go with affiliate marketing and to promote information products. These can be one-time purchases, such as a downloadable ebook or something with a recurring commission such as a membership Website that charges customers a monthly subscription fee. The beauty of this model is that information products are relatively easy to promote, the customers can download them and get access to them immediately, and the commissions are a fairly large percentage of the sales price. We think that the affiliate marketing business model, when used to promote information products, represents the easiest way for a newbie to get started making money online.
Of course, if you have a great physical product to sell, you should go that route. It’s also possible to have a hybrid business model where your main product may be physical sales, but you may also promote some related information products. There aren’t any hard and fast rules to making money online; you simply have to find what works best for you.
To learn more about choosing a business model and making money online, I recommend Wealthy Affiliate. This training program offers in-depth training, a helpful user forum, great tools and even free Web hosting. You can join Wealthy Affiliate for free.