During my travels, I’ve crossed paths with many remarkable people living unconventional lifestyles of freedom made possible by running scalable online business models.
Doing business online means fewer startup costs and a lower barrier to entry. There’s a chance to make a great return on investment since online business models are often highly scalable.
Creating an online business was a game changer for me. Through implementing the models in this article, I’ve been able to escape office life and travel the world working from my laptop. My biggest regret? That I didn’t start earlier. I just wish I’d known my options.
That’s where this post comes in. We’re going to cover the best scalable online business models for beginners that can earn you your freedom.
- What is a Scalable Business Model?
- The Best Online Business Models
- Hybrid Models
- Considerations When Choosing a Business Model
- Steps to Embark on Your Online Business Journey
- Future Trends and Innovations in Online Business
- Frequently Asked Questions About Online Business Models
- Resources and Tools for Building Your Online Business
- Parting Words
What is a Scalable Business Model?
An online business model is a way doing business that utilizes the internet and digital technologies to reach and engage customers in order to sell products and services online. This can include things like using digital marketing techniques to generate traffic and leads, or creating a website or online presence that helps people learn more about your company and what you offer.
Scalability refers to the ability to exponentially serve more customers without incurring exponentially increasing operational costs. Revenues greatly outpace expenses. Scalable businesses actually become more efficient and profitable over time.
The Best Online Business Models
There are many different online business models, but they all share a common goal: to make money by providing a product or service online and doing so in a scalable way.
The following is a brief overview of the business models myself as well as my friends and colleagues have used to build their online businesses and quit their jobs.
Digital Information Product
This is one of the easiest online business models to get started with, and also the one I used to make my first dollar online.
The internet is flooded with low quality information. Sort through it, create informative content around an in-demand topic, package it for sale and you have yourself a digital information product business.
The information you provide may itself be highly valuable, but customers often pay just for the convenience factor. The act of curating and synthesizing information and presenting it in an easy-to-understand format can save others a pile of time. If someone has a time shortage as opposed to a money shortage, they’re often more than happy to pay to have their hand held through a process.
Since the products are digital, you can create something once and get paid over and over for it. Sure, it takes some work to create but once it’s set up, you can automate delivery and scale it to infinity.
In my last business, it took me 150+ hours to put together a package of mnemonic devices for memorizing vocabulary words. They were animated and packaged in a bundle along with other worksheets, information and tools. Coming up with this product took tons of work and I remember being ready to pull my hair out by the end of it, doubting if it was all worth it. But in the first year alone, this simple product generated the business an additional revenue of $9500 just by adding it on as an optional add-on item at checkout.
$9500 / 150 hours = $63.3 / hour
Nothing to go crazy about, but still made me feel better about all those hours I sunk into it.
But keep in mind that was the first year alone.
If the product only continues to perform at the same rate, it will generate nearly $30000 in additional for the business within three years. That would bump the hourly rate up to $189.90. But what’s more likely is that sales will only continue to grow. Traffic numbers are increasing, and the product can be marketed and sold in new ways.
Find a problem to solve and do the hard work for others. People will be happy to pay for it.
Here are some common formats of information products:
- Online courses
- Cheat sheets
- Live event recordings
- Audio products
Out of all the online business models, this one may just be my favorite.
Memberships provide a regular, reliable recurring income. Instead of selling one-off products, you collect subscription fees from members who pay for ongoing access to the site. Revenue quickly scales as you add more members.
A membership is often just a gated section of your website that only subscribing members are able to access.
It’s essentially a resource hub with all the information one would need under one roof. There’s often an online community or forum aspect as well for members to chat with each other.
With this model, you get to choose the type of information you provide and how often it’s delivered.
Common elements in memberships include:
- Member calls
Affiliate marketing involves simply recommending valuable products or services to potential customers by linking to them online.
The link clicks are tracked, and you get paid a commission when someone makes a purchase or takes a desired action through your link.
Affiliate links can be shared on social media, through email, on your website or anywhere else you can think of.
Entire businesses are built around writing blog posts or creating video reviews discussing the pros and cons of products.
The more trustworthy you are, the more customers will buy from you. Build an audience, recommend products you truly believe in and the money will follow.
Here are some examples of sites that generate their revenue through affiliate marketing:
Ecommerce involves selling items through an online retail store.
You find or create a physical product, find a place to store and fulfill orders for that product, create a storefront, and promote your store online.
You can do all of this through your own website or you can use Amazon FBA (Fulfillment by Amazon).
If you go the Amazon route, your storefront is an Amazon listing. You pay a monthly fee and a percentage of sales, and Amazon takes care of fulfillment.
This is often the easiest way to get started with ecommerce since you can take advantage of Amazon’s built in traffic and promotions.
Dropshipping is like ecommerce except the supplier ships the product directly to the customer after a sale is made.
Since you’re not responsible for the fulfillment, all you do is cover the marketing and customer service. There are less moving parts.
This model eliminates the need to pre-purchase products or worry about inventory management.
Dropshipping can be a great way to break into the ecommerce game or test out new product ideas since there’s less risk.
Online, you’ll often hear success stories of dropshippers doing incredibly high numbers, but keep in mind that margins are really low with this model. Typical take home is less than 2% of revenue.
But despite that and the fact that this space has become quite saturated, there still is big money to be made if you play your cards right.
If you’re not a developer, apps and software are often the most capital intensive online business models to start up. But they can also be extremely lucrative.
Software products can be used to automatically provide a service or fulfill the needs of individuals or small businesses. These are called SaaS products (software as a service). If your software solves a real problem, customers or businesses are willing to pay a subscription or license fee to access it.
Payment models commonly include freemium, free trials and recurring subscriptions.
While freelancing is often a great way to start your own business, it’s not scalable. There is only so much time in a day, so your income is capped to how much work you’re able to complete.
With this online business model, you can solve that.
A productized service is a done-for-you model that provides a service to a customer at scale. The focus is on solving one well-defined problem for a customer in a systematic way.
It’s essentially a service that’s been turned into a packaged product. The customer can just click a Buy Now button on the website and be off to the races.
It’s similar to an agency but with more focus on systems and standardization of the work. Since the deliverable is highly specific, a productized service business can easily scale by building teams to follow procedure and complete the work.
In the ever-changing landscape of online business, one size doesn’t always fit all. For some entrepreneurs, the key to success lies in creating a unique blend of the models we’ve discussed so far. By weaving together different strategies, they can cater to multiple facets of the market or provide a more comprehensive solution to their audience. These are the hybrid models.
Hybrid models often emerge from the need to innovate or adapt to a particular market condition. They may combine elements of subscriptions, ecommerce, affiliate marketing, or other models to create a versatile and robust business system.
Let’s explore some examples to understand how hybrid models function:
Subscription Box with Affiliate Marketing
Subscription boxes have become a popular ecommerce trend, with many companies offering curated selections of products delivered to your doorstep. Some entrepreneurs have innovatively combined this model with affiliate marketing. They collaborate with other brands to include samples or products in their boxes, earning commission from any subsequent sales.
Inspiration: Birchbox | birchbox.com
Digital Product with Membership Community
Creating a digital product like an online course is valuable, but some creators take it a step further by incorporating a membership community. This allows them to provide continuous support, updates, and networking opportunities, fostering a sense of belonging and ongoing value to the customers.
Inspiration: The Six Figure Home Studio | thesixfigurehomestudio.com
SaaS with Productized Service
Some software companies recognize that not all customers have the time or expertise to utilize their tools to the fullest. By offering a productized service alongside the software, they help customers with specific tasks, combining automation with human expertise.
Inspiration: Kajabi | kajabi.com
Dropshipping with Content Marketing and Affiliate Links
In this model, a business may operate a dropshipping store while also running a blog or YouTube channel full of valuable content. Within this content, they might include affiliate links to products they don’t sell but are relevant to their audience, earning commission on those sales.
Inspiration: Luxx Health | luxxhealth.com
The power of hybrid models lies in their flexibility and adaptability. They allow entrepreneurs to tap into different revenue streams, cater to diverse customer needs, and stand out in the competitive online marketplace. By thinking outside the box and combining proven strategies, hybrid models demonstrate the endless possibilities of online business innovation. Whether you’re starting anew or looking to enhance your existing business, considering a hybrid approach might just be the key to your next level of success.
Considerations When Choosing a Business Model
Choosing the right online business model is not merely a matter of picking one from a list. It’s a strategic decision that involves understanding various dynamics and aligning them with your vision and resources. Here are some essential considerations that you should take into account when selecting the model that best fits your entrepreneurial endeavor:
Understanding your target audience is crucial to your business’s success. Who are you serving? What are their needs, preferences, and pain points? Tailoring your business model to match your audience’s specific desires will increase engagement and loyalty, ensuring that your offerings resonate with those you aim to serve.
Competition and Market Analysis
Before diving into a business venture, it’s vital to analyze the competition and the broader market landscape. What’s already out there? Where can you fit in, or better yet, stand out? Understanding your competitors’ strengths and weaknesses can help you carve out a unique space for your business, positioning it for success in a crowded marketplace.
Legal and Regulatory Compliance
Every business model comes with its legal and regulatory obligations. Whether it’s intellectual property considerations, licensing, data protection, or consumer laws, you must ensure that your business aligns with the relevant legal frameworks. Consultation with legal professionals can help you navigate this complex terrain, minimizing risks and potential roadblocks down the line.
Technology and Infrastructure Requirements
The technology that powers your business must be in sync with the model you choose. Whether it’s a robust ecommerce platform, a content delivery system for digital products, or specialized software for SaaS, understanding your technology needs is essential. Moreover, considering the infrastructure requirements, scalability, and potential integrations is key to ensuring smooth operations and future growth.
Funding and Revenue Streams
Last but certainly not least, your business model must align with your financial capabilities and goals. How will you fund the initial setup and ongoing operations? What are the potential revenue streams, and how do they align with your growth objectives? Understanding the financial dynamics of your chosen model helps you create a sustainable business that can thrive in the long term.
Selecting the right business model is not a one-size-fits-all decision. It requires a holistic view of various elements and a thoughtful alignment with your unique business aspirations.
Steps to Embark on Your Online Business Journey
No matter which model you choose, embarking on your online business journey requires careful planning and execution. Here’s a breakdown of the key steps you should take to ensure a smooth start:
1. Secure Your Domain Name
Before anything else, you must choose and secure a domain name that represents your brand. This is the web address where visitors can find your site, so it should be memorable and relevant to your business. Platforms like GoDaddy or Namecheap can help you find and register your perfect domain name.
2. Build a Professional Website or Online Store
Your website is the face of your online business, so it needs to be professional and easy to navigate. Whether you’re selling products, offering services, or providing valuable information, your site should reflect your brand and make it simple for visitors to find what they’re looking for. Platforms like WordPress, Shopify, or Squarespace offer customizable templates to create a site that suits your needs.
3. Develop a Comprehensive Marketing Strategy
To reach your target audience and drive traffic to your site, you’ll need a robust marketing strategy. This might include social media advertising, search engine optimization (SEO), content marketing, and email campaigns. Understanding your audience and tailoring your marketing efforts to their interests and needs will help you attract and retain customers.
4. Implement Secure Payment Processing
If your business involves selling products or services, you’ll need a secure and efficient way to process payments. Various payment gateways like PayPal, Stripe, or Square offer easy integration with your online store. Ensuring a smooth and safe checkout experience builds trust with your customers.
5. Establish Efficient Order Fulfillment
Timely and accurate order fulfillment is vital for customer satisfaction. Whether you’re shipping physical products, delivering digital downloads, or scheduling services, you must have systems in place to handle orders quickly and efficiently. Consider leveraging fulfillment services or implementing reliable in-house processes.
6. Ensure Legal Compliance and Data Security
Depending on your business model and location, there may be legal and regulatory considerations. Ensuring that your business complies with relevant laws, including data protection regulations, is crucial. Consulting with legal professionals can provide guidance tailored to your specific business.
7. Monitor and Analyze Performance
Continuous monitoring and analysis of your website’s performance and your marketing efforts allow you to make informed decisions and improvements. Tools like Google Analytics can provide insights into user behavior, traffic sources, and more, helping you optimize for success.
By taking these foundational steps, you’ll position your online business for a strong start. Creating a professional online presence, developing a targeted marketing strategy, and implementing efficient systems will help you connect with your audience and provide them with a seamless experience. Remember, ongoing learning and adaptation are part of the entrepreneurial journey, so be prepared to grow and evolve with your business.
Future Trends and Innovations in Online Business
The landscape of online business is ever-changing, influenced by technological advancements and global economic factors. Staying ahead of the curve requires an awareness of the emerging trends that could shape your industry. Here are some key areas to keep an eye on:
- Emerging Business Models: As technology evolves, new online business models are continually being developed. Subscription box services, virtual reality experiences, AI-driven personalization, and sustainability-focused businesses are examples of recent innovations. Staying on top of these trends allows you to adapt and potentially find new niches or opportunities.
- Technological Advancements: Advancements in artificial intelligence, blockchain, 5G, and other technologies are revolutionizing the way businesses operate online. These technologies can enhance customer experience, improve security, and open up new possibilities for product and service delivery. Investing in understanding and possibly integrating these technologies could give your business a competitive edge.
- Global Economic Factors: The online business landscape is not isolated from the global economy. Factors such as trade policies, currency fluctuations, and international regulations can impact your business, especially if you operate or sell across borders. Keeping an eye on these factors and being prepared to adapt your strategies accordingly is essential.
- Focus on Sustainability and Social Responsibility: More consumers are considering the environmental and social impact of their purchases. Businesses that can demonstrate a commitment to sustainability, ethical practices, and community engagement may find a competitive advantage in an increasingly conscious market.
- Personalization and Customer Experience: The ability to provide personalized experiences through data analytics and AI is becoming a standard expectation. Customers value businesses that understand their needs and preferences, and they are willing to engage more with brands that offer tailored experiences.
- Remote Work and Collaboration Tools: The shift towards remote work has prompted a surge in collaboration and productivity tools. Businesses that can leverage these tools effectively may find new ways to work efficiently, manage teams, and serve customers.
By keeping a finger on the pulse of these trends and innovations, you position your business to adapt, innovate, and thrive in a dynamic online marketplace.
Frequently Asked Questions About Online Business Models
What is an online business model?
An online business model refers to a specific plan or approach for generating revenue through internet-based activities. This might include 1) e-commerce, where products are sold directly to consumers, 2) affiliate marketing, where revenue is earned by promoting other companies’ products, 3) subscription services, 4) digital advertising, or a combination of these and other methods. Different models suit different types of products and target audiences.
What are the 4 types of business models?
The four general types of business models include 1) the Manufacturer model, producing goods from raw materials, 2) the Distributor model, buying products from manufacturers and selling them, 3) the Retailer model, obtaining products from distributors to sell to consumers, and 4) the Franchise model, where a business licenses its idea to franchisees. Different industries might utilize or combine these in various ways.
What are the six Internet business models?
The six common Internet business models are: 1) Business-to-Consumer (B2C), where businesses sell directly to consumers, 2) Business-to-Business (B2B), businesses selling to other businesses, 3) Consumer-to-Consumer (C2C), allowing consumers to trade with each other, 4) Consumer-to-Business (C2B), where consumers offer products or services to businesses, 5) Subscription-based, 6) Freemium, offering basic services for free with paid upgrades.
What are the 4 types of e-commerce?
The 4 main types of e-commerce are: 1) Business-to-Business (B2B), where businesses sell to other businesses, 2) Business-to-Consumer (B2C), where businesses sell directly to consumers, 3) Consumer-to-Business (C2B), where consumers offer products or services to businesses, 4) Consumer-to-Consumer (C2C), where consumers trade with each other.
Resources and Tools for Building Your Online Business
Embarking on an online business venture requires the right tools, platforms, and resources. Here’s a curated list to assist you with your specific business model and overarching strategy:
- For General Business Knowledge: “The Lean Startup” by Eric Ries, “Zero to One” by Peter Thiel, “The 4-Hour Workweek” by Tim Ferriss
- For Ecommerce Insights: “Crushing It!” by Gary Vaynerchuk, “Influence: The Psychology of Persuasion” by Robert B. Cialdini
- For Affiliate Marketing: “Affiliate Marketing: The Beginner’s Step By Step Guide” by Kevin Ulaner
- For Understanding Technology Trends: “The Innovator’s Dilemma” by Clayton Christensen
Essential Tools and Platforms
- Website Building and Hosting: WordPress, Wix, Shopify for ecommerce, Bluehost or WPX for hosting
- Email Marketing: Mailchimp, ActiveCampaign, AWeber, ConvertKit
- Social Media Management: Hootsuite, Buffer, SmarterQueue
- SEO and Analytics: Google Analytics, Moz, SEMrush
- Payment Processing: PayPal, Stripe, Square
- Project Management: Asana, Trello, Slack
By taking advantage of these resources and tools, you’ll equip yourself with valuable knowledge and support that can help you navigate the complexities of the online business world.
I’ve met plenty of others who are making money through YouTube, social media, blogging and podcasting but you’ll notice I didn’t include them here as examples.
Sure, these models are highly scalable. But the ad revenue or other financial perks they provide are just the icing on the cake when you’re able to funnel the traffic into a fully fledged business model on the back end and create your own financial freedom.
Many of the most successful entrepreneurs I’ve met do just that.
Which online business models have you tried? If you’re just starting out, which would be your first choice?