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.
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.
During my travels, I’ve crossed paths with many remarkable people living unconventional lifestyles of freedom made possible by running scalable online businesses.
The following is a brief overview of the models they’ve used to build their online businesses and quit their jobs (plus I’ve added some examples for inspiration).
1) Digital Information Products
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
3) Affiliate Marketing
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.
7) Productized Services
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.
Other Online Business Models
I’ve met plenty of others who make an income 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 is your first choice?