Online Business Models: Part 1
27 Aug
Starting out with an online business is no simple task. You have a basic idea of the skills and personal characteristics you will need to continue with your business but what should you focus on next? Naturally you will want to decide on a business model, what you will do to make money online. There are two basic business models that we will discuss. The first type of model would be to sell/promote your own product or service. The second model would be to sell/promote someone else’s product or service. Both of these models can require a variety of skills depending on how you approach them. Let’s discuss each of these models in detail and see which one is right for you.
Do you have an area of expertise? Would you like to help other people with their problems by providing a solution? Is your solution based on the type of information you can provide? Perhaps your solution is actually a service. Do you manufacture a physical product (tangible goods)? These are the types of questions you will want to ask yourself if you plan on selling your own product or service. First off you will want to decide on whether you are selling a product or a service. If you decide on selling a product you will also want to figure out whether it will be a physical product or informational in nature. The two types of products will have their own list of pros and cons. If your product is physical in nature there are a number of factors to take into consideration. What is the cost of making your product? The base cost of the product will fix the minimum price point and be the main factor controlling your profit margin at the lower end. How long does it take to create your product? How much of your product will you be able to store? How fast can you process a customer’s order? The answers to these questions will dictate the rate at which you will be able to make money.
Information products are among the most popular products on the internet. The reason for this being is of course the long term benefits, creating an information product only once and being able to profit from that point onward without reinvesting more time. You should also be aware of the challenges you will face when creating a product. You will have to take the time and resources to create the product which may represent a large investment upfront. You will have to create a website or platform from which you can distribute and sell your product. You also probably forgot that you will have to sell your product. This is one of the basic ways that the two models will differ. As a product creator you will have to convince others to sell your product. The people that are going to sell your product for you are often referred to as “affiliates.” Now in order to get affiliates to sell your product you will need to make a number of preparations. For one, you will need to have a sales page in place. Let’s be honest though merely having a sales page in place will not be enough to convince any affiliates to market your product. You will need to know how well your sales page converts traffic, more specifically what is the ratio of visitors to buyers. Do one percent of visitors buy your product or fifteen percent this can make a big difference when trying to convince affiliates to market your product. These are just a few out of the many considerations you will have to make in order to promote your own product.
When it comes to selling a service you may find that it requires more time and as well as a work force. Time will be a major factor when you are determining your ability to make money off of the service you are selling. Depending on how long as well as how difficult providing the service is you may find that time constraints can act as a bottle neck for your profits. One way to work around time constraints is to seek the aid of a work force or to outsource certain parts of the job. This may or may not be an option for everyone depending on the type of service they are providing but is still something you should consider. If you are providing a service you might want to ask yourself “what is the value of the service I am offering?” Is your service something that anyone can do but will pay for in order to save time? Or is your service so specific and specialized that very few people will know how to do it? The answer to these questions will help you decide on an appropriate price point. Selling a service will also require that you build a website as well as gather a sales force. Unlike a product however, with a service there is less emphasis placed on creating your sales page and understanding conversion rates. Your website should be geared more towards building your brand. You website should describe: your company, service and its many benefits, philosophy or values, and a preferred method of contact at the very minimum. Your reputation will also be an important factor in promoting a service. You would do well to provide the highest level of service as people online are very vocal when it comes to expressing their disapproval (go to any forum and you will see what I’m talking about).
