The Seven Different Types of Online Business Models

submit   August 3, 2012   Comments Off on The Seven Different Types of Online Business Models

If you are looking to start a business on the internet, you will need to do some research on the various online business models that are out there.

Different types of businesses suit different people for different reasons, so it is important to work out what is best for your situation. 

If you get this first step wrong, then there is a good chance that you will waste a lot of time, money and effort on something that was never going to work in the first place. It is really important that you understand what is involved with the different online business models out there.

Let's take a look at some of the more popular options available to you, and the advantages and disadvantages of each. 

1. Affiliate Marketing.

Affiliate marketing is basically the process of selling other people’s products in exchange for a commission payment that is an agreed percentage of each sale.

Affiliate marketers could be described as independent sales people, who only get paid when an actual sale is made. Websites are able to use tracking codes which identify who referred the sale to them.

Some of the most popular affiliate programs out there include Clickbank, Amazon and Commission Junction. You can do a Google search to find out more about these.

In most cases affiliate marketers get around 50% of any sale (can be anything from 5% to 75%) that is generated.

It sounds very appealing to make these commissions on products that you don’t need to store or deliver, but it is absolutely crucial that you pick the right companies and products. You also need to make sure that you have personally used these products and endorse them 100%.

Otherwise you are just risking ruining your reputation by selling dodgy stuff to your subscribers. Affiliate marketing is an excellent way for newbies and beginners to start making money very quickly.

It is true that you make a lot more money by selling your own products, but everyone has to start somewhere and promoting other people’s products is an excellent platform to start from.

To be successful in affiliate marketing you need to build a large list of loyal subscribers who see you as an authority figure. It is extremely important that you learn how to generate leads and build your list.

It is not easy, but it is certainly possible. I give affiliate marketing the thumbs up, providing you choose the right products to promote.

2. Buy And Sell Tangible (Physical) Goods Online

Ebay is the biggest website for buying and selling goods online. It is a very straight forward business model, with the idea of buying goods cheaply and selling them for a profit.

Whilst the idea is dead simple in theory, it much harder to make decent money in reality. Don’t be fooled into thinking it is easy, as a lot of people are competing in this market.

Large companies buy goods in bulk and can afford to sell them at rock bottom prices and still make a margin. They can also afford to store the goods in warehouses as well. You must be extremely good at picking bargains which people will pay you good money for. This can mean a lot of trial and error, and costly financial mistakes.

Usually you are limited to your own local area as well, because freight costs from overseas eat into your profit margins. In some cases you will need to pay freight when both buying and selling the goods as well.

Many people have dreams of starting an eBay business, but I would estimate that only 1% of people are able to make a comfortable living from it.

To get access to information that teaches people how the 1% make their money is near impossible as well. Be wary of EBay scams and systems that promise easy money.

It can be done, but I would prefer to sell intangible information products myself and give this model the thumbs down.

3. Blogging

Blogging is another popular online business that people choose to pursue, mainly because of the extremely low cost to get started (basically free).

The idea of a blog is to pick a specific niche topic that is in demand and to create regular valuable content about that niche. A lot of people start blogs, but unfortunately very few are able to make it work.

The two biggest stumbling blocks for bloggers are the technical website aspects, and also the challenge of regularly creating quality content to put on the blog.

If you don’t know much about web design or html, then you have two choices. Either spend hours getting bogged down learning how it works (which I did), or to pay a web designer to create a nice looking site for you – which can be expensive.

Some people say the content is far more important than the design of the site, but I disagree with this. They are both just as important. A website that looks completely horrible makes the blogger look like an amateur straight away. First impressions are important.

As far as creating content, for starters you must be motivated to write about the niche topic that you have chosen. For a blog to even have a chance of ranking highly in the search engines, it needs to have regular quality content that people want to read or watch.

You may need to look at outsourcing the content creation as well, but this can pose problems also. Most content writers are either very expensive, or there work is very low quality. It is a catch 22 situation.

But how do you make money from it? Well the common ways are through advertising and selling affiliate products. But make sure your blog is getting traffic and is established before you even think about promoting products and selling advertising. Trying to make money from a blog with no traffic is close to impossible. 

In general blogging is a worthwhile online business model, but it takes time to see any results. Most people are not blessed with the patience to keep up their commitment to their blog, and quit far too early. Focus on providing your readers with awesome value and build a community from it. 

Blogging is one of my strategies that I am taking seriously, and I give it the thumbs up.

4. Freelance Writing, Graphic Design Or Web Design.

Being a freelancer is more of a job, than a business but it can pay very well if you have talents. It is worth including in this report.

Professional copywriters, search engine optimizers, graphic designers, and web designers are in demand these days with new online entrepreneurs starting businesses every day.

If you are really good at your field, you can make a lot of money and be able to get whenever it suits you. The great thing about being a freelancer is that you can work from anywhere in the world.

The thing is though, to make good money you have to be an absolute professional and your work needs to exceptional. There is so much competition out there, that anything less than exceptional puts you in the average category.

There are millions of freelancers in developing countries who can afford to charge as little as $1 per hour, and their work is just as good as a person from a Westernized country that charges $30 per hour or more.

So in order to make it profitable your skills must be worth the money that your clients pay to you.

Freelancing may be the answer for you, but for most people it is just way too competitive. I give this model the thumbs up, but because it classed as a job and not a business, I don’t personally do it myself.

5. Multi Level Marketing

Multi Level Marketing (I will call it MLM in this report) is another hugely popular business model. Most people no longer bother with the old fashioned traditional means of recruiting, and with good reason.

MLM companies in the past (and some in the present) told people to write out a list of family, friends and acquaintances and to basically approach these people to try and convince them to join your company.

This is a horrible idea, because all you do is make people dislike you and think you are an idiot. The success rate of these types of recruiting are extremely low.

MLM gurus of the past like to say that it is a numbers game, and all you have to do is talk a little bit to a lot of people. But how many of us want to speak to thousands of people about joining their business? I know I certainly don’t.

With the introduction of the internet, things have changed dramatically since about 2007 with online marketing systems popping up everywhere.

The idea now is to drive traffic online to your squeeze pages (or landing pages or capture pages – depending on what you like to call it), and to convert a percentage of these people into leads.

The leads are then marketed to with email auto responder messages and other web pages.

People can make money in MLM provided they are:

  • willing to talk to hundreds or thousands of people about their business
  • willing to wait a minimum of 2 years before their down line is big enough to start paying residual income.

Most people are not willing to do either of the above, let alone both, and this explains why 97% of people who get involved in MLM never make any money, or make very little from it.

If you are still interested in trying out MLM after reading this, then at least choose something that does not require you to store large amounts of product at your house.

I don’t personally like MLM and give this model the thumbs down. I have personally tried it and don’t like having to “recruit” people to join a business opportunity. It may be for you though if you like talking to a lot of people.

6. Top Tier Direct Sales

Top Tier direct sales is similar in a lot of ways to MLM in that you are recruiting people to join your opportunity.

It can best be described as a business model that sells very expensive products that are premium quality, and are supposed to be worth the money that you pay for them. It can cost an absolute fortune to get started, but it does have the potential to pay you very large commissions.

The products are very expensive to buy, but they pay very large commissions – ranging from $1,000 to $20,000 per sale.

The product line is usually some sort of information product that is of the highest caliber and can not be duplicated or copied. An example could be online education, physical products shipped to your door, or live seminars/events with A Grade speakers.

The products are usually sold by taking advantage of cutting edge, professional online marketing systems and strategies that use the high commissions as their main selling point. The concept of marketing is the same as I explained before for MLM, where you need to drive traffic online to landing pages and capture leads.

But the big difference to the MLM business model, is that it is possible to start making executive level income in your first few months, not years. And the other difference is that you only need to make a few sales a month to replace your income, instead of having to make 100 sales a month for a product that pays little $30 commissions.

Now obviously some top tier direct sales companies are better than others, and not all are as good as they say they are. This is where you need to do your research and find the ones that are good.

In my experience with top tier direct sales it is common for some of these sort of companies to go out of business, to change direction, or for the top leaders to defect to the opposition. If you have paid a lot of money to join a business, the last thing that you want is for the company to fold.

I have also seen owners of top tier direct sales companies get greedy and try to grow too quickly, and ruin the company in the process.

The problem with this model is that unless you are able to make sales, you will not make any money. Most people are not cut out to be selling expensive products and find that it is just too difficult.

The most successful people that I have seen in this type of business usually have some sort of executive sales experience and have excellent sales and marketing skills targeting very wealthy people or companies.

But for the average Joe (97% of the population) they can’t make it work and end up wasting a lot of money. In general this business model is extremely risky, but if you can make it work it is possible to create a 6 or 7 figure business.

I give this model the thumbs down, as my personal experience was that it is just too hard to make sales, and most of the companies don’t last for long. Plus I really don’t like the idea of having to “recruit” people into a business opportunity.

7. Create your own information products.

Creating your own information products is the most sensible online business model for a number of reasons.

  • You make 100% profit margins once the products are created
  • It brands you as an expert in your field
  • You can easily find hungry markets that are profitable
  • It is extremely cheap to create the products
  • You provide solutions to peoples problems
  • You are not recruiting people in a business opportunity
  • It is extremely easy to create the products once you know how

Now I realize that people that are just getting started are probably not ready to start creating their own information products, but you should not feel like it is too difficult. With the right guidance and knowledge you can easily be creating your information product business in no time.

Obviously you need to come up with an idea that people would be prepared to pay money for a solution, but with the right tools that is dead easy as well.

We live in the information age and people that have problems are doing their research on the internet. It is your job to provide them solutions and to make money in the process. You don’t even need to be an expert as you can do things such as interview people that are experts, or you can do your own research to become an expert.

Once you have created your product and set up your website (which you can outsource if necessary) you can be making money 24 hours a day, including when you are sleeping.

I give this business model the thumbs up because you do the work once, and then get paid forever if there is a demand for what you have created.