4 Types of Online Business Model
Exploring different business models used to earn an online income
EARNING AN ONLINE INCOMEONLINE BUSINESS
4 Types of Online Business Model
Different ways of earning an online income
The first thing I came across when looking at how to earn an income online were several types of online business model. As a complete newbie to the online business world there was a lot of jargon I didn’t understand.
In this post I will list the online business models which cropped up most frequently in my searches. I have tried to summarise what they are and how I understand them as simply as possible!
Disclaimer I am no expert in these business models and I encourage you to use this as a starting point into doing some extra research into any areas you find interesting and suit your goals the best!
What is an Online Business?
To literally define this, just combine the definition of the two words!
Business - work related to producing, buying and selling goods or services
Online - available through the internet.
Add the two together and viola! You have 'work related to producing, buying and selling goods or services via the internet.'
Lets dive into the interesting bit…
The 4 Online Business Models Covered Here Are
Types of Online Business Model
1. Affiliate Marketing
Start up cost: £200 approx (I have also invested in a course to help me)
Time requirement: Medium (I am doing this alongside working a full time job!)
Earning potential : £10 000+ / month
Passive: Yes
This type of business model was the one that called out to me the most and I kept coming back to it during my year of on and off research.
The simplest way for me to explain affiliate marketing is this:
Have you ever bought a product and loved it so much that you told all your friends about it? You give the product a rave review and your friends like the idea of it so much that they go out and buy the same product. Doing this is essentially affiliate marketing.. except you didn't receive a commission when your friend bought the same product.. what a shame!
Affiliate marketing basically harnesses the power of recommending products you have used and enables you to earn money from your recommendations if someone else buys the product. And I can almost guarantee you have purchased a product from an affiliate link before! This is a great structure for being able to sell other peoples products if you don’t have a product of your own (a big sticking point for me!).
Take amazon for example.. Amazon have a well-known affiliate marketing platform in, which a lot of bloggers recommend products sold on amazon. By signing up to the Amazon affiliate marketing program they can then create an individualised link for the product they are telling people about on their website. If anyone reading the post clicks on the link and decides to buy the item, the seller then makes a commission on that sale!
Sounds so simple doesn’t it!? Imagine getting paid for doing what you probably do all the time - telling people about products you love using! This is the basic concept of the affiliate marketing online business model!
If it's so simple, whats the catch?
Of course everyone always has scepticism and I was am no different! I kept going back to googling ‘is XYZ a scam?’ I’m only human! But for me, affiliate marketing makes complete sense for this reason:
Huge corporations are always marketing to us through advertising right?
Have you ever considered how much a marketing campaign costs? We’re talking MILLIONS and MILLIONS!!! Companies with affiliate programs reduce their marketing costs by allowing people like me and you to join their affiliate marketing program. We, 'the little people' can then market their products for them. If you realise how much money they are saving by doing this, it helps to understand why they are able to pay commissions (sometimes really big commissions) for getting a sale through their affiliates! So NO not a scam! Just a very clever way of saving on marketing costs and enabling the little people to benefit from this :)
I am going to break down affiliate marketing a little bit more here. If this doesn’t sound like the type of business model that would suit you then jump to the next section ‘dropshipping’ to see if this is more your cup of tea.
High Ticket vs Low Ticket Affiliate Marketing
If you have already had a look into affiliate marketing you may have heard the terms high ticket and low ticket. I believe choosing the products you market carefully, can make all the difference to earning an income online.
So what is the difference?
High Ticket Affiliate Marketing
Where high ticket affiliate marketing differs is that you are marketing products of higher cost, with much higher commission rates. This can be anything from 50% commission with values of £500 upwards in commission per sale!
Example
Imagine you are selling an inflatable hot tub worth £2000 with an affiliate link and your commission rate is 50% . Your goal is still to earn £1000 per month with your online business model. For every hot tub sold via your link you will therefore earn £1000 in commission. To reach your goal of £1000 you will only need to sell 1 hot tub!
And there you can see the huge difference between high and low ticket items:
1000 mascaras = 1 hot tub
Now with the above examples I have really simplified the numbers, but you get the idea. With high ticket affiliate marketing you need a smaller volume of sales to create the same level of income.
I would like to point out that I am not ignoring the fact that more people are likely to buy a £20 mascara than a £2000 inflatable hot tub! However, that is where your own marketing strategy comes in to ensure you are marketing to the right people! I am learning about how to do this marketing through the course I have invested in. If you're interested in this you can sign up to the free masterclass here.
High ticket affiliate marketing is the business model I have chosen to use. I will be sharing what I am learning and how I am getting on with my affiliate marketing training course. If this is something you’re interested in, keep an eye out for my upcoming posts about this!
What is Affiliate Marketing?
Low Ticket Affiliate Marketing
This generally includes any products of low cost, up to £50. By selling one of these items through your affiliate link you would generally see a commission of 1-10%. Commissions vary by product and by affiliate platforms - from my understanding, the higher commissions are harder to come by.
Example
Imagine you are selling a mascara worth £20 and your commission rate is 5%. This would mean that for every mascara you sold, you would earn £1.
Let’s say your goal was to earn £1000 per month with your affiliate marketing, you would have to sell 1000 mascaras to reach your goal of £1000. THAT’S A LOT OF MASCARA!
figures are just to help you understand the model and are not based on real figures
For some people this online business model works really well and they can earn a really decent income from it! Particularly if you have a niche like travel in which you can recommend lots of different products from backpacks to hiking boots etc, but you’re going to need A LOT of traffic to come through your site to ensure these product sales are being made to meet your income goal per month.
2. Dropshipping
What is Dropshipping?
In basic terms, dropshipping involves selling a product and then having that product shipped directly from the manufacturer or wholesaler to the customer.
From my understanding, the benefit of dropshipping is that you can promote and sell products, without having to deal with the inventory, handling or shipping of the products. Instead, the products are shipped directly to the customer form the manufacturer.
The biggest benefit of drop shipping for budding online entrepreneurs, is that you don’t have to order in bulk.
Example
If you had a physical store and you wanted to stock trainers, you would likely order 1000 pairs of trainers. You want to fill your shelves, as well as having some back stock. You will likely have paid up front for your 1000 pairs of trainers and you now own the physical products. Let's say you only manage to sell 500 pairs of your trainers. The other 500 are sitting in your shop or out in the stock room. To recoup what you spent or make any profit on your trainers you really need to sell the remaining 500. Oh dear.
With dropshipping however, you only pay for the items you sell.
So, you have found a manufacturer of the specific pair of trainers you want to sell. The manufacturer provides you with a picture and description for you to advertise the trainer on your site. You agree to a wholesale price of £50 per pair. A customer comes onto your website and buys a pair of trainers for their retail value of £80. Either the customer pays you and you pay the manufacturer to ship the trainers to the customer, or the order goes straight to the manufacturer and the manufacturer pays you for referring the customer. You get £30 income per pair of trainers sold!
This one is for those most interested in e-commerce. The first step as with any business model is to decide what your market is. Could it be trainers? or neon signs? It is good to get an idea of what is available and have a directory of manufacturers and wholesalers you can use. There are platforms for this such as Alibaba, Aliexpress and Shopify. They have plenty of items you can sell from within their own platform.
As with many online business models there are multiple ways of reaching your customers. This could be via social media such as a facebook page, or via an ecommerce website. For the latter, platforms such as shopify have taken the stress out of website maintenance for a mere £21 ($29) per month. This means you don’t even have to pay for a website to be professionally built. This helps to keep the start up costs for this type of online business model really low.
Another advantage of the dropshipping online business model is that you can chop and choose what products you sell on a regular basis. This means if a product you are selling isn’t working out, you can change it to something more ‘on trend’. You could change your products to more seasonal items without worrying about having to sell left over stock.
Just like affiliate marketing, this online business model can be entirely managed from a laptop. Therefore you can work from anywhere in the world (providing a good internet connection).
Start up cost: £200 approx
Time requirement: High
Earning potential : £20 000+ / month
Passive: No
Dropshipping has become a really popular type of online business model in recent years. It kept cropping up during my research. It provides another platform to create an online business when you don’t have your own product to sell. Chances are if you’ve heard of dropshipping you have also heard of shopify the ecommerce platform.
Who would this business model suit?
Disadvantages
Of course as with any type of online business model there are considerations that have to be made. Are you happy to be a middle man? With dropshipping you don’t have control over the stock and the fulfilment. You have to put your trust in the manufacturer/wholesaler to fulfil the orders and have them shipped in a timely manner, otherwise the customer complains to you. On top of this, the wholesale costs may not always be funnelled down to you. Technically you are not ‘bulk buying’ the product and therefore this can have an impact on your profit margin too. But with any online business there will always be pros and cons… you need to weigh them up and see what feels like the best fit for you!
There are plenty of online courses you can take to help you get started and learn the skills you need. Udemy and Oberlo have lots of courses listed for dropshipping. These seem to be the most popular sites, however as this is not the business model I have chosen I am unable to give an insight into their viability. They may be a good place for you to start your research if this is an area you are interested in!
3. Membership Sites
Start up cost: £200 approx
Time requirement: Medium
Earning potential : £5000+ / month
Passive: Yes
What is a Membership Site?
In its simplest form, a membership site is a website people sign up to and pay a subscription fee to gain access to resources. These resources could be webinars, tutorials, ebooks or other online resources your particular audience is looking for. By paying a monthly subscription fee, members gain access to exclusive content.
Who would this business model suit?
If you have a skill or an area of expertise you want to share, this could be the one for you! Particularly if you can offer something unique within your area and skill set.
Perhaps you have a skill that you want to market such as photography. Could you create digital guides in different photographing styles? Or could you sell your photos in an online gallery? If you have a skill that you want to share this could be a great way of getting it out there and earning an online income from it!
This business model can work with any website. Any content on a website has the ability to be ‘protected’ and therefore require a log in to access it. This log in is where your member area is and holds content only accessible to those who have signed up.
You don’t even need an established website in order to sell your content these days. Platforms such as Thinkific and Teachable exist which allow you to build your website, create and sell your content all in one place.
Earning Potential
The great thing about membership sites is that you have the potential to earn recurring income from the same customers each month! As long as you are providing good quality and valuable content which your subscribers want, they will keep coming back!
Lets say you have 100 subscribers at £30 per month, that’s £3000 per month income you are generating!
* Again, these numbers are purely for demonstration and there is no guarantee how much you will earn with any of these online business models *
Drawing attention to your product can take multiple forms but a great way to do this is to market a little bit of free content showcasing what you offer, everyone loves a freebie! Have you ever tried something for free and liked it so much that you have bought more of the product? That’s the idea behind offering a free snippet of your service. Even if only a handful of people decide to sign up for the membership area you have the potential to generate a generous income from doing this.
And this can be applied to so many skills which you already have expertise in! Are you a keen musician? Maybe a pilates instructor ready to take your classes online? Can you provide a three month vegan cooking course?
Disadvantages
How can you ensure that members will stay members? The truth is, you can’t and this is one of the difficulties with membership sites. Yes, there is the potential for recurring income from members renewing their subscription but the reality is, members won’t necessarily stay members for life so this has to be a consideration. You will need to continue to attract new members through your marketing as well as ensuring your content stays up to date.
Plus of course there is the time requirement for creating your content. Are you going to be producing video content for your members? If so this can be time consuming, however once the video is created it can be used time and time again for thousands of people and perhaps only needs a little updating from time to time depending on your niche.
This type of online business model may not be for everyone but if you have a skill you want to share with the world and feel that you can provide quality and expertise in your area then there could be great potential in setting up a membership site! As with dropshipping, this is not my chosen business model. If this is an area of interest to you I urge you to continue your research to find out some more about this type of business model to help you get going!
4. Coaching
Start up cost: £100 approx
Time requirement: High
Earning potential : £5000+ / month
Passive: No
What is Coaching?
To be an online coach you essentially use your skills and expertise to provide advice and guidance, to transform the lives of others. The job of a coach is to provide a service which is motivating for their clients and goal driven.
There is a huge array of industries in which coaching can be used. Anything from health, fitness, relationships, careers, personal finance, parenting, business, the list goes on!
Example
Let’s look at an example of a weight loss coach to see how this model works.
The client wants to lose weight and keep it off. They seek the help of a weight loss coach and pays for their service. The coach may set up an initial consultation and set goals with the client - How much weight do they want lose? When do they want to lose it by? The coach can then assist the client in multiple ways. They can set up weekly coaching calls to discuss the clients progress. Maybe some mindset coaching is incorporated into this. They may help to set up a meal plan and an exercise regime. Although the client is ultimately responsible for their progress, the coach is there to hold the client accountable and to keep them motivated to reaching the set goals.
Who would this business model suit?
Coaching with an online platform provides flexibility to both the coach and their client. The barriers of opening hours are eliminated, as well as the excess time required for travel to and from an appointment which we see with a traditional brick and mortar coaching or consultancy business. You also have the opportunity to reach clients globally, not just within your postcode which makes it a lot easier to grow you client base and earn the big money!
You don’t necessarily need to be the most tech savvy person either. Tools you need maybe as simple as zoom and skype to allow you to video call your clients and provide your online coaching sessions. This format of coaching still allows you clients to get 1:1 coaching from you, but it is not limited by location.
Perhaps you can also incorporate some online courses and other resources for people to purchase and complete in their own time. This would combine the online coaching business model with selling e-products increasing your revenue stream.
Earning Potential
The earning potential is huge for this category but it is little bit more complicated to lay out. There are multiple ways of pricing your services whether it is by the hour or per package. Let’s stick with the weight loss coach example from earlier. You could create a three month weight loss package which includes a one hour 1:1 coaching call per week, along with personalised meal plans and exercise regimes as well as email access to you. How much would you pay for this package? £1000, £2000? Pricing for your packages is largely guided by your research into your niche and looking at what other people in your industry offer and charge. Ultimately there are so many variables within this type of online business model that it is difficult to pin point an exact earning amount. However with a sturdy customer base, the sky is the limit.
Job satisfaction in this area is another benefit of this type of online business model. Customers are coming to you as they want to improve whichever area of their lives you offer coaching in. They are paying for a premium service and you are directly helping them and creating an impact in an area of their lives they are struggling with. To be able to help people and transform their lives like this can hold huge rewards. Not just monetarily but also emotionally for many people who go into the coaching and consulting business.
Disadvantages
A lot of people are opening up to the world of online business for the flexibility and freedom it can bring to their lives. If you are going to provide a premium coaching service, your customers are likely going to want your service to fit in around their own busy lives. This could potentially mean some antisocial hours such as evenings and weekends. However, with that also comes the added benefit of you being able to work from wherever you want.
This type of business model does not provide a passive income. You will be required to give time to your clients on a regular basis. Unlike some of the other business models mentioned, you will need to be more present within your business.
You may also want to invest in a coaching course. Coaching is not regulated at the moment, unlike counselling which requires qualifications and licensing, but it may be beneficial to have some courses behind you to create some credibility within your niche.
If creating lasting relationships and having a positive impact on people lives, whilst enabling location and time freedom sounds like a bit of you, then I’d encourage you to look more into the coaching and consulting online business model as it might just be what you’ve been looking for!
To some degree, all of the business models here will require marketing in order to reach potential customers and this is something I am going to be exploring and implicating during my own personal journey to create an online income. Click here and drop your email in the box to watch the free masterclass about the course I am taking. Feel free to follow my progress through my blogs or come along for the ride if you’re in a similar position to me!
