Choose Your Online Business Store Model
One thing is for sure ... if you are looking to be your own boss and have a little more freedom in your life, there are plenty of online business opportunities to choose from that will give you both of those things.
Online stores have as much or MORE upside potential as traditional "brick and mortar" stores do. There are far less costs, employee headaches, government regulations and time required to run them. In fact, many owners of successful online businesses spend an hour or less each day running their web businesses once they have all of the pieces in place.
All depending on the eCommerce store model that you choose, you may not even have to deal with inventory and its inherent costs or the hassle of shipping things to customers. Heck, you might not have to deal with customers at all!
Furthermore, instead of being dependent on just the local shoppers in your area, you now have an opportunity to capture buyers from the entire country or even the whole world!
While all of this may sound to good to be true, I assure you it is not!. It is something that thousands of people with zero technical skills have done and you can, too. You do not need any programming knowledge or design skills. If you have a computer, an internet connection and can use a basic word processing program, you have all the skills and equipment necessary. Best of all, you can do it all from the comfort of your home!
You just need someone to show you how to start a small online business. And, by small, I'm talking about the number of employees it takes (which is typically just one - you). The profits can be HUGE - more than anything you ever made at a "real job".
Then again, if you don't know what you are doing, it can be a complete waste of time. We've spent thousands of hours over many years developing The Store Coach Academy - courses built from the knowledge we gained from running over 150 successful online businesses. Many of our former students make at least 6 figure incomes from their online stores, too!
Let's not get ahead of ourselves; though, before you can start an online business from home, you need to first choose the right products to sell online and after finding a solid product niche, the next big decision needs to be made ... which online business model should you use?
There are three basic store models you'll be choosing from. Each model has its own set of PROs and CONs, but all three are very viable options that you can make a lot of money with. Let's explore each of them individually ...
Model #1: Stock & Ship Online Business Model
This is the typical model people think of when the concept of an online store comes to mind. In many respects, it is not a whole lot different from a traditional brick and mortar business:
- You purchase inventory from a supplier (at a discounted "wholesale price"), usually in light bulk
- You store the inventory somewhere (in a warehouse, in your spare bedroom, garage, etc.)
- Customers purchase the products from your website (at the full "retail price")
- You pack, label and ship the products to your customers
- Your suppliers require you to pre-purchase inventory from them (they aren't willing to dropship directly to your customers)
- Stock & ship typically gives you the highest profit margins on a per-product-sold basis
There are definitely advantages and disadvantages to choosing this as you store model:
- Best profit margins on a per-item basis
- You can oftentimes get credit terms (i.e. pay in 30 days)
- Up-front cost to purchase inventory in bulk can be considerable
- Risk that you won't be able to sell everything you purchase, resulting in a profit loss, at best and an actual loss, at worst
- You must warehouse inventory (high overhead costs) and deal with making re-order decisions
- You must handle order fulfillment yourself or hire employees and deal with all of their associated costs (hourly pay, federal tax withholdings, OSHA regulations, health insurance, time off, sick days, etc.)
Model #2: Dropship Online Business Model
The dropship model is really just a more streamlined, modernized version of the traditional stock and ship models. The major difference is who is doing the stocking and shipping and the up-front costs:
- You get "permission" from the manufacturer to sell their products on your site (but you don't actually purchase any inventory ahead of time)
- Customers purchase the products from your website (at the full "retail price")
- You notify your supplier (i.e. the manufacturer) of the sales and pay them the discounted "wholesale price" for the individual items that were purchased
- Your supplier (i.e. the manufacturer) ships the products directly to your customers
Drop shipping is our preferred online business model because it offers the best opportunity for profit at the lowest investment and risk. Instead of buying in bulk ahead of time and then re-selling the inventory you purchased, you buy products one at a time as you sell them and your supplier ships them directly to your customers. When you use a dropship supplier, your monthly operating costs are usually no more than $50-100 per month!
Like each online business opportunity, the eCommerce model also has its advantages and disadvantages:
- Order as you go (no up-front inventory purchase)
- The ability to have a very large and diverse catalog if products
- No risk that you won't sell everything you buy (it's sold before you buy it)
- No warehousing costs and related overhead
- No packing & shipping orders
- No real need for employees and their associated costs
- Usually, slightly lower profit margins than the stock & ship model
- You still have to provide customer service and deal with the order fulfillment process (sending orders to the supplier and providing customers with tracking information)
Model #3: Affiliate Marketing Online Business Model
With an affiliate product store, you don't actually sell anything to customers on your site. Visitors learn about products on your site, but then they click a link/button that takes them to somebody else's website (oftentimes Amazon.com) to actually purchase the products. The customer pays the other website owner, who in turn pays you an affiliate commission (essentially a "finder's fee") to reward you for generating the lead that turned into a sale:
- A visitor on your site views product info and clicks a link, which takes them to the retailer's site (they'll no longer be on your site)
- The customer places an order and pays the retailer (you're not involved in the payment or delivery process).
- The retailer pays you an affiliate commission (usually 5-10%, but sometimes higher) to reward you for generating the lead.
The major difference between an eCommerce store (either stock & ship or dropship) and an affiliate product store is who receives the payment from the customer. In this case, you don't need to set up payment processing because customers aren't paying you. In fact, you really don't have customers at all. You only have readers of your blog.
For affiliate product stores promoting tangible products, affiliate commissions are typically in the 5-10% range - considerably lower than the 15-30% you'll make with an eCommerce store (where you buy and resell products). But keep in mind that operating an affiliate product store is much easier than operating an eCommerce store.
The affiliate marketing business model has its pluses and minuses, too:
- It's very fast & easy to sign up as an affiliate
- No customer service or order fulfillment whatsoever (you don't really have "customers")
- Lowest monthly overhead (virtually zero)
- Affiliate commissions (typically 5-10%) are lower than the profit margins you'll have with the other 2 models (typically 15-30%)
- Practically ZERO opportunity for repeat business
- Because your "cut" of the sale is so small, there usually is not enough profit for you to afford advertising.
Your Online Business Opportunity Awaits ...
At this point, you should have a pretty clear understanding of the PROs and CONs of the three models. It's now time to choose a model.