Chapter 2: Choose Your Store Model

Chapter 2: Choose Your Store Model

Online stores have just as much upside potential as a real-world "brick and mortar" store, but without many (even most!) of the costs and responsibilities. And instead of having to drive in rush hour each day to open and close shop, you can set your own hours and work virtually anywhere you want from a laptop. Depending upon the eCommerce store model you chose to go with, it’s usually not even required to keep physical inventory on hand.

Does all of this sound too good to be true? It’s not! Setting up a profitable eCommerce store is extremely possible, even for non-tech savvy people. You just need someone who has been there to guide you through the steps and help you make the difficult decisions. So it's a good thing you found Store Coach! In Chapter 1, you already made the first key decision: what product line to sell. The next decision is what type of store to build.

There are three basic store models you'll be choosing among. Each model has its own set of PROs and CONs, but all three are very viable options you can make a lot of money with. Let's explore them each individually, then we'll compare the three store models side-by-side.

Model #1: Stock & Ship eCommerce

Traditional Supply ChainHere's how it works:

  • You purchase inventory from a supplier (at a discounted "wholesale price"), usually in light bulk
  • You store the inventory in your spare bedroom, garage or warehouse
  • Customers purchase the products from your website (at the full "retail price")
  • You ship the products to your customers

This is basically the "traditional" supply chain that's been around for a couple hundred years. The manufacturer makes the product. Distributors buy in huge bulk from them and then sell it in smaller bulk to the retailers (you can oftentimes skip this step and buy it directly from manufacturers). And then the retailers (which is YOU!) sell it to the end consumer.

Why would you choose to go the stock & ship route? It's usually for one (or both) of these reasons:

  1. In some instances, suppliers will require you to pre-purchase inventory from them (they won't be willing to dropship directly to your customers)
  2. Stock & ship typically gives you the highest profit margins on a per-product-sold basis

Model #2: Dropship eCommerce

The Dropship ModelThe dropship model is really just a more streamlined, modernized version of the traditional supply chain made possible by the Internet and UPS/FedEx. 🙂

Here's how the dropship model works:

  • 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

Like I mentioned back in Chapter 1, we've used the dropship model for the vast majority of our stores, including virtually all of our "home run" sites. The dropship model is amazing! 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.

The best part about the dropship model is that you don't pay anything up front. You don't have to buy thousands of bucks worth of inventory and hope it eventually sells. You don't pay a penny to your supplier until after you've collected the full retail price from your customer (usually a good 20%+ more than the wholesale price you pay). What's more, you don't have the expense and hassle of storing and shipping the products yourself; your supplier does all that for you. When you use a dropship supplier, your monthly operating costs will be no more than $50-100 per month!

Model #3: Affiliate Product Store

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.

Here's how it works...

  • Affiliate Store ModelA 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 process).
  • The retailer pays you an affiliate commission (usually 5-10%, but sometimes higher) to reward you for generating the lead.

The fundamental difference between an eCommerce store (either stock & ship or dropship) and an affiliate product store is who receives the payment from the customer. If you choose to build an affiliate product store, you won't really have "customers" - nobody will buy anything from your site. Instead, your goal will be to send customers to an eCommerce site (owned by somebody else) in the hopes that they purchase products there. The way you make money is by receiving affiliate commissions from the store you're sending people to.

For affiliate product stores promoting tangible products, affiliate commissions are typically in the 5-10% range (sometimes as high as 15%). Obviously, this is quite a bit 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. As an affiliate, you're not really part of the "supply chain". You don't buy products from a supplier and then re-sell them to customers. You don't process (fulfill) orders or deal with any customer service. Like I said before, you don't really have "customers"; you just have visitors you pass on to another website.

Pick Your Store Model

Alright, by this point you should have a pretty clear understanding of how each model works. Let's look at the PROs and CONs of the three models side-by-side, then we'll talk about how to pick which model you plan to use.

Stock & Ship eCommerce

PROs

  • Best profit margins on a per-item basis
  • You can oftentimes get credit terms (i.e. pay in 30 days)

CONs

  • Up-front cost to purchase inventory in bulk
  • Risk that you won't be able to sell everything you purchase
  • You must warehouse inventory (high overhead costs)
  • Must handle order fulfillment yourself

Dropship eCommerce

PROs

  • Order as you go (no up-front inventory purchase)
  • 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

CONs

  • Lower profit margins than the stock & ship model
  • You still have to provide customer service and deal with the order fulfillment process

Affiliate Product Store

PROs

  • 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)

CONs

  • Affiliate commissions (typically 5-10%) are lower than the profit margins you'll have with the other 2 models (typically 15-30%)

Decision TimeDecision time! Well, sort of. At this point, all you really need to decide is whether you plan to go the affiliate route or not. If you're going the affiliate route, the next step is easy: find and sign up for an affiliate program. That single blog post completely replaces Chapter 3 of the training. I repeat: If you're going the affiliate route, there's no need to go through Chapter 3. Instead, go to the blog post I just linked to and follow the steps there... then proceed directly to Phase 2 (Chapter 4).

If you're pretty confident you want to go the eCommerce route (which includes both stock & ship and dropship), you really don't need to choose between the two models just yet. Why? Because the next steps (which are covered in Chapter 3) are the same regardless.

If you're completely undecided at this point, I'd suggest taking 15 minutes to cruise through Chapter 3 and see what's entailed to set up an account with a supplier. It's really not all that challenging or time-consuming. You can always try to secure a supplier account, and if you're unsuccessful, your "fall-back plan" can be doing an affiliate product store instead (which is one heck of a fall-back plan)! 😉

Alright, on to Chapter 3 (unless you're for sure doing an affiliate product store, in which case you should go here instead).