5 Business Models
to Make Money Online
What are the 5 business models to make money online with? And, more importantly, which of these are beginner-friendly?
To answer this, I’ll list out the models here, each with their own pros and cons and conclude with a rating from 1 (don’t touch these if you’re a beginner) to 10 (absolutely start if you’re a beginner).
PS: if you’re not convinced why you should be making at least some predictable money online, I make a good argument over here.
Who is a beginner?
Maybe you feel like a beginner, but actually aren’t.
So, before I go into the business models to make money online and give you the beginner-friendly rating, it’s important to define how I see a beginner.
A beginner is somebody who only has 1 source of income AND finds themselves on the left side of the Cashflow Quadrant.
This means that you’re actively trading your time for money.
Whether that be in a traditional job, (work 8 hours/day = be compensated only for those 8 hours), or a self-employed business (you may make more than a traditional employee, but whenever you get sick, or go on a holiday and are not working, you create no income).
The 5 Business Models
to Make Money Online
I can simply explain eCommerce for those that have been living under a rock: selling physical products online.
If you can think of a physical product that solves a need, and there is considerate market demand, this is a very good way to make money online.
While this could potentially pocket you six-figure months, the road to getting there is far from an easy one.
Let me explain:
First, you need to come up with an idea. Then, you have to do market research on that idea.
If your idea has market viability, now you need to actually manufacture the product.
This can be a painful and tedious process, usually goes through a couple of iterations and can take months, or even years to complete.
Should you not have spent money on the market research, the manufacturing is where you definitely will.
And, just so we’re both clear: you just created a product, you’re not even selling it yet.
At this point, you’re definitely already a couple of grand in, with no guarantee about making any of that back, let alone a timeframe on when you’ll be making that back.
Besides, the goal isn’t for you to break even. It’s to make a profit.
Finally, the margins on your own physical product usually aren’t even 50%. This is also something very important to keep in mind.
I’m sure by now you can see how starting in eCommerce is far from beginner-friendly.
We didn’t even get into the money that needs to be spent on the rigorous creating, testing and optimizing your sales funnel so you can actually start making some of that money back and more.
Conclusion: While the ROI on your own eCommerce store can be great, it does take significant capital to get started.
Rating: 2/10 (not beginner-friendly)
The second form of eCommerce is dropshipping.
The model is simple, and let’s use fictive company ABT as an example:
ABT creates a product. You’re given permission to sell that product.
Whenever a customer orders that product from your online store, you tell them what product they need to ship to that customer’s address.
Your profit = what the customer paid you - what you pay ABT for the product.
So, marking up ABT’s $50 product twice equals $50 in gross net profit.
And that’s one of the keys: gross net profit.
What did you have to spend in order to get that customer to check out your online store and eventually purchase?
If you’re able to do market research for free, then setting up your store and selling ABT’s product(s) is where you start spending money.
While the barrier to entry is definitely lower, that’s not necessarily a good thing.
If you can sell ABT’s product, others can too. And what if ABT’s product goes out of style and there’s no longer a need for it?
Conclusion: Dropshipping is quite beginner-friendly to start with as it doesn’t require tons of capital, when compared to creating a physical product. But the overhead, and general ROI, can turn out to be the same as if you created your own physical product.
Infoproducts are products where you package your knowledge into a product.
This can be a PDF, a book, or a course.
The great thing about selling infoproducts is that the above are relatively easy to create + put together, and, because it’s all digital, there’s no actual limitation to how much you can sell of it.
Just like with the eCommerce models and other models I’ll discuss, it obviously takes some time to figure out what it is that people need solving (= want to buy).
But, again because it’s all digital, if you created something that doesn’t gain a lot of traction, it’s fairly easy and simple to create something new based on the feedback you’re getting from the market.
And the market is a tricky bit.
You can create and package together virtually anything you want, if you don’t have an audience to present that offer to, it won’t sell.
Growing an audience in an online world with its short attention span, can be a challenge.
Then, you also have to consider that there’s only so much you can do to create an audience without spending any actual dollars.
Don’t get me wrong. It can be done.
The Holistic Psychologist grew her audience to close to 2 million followers (on Instagram, Facebook and YouTube combined) and then she launched a low-cost membership program.
I was part of that first launch, and there were about 800 members in the Facebook group.
Let’s assume that another 100 also signed up for the membership, but didn’t join the Facebook group.
900 members x $20/mo = $18,000/month.
I have no insights what her promotional costs were back then, nor in how many staff members or contractors she has. But let’s guesstimate that those in total are $9000.
If those numbers are accurate, that’s $9000/mo in profit. And there’s no reason to assume that her month-over-month growth isn’t at least 10%.
UPDATE: the members in her Facebook group are currently sitting at 4200. Which comes at $84,000/month, assuming the same $20/mo membership investment.
While those numbers definitely are great, it also took her time to build that audience.
There’s definitely nothing wrong with slowly building a loyal audience, but it does however make it harder to build a reliable stream of online income that can make a difference in your life sooner rather than later.
Lastly, when selling infoproducts, you’re the one that has to deal with the customers.
The good, and the bad.
Login issues, support issues, billing issues.
Nothing insurmountable, but definitely something to also factor in.
Conclusion: The scalability of selling infoproducts is very attractive. It can be very cost-efficient to get started in this, but it can take months, or even years to build. Because you’re the owner of the infoproduct, all customer support falls on you and your team, which can drain your time and human resources.
SaaS stands for Software as a Service.
This business model is all about creating a piece of software that you then sell.
Obviously, it needs to solve some kind of problem, which takes market research.
But then, the software needs to actually be built.
This doesn’t only involve a lot of payable hours to a developer, or a team of developers, but also incurs a lot of monthly overhead in terms of server and traffic usage space.
The upside with a SaaS product/company is that, once the software is built, the only limitations are the server space.
You can sell it to virtually anyone, essentially, cause it’s not something that can go ‘out of stock’. So the potential for scalability is definitely there.
Conclusion: Based on the sheer start-up costs (market research, developer(s), servers, distribution (marketing), SaaS isn’t very beginner-friendly. However, when all the pieces fit, the potential upside can be gigantic.
Affiliate marketing is similar to drop shipping in that you don’t have to create a product yourself.
For those of you who aren’t already familiar with affiliate marketing, this is how this model works in a nutshell:
- You get a unique referral link from a company (let’s use Target as an example)
- Whenever somebody uses your link, lands on Target’s website and purchases something, you get a commission for that
There are literally hundreds of thousands of affiliate programs. Yes, even for Target.
If you’ve ever purchased something online, there’s a good chance that you’ve been sent a follow-up email asking you to refer a friend to order as well.
And if they did, you got a month for free, or 25% discount on your next order.
This can be seen as a commission, but when I refer to commissions over here, it’s an actual deposit in your bank account.
Also, very important to note, you don’t have to deal with any customer support, since it’s not your product.
Most affiliate programs are one-off commissions, which are obviously fine.
But if you can find an affiliate program that can offer recurring commissions, that’s even better!
This way, you’re building monthly predictable commissions.
The only big hurdle is creating an audience who you can actually send your unique link to.
Conclusion: Because there’s virtually no overhead, little to no start-up costs involved, and zero customer support you’d have to deal with, affiliate marketing is a very beginner-friendly business model to start making money online.
The only big hurdle is finding ways to create an audience who you can send your unique affiliate link to.
Which one of these models to make money online are you going to try out?
Please let me know in the comments!