Doing business online has opened up a brave new world for people who are tech literate.
Gone are the days where you have to be chained to a cubicle in a physical office or tied to a brick-and-mortar retail store.
With just a laptop, internet connection, and determination to create something that’s valuable which can be sold online, you can build a successful business.
Online businesses have allowed many people to work remotely, enjoy location freedom, and if their online business is successful, financial freedom.
With an online business, the barriers to entry are lower and the competition is just as fierce but it allows for access to employees around the world, the ability to market and sell your products anywhere, and lower startup costs due to lower fixed expenses.
That being said, you still have to put in the same amount of work, you’re just working on a computer instead of in a physical brick and mortar store.
In this guide, I want to outline and review all the different types of online business models so that you can determine which business model might be a good fit for your new venture.
Types of Online Business Models
So how do you actually make money online with a business?
Let’s review the most popular online business models.
Ecommerce
Ecommerce is selling physical products on the internet. You have a digital retail store where people visit your store on the internet, place an order for products, and then the products are shipped to the customer by your warehouse and fulfillment service.
This business model uses different marketing channels such as paid ads, video, and SEO traffic to get new customers to the store and grow the business.
Example Business:
Amazon FBA
Amazon FBA is another form of Ecommerce where you create your own line of physical products but instead of doing all the marketing and sales yourself you allow Amazon to take a cut of your profits and you rely on the Amazon platform and marketing to reach and sell to customers.
This monetization method requires less work marketing and fulfilling orders, but it comes with reduced profits since Amazon takes a cut of every sale you make.
Example Business:
InfoProducts
Informational products are digital products in the form of video courses, books, or online programs that teach someone how to do something or offer them a service that helps them achieve a goal.
Things such as fitness programs that teach you how to get abs or courses that teach you the basics of meditation or how to learn calculus. Really any type of valuable information that people are looking to purchase to improve their life.
Usually, informational products are packaged into a course or video program and marketed through channels such as paid advertising, search engines, or an email list.
Info products are one of the most profitable online business monetization methods because the startup costs are practically nothing and once you have created the product it doesn’t have any additional cost to create new copies to sell. The only expense is your marketing costs to scale the sales channel.
Example Business:
Productized Services & Agencies
Productized services are online services like SEO or graphic design which are packaged into a fixed cost product and delivered in a certain timeline.
This monetization method is an extension of freelance services where instead of a solopreneur offering services to clients he creates a system and team out of the service he provides and packages it into a fixed product that other businesses can purchase.
This service is usually marketed through paid ads, referrals, freelance platforms, and content marketing.
It has a low startup cost because you can start by providing services as a solopreneur then as the business grows you can hire a team who produces the service and you can focus on marketing and selling your service packages.
Example Business:
Affiliate Marketing
The Affiliate marketing monetization method is when you send your traffic to another online merchant and they give you a certain percentage of each sale generated from your traffic.
For example, you could run a youtube channel or a content website with millions of subscribers and include ads on your channel that direct them to an offer on a merchant’s website where you receive 20% of all sales generated from your channel.
The affiliate marketing business model requires a lot of upfront time and investment to build traffic and an audience but it can pay off in the long run if you are able to generate a big enough following around a topic that has products that are valuable.
Example Business:
Advertising
Another simple online business is an advertising business. These types of businesses are typically websites with a large amount of traffic, YouTube channels, or other platforms that attract a large number of followers where the business can place ads on its property to make money from the content.
Example Business:
Software as a Service (SAAS)
Software business models are businesses that offer a software product for customers to use with a monthly subscription that helps those customers with a certain problem in their own business.
This type of online business is more technical and requires development and a highly skilled team to develop and manage the business but it can be very lucrative because the costs of production are zero once the product is created.
Example Business:
Apps
Apps are a big business if the application that is created develops a large user base and offers substantial value for mobile users. These businesses include video games, health trackers, and others tools that help solve problems on the go.
Example Business:
Lead Generation
Lead generation businesses are services that do the marketing work for other businesses by generating new client leads for their business. Usually, leads are when a potential customer signs up through a contact form or makes a call to the business’s phone line. This could be a local plumbing service that pays your business $30 per every lead you send to them.
Online Marketing Channels
In any online business, it consists of a monetization method and a traffic source or marketing channel that sends profitable traffic to the business. Below are the main online marketing channels.
Search Engine Optimization (SEO)
Search engine optimization (aka SEO) is the marketing method of optimizing your website’s web pages to rank high on Google when potential clients are searching for keywords that are related to your service offerings.
SEO relies on Google’s algorithm and some of the main factors that determine whether your website is optimized well for SEO are the number of backlinks your website has gained from other websites, the quality of your content, and how your content is targeted towards keywords that your target market is searching for when they go to Google.
SEO requires a substantial upfront investment of time and money but once it kicks in if your website is ranking the costs to maintain your SEO rankings are relatively small.
Pay Per Click Advertising
Pay-per-click advertising also known as PPC is the marketing method of paying for ad placements on Google, Facebook, YouTube, or another platform that attracts a large number of users who could be potential customers.
This is a quick method of generating more sales and customers because as long as you are paying to run your campaigns you can start generating traffic right away. The key is creating marketing funnels or landing pages that are profitable with the amount of money you are spending on clicks.
Affiliate Marketing
Affiliate marketing is a marketing method where a merchant business offers a percentage of the sales price generated by each sale that an affiliate sends to their website. For example, if you own an eCommerce store and want to offer other bloggers who write about a topic similar to yours a commission when they send traffic that buys your products this is affiliate marketing.
Affiliate marketing is similar to influencer marketing but the main difference is it can be any web property, blog, channel, or source of traffic that sends you new sales, not just major influencers.
It’s a good marketing method because you only pay for sales that were generated and it will always be profitable as long as your set your rates right.
Social Media Marketing
Social media marketing is a marketing method that uses social media platforms such as Facebook, Instagram, Snapchat, Twitter, or any other to build an audience and then promote your products and services to that audience you have built by consistently posting and creating content that helps your followers.
This marketing method requires building a community and offering valuable content to the audience you build so that they come back to your store or online service and purchase more of your products.
Email Marketing
Email marketing is a marketing method that consists of capturing subscribers from your website and then nurturing these subscribers over time with valuable content and other information so that they stay interested in your email content where you can then offer them products that will help solve their problems through this email delivery.
Email marketing is one of the highest ROI methods of online marketing because once a customer subscribes to your email list they have already demonstrated that they like you which means they will have a higher rate of conversion.
Email marketing is also relatively inexpensive because it just requires some software and content marketing implementation to keep your subscribers warm. You also own your email list and it’s not in the ownership of another platform.
Influencer Marketing
Influencer marketing is when you pay or compensate an influencer to promote or mention your products to their audience.
This can be in the form of an affiliate marketing deal where you offer them a commission on the sales that they send or it can be a fixed cost for the advertisement.
Influencer marketing is a good marketing method for businesses where there are certain influencers who hold a high level of trust with your audience. For example, if you are selling basketball clothing or equipment and you get Shaq to mention your products this can have a high return on investment.
Content Marketing
Content marketing is the general term for creating and promoting content that is relevant to the products you sell which helps users and offers them inspiration, entertainment, humor, or some other beneficial use. If the content is strategized correctly it will be created to motivate a certain action that helps generate more sales and revenue for your online business.
Examples of Small Online Businesses That Make Good Money
We always get inspiration from other successful businesses when trying to start something.
Below I’ll go over a number of different online businesses that make good money and have built a solid brand for themselves which were created by a solo person or small team, not with a huge amount of funding.
Dog Food Advisor
Dog Food Advisor is an example of an affiliate marketing content website that generates a ton of traffic on topics related to dog food. Their main function as a business is writing dog food reviews and creating content that helps people with dogs choose the best food.
Type of Business: Affiliate marketing content website, they make money from referring traffic to merchant sites like Chewy.com to earn a commission on sales generated.
Marketing/Traffic Channel: They focus mainly on SEO or search engine optimization as their marketing strategy.
Manta Sleep
Manta Sleep is a sleepwear eCommerce company that sells eye masks for sleeping and other accessories that help you get a good night’s sleep at home or on the road.
They sell their products on Amazon as well as on their own website and it was started by a few people who wanted to create better sleep products.
Type of Business: Ecommerce company that makes money from selling sleepwear and sleep eye masks.
Marketing/Traffic Channel: They use Amazon, social media marketing, email marketing, paid advertising, and probably other channels to drive targeted sleep traffic to their store and Amazon listings.
Arena Strength Fitness Bands
Arena Strength is a fitness band company that sells on its eCommerce website as well as on Amazon and other channels. They are a small internet business that does a substantial amount of revenue.
Type of Business: Ecommerce company that makes fitness bands mainly for the female audience.
Marketing/Traffic Channel: They market their products using Amazon, social media marketing, email marketing, and content marketing with their audience as well as paid advertising.
Authority Hacker
Authority Hacker is an online marketing education and course company that helps entrepreneurs start content websites to make money online. They provide courses and educational materials to help founders grow their business and take it to the next level.
Type of Business: InfoProducts and affiliate marketing company that generates traffic from SEO, email marketing, podcasting, and content marketing.
Marketing/Traffic Channel: They market through podcasting, community building, SEO, paid advertising, and email marketing primarily.
Epic Gardening
Epic Gardening is an online gardening brand that makes money through advertising, affiliate marketing, and selling physical gardening products online.
They produce tons of top-level gardening content and work on building an audience to help them learn how to garden and grow plants better.
Type of Business: This is an affiliate marketing, advertising, and eCommerce content business where the main goal is creating high-quality gardening content on their website to gain traffic from Google as well as building an email list and brand.
Marketing/Traffic Channel: They market through SEO traffic, some paid advertising, email marketing, and probably other channels as well.
Word Agents
Word Agents is an SEO content writing service that makes money by selling writing services to other online businesses that need content that is optimized for SEO.
Type of Business: This is a productized service business that offers a service in the form of packages and has a team that delivers the product to business owners who purchase.
Marketing/Traffic Channel: They market through referrals, paid ads, influencer marketing, email marketing, and most likely a few other channels.
GILI Sports Paddle Boards
GILI Sports is a paddleboard eCommerce company that sells paddleboards online through their eCommerce store. This is a million-dollar one-person business that was featured on Forbes.
Types of Business: An ecommerce paddle board company.
Marketing/Traffic Channel: Email marketing, influencer marketing, paid advertising, Amazon, and likely other channels.
For more businesses and inspiration check out the Tim Ferris podcast episode about one-person businesses that generate 1 million-plus in revenue or the Empire Flippers marketplace which contains seller interviews.
Personal Keys to Online Business Success
While I haven’t had major success myself I’ve started and grown a few small businesses and learned from a lot of people who have had much bigger million-dollar online businesses.
I’ve seen that one of the keys to online business success is when founders find the combination of expertise/passion for the business plus a good market opportunity.
You don’t have to absolutely love what you do but you do need to be good at it and have enough excitement about the products/services to be able to create value in the market that is different from other businesses.
When things get tough and your business has a downturn you need to have enough determination and commitment to your business and products that you can continue to create value and recover despite setbacks.
The ideal business opportunity = passion/skills + problem/market opportunity
Keys to Creating a Competitive Advantage
When I think of business markets and competing against other similar businesses I like to put things into a framework using the five forces model that Michael Porter created.
Mentally mapping your business, business idea, or marketing strategy into this framework helps you to understand what action steps you need to take or simply if your business idea will even be profitable given enough time.
Here is the framework:
The above framework is really how every market economy works to determine which business is going to be profitable and durable over time.
The success of your business depends on the competitive advantage it develops which allows it to have better power over these five forces compared to your competitors.
Main Sources of Competitive Advantage
- Branding (you develop a unique angle in the customers mind that allows you to charge more, own mind share for your category, and maintain loyalty)
- Proprietary Technology (you have unique technology which allows your business to do things more efficiently or solve the problem in a better way)
- Network Effects (your business has a large network which itself creates the value because of the network or community)
- Economies of Scale (your business is able to do things at a lower cost and faster because it has more resources and capital to operate at a large scale)
- Drive, Purpose, Ability to Execute Consistently (I consider this an x-factor which won’t have an effect on the above economic factors but it will determine if your business will succeed in the competitive environment. Often to attain a competitive advantage it takes a high level of effort and execution which is driven by the founder and operators at the company.)
The five forces show how these competitive advantages shake out in the actual economic marketplace with other businesses.
The Five Forces Reviewed
Threat of New Entrants
- How easy is it for someone else to start the same business? What are the barriers to entry that make it hard or easy for someone else to compete with you?
- How expensive is it for someone new to get into your business?
- If the barriers to entry are higher then your business will be more profitable because there will be less competitors driving up the costs of operation
Bargaining Power of Suppliers
- How many suppliers of your products or services needed to operate your business are there? Can they charge a lot?
- If there are only a few suppliers of your product or services then they will be able to charge more and your profits will decrease
Threat of Substitute Products
- Are there a lot of other similar products that solve the same problem? How expensive are these products? How easy is it to switch to them? What is the perceived level of differentiation?
- If there are plenty of substitute products that solve the same problem in the same or different way then your ability to charge higher prices will go down and you will be less profitable
Bargaining Power of Buyers
- How easy is it for buyers to switch to an alternative similar product? How sensitive to price changes are buyers?
- If your business is not valuable enough where buyers can easily switch or be unwilling to pay higher prices then you won’t be able to charge as much and will be less profitable.
Using an Affiliate SEO Business as an Example
I have personal experience operating affiliate SEO businesses so I’ll use this framework to break down the competitive dynamics of Dog Food Advisor.
Keep in mind that this is basically an evaluation of their strength in the ability to maintain their SEO rankings since this is the main driver of the business.
Threat of New Entrants: I’d say this is medium to high because it’s easy and relatively cheap to start a new affiliate SEO business in the dog food niche but it’s not easy to get to the level that Dog Food Advisor has established with a 13-year site age and 75 domain rating which means they have tons of links.
It would probably cost a couple of million dollars to purchase the number of links they have and to create the amount of content they have produced.
That being said it’s really easy for anyone to compete on the general level in this business which drives link costs up and decreases profits overall, but it’s hard to attain the power that an old, strong website attains like Dog Food Advisor.
Bargaining Power of Suppliers: Low, in this business the main supplier costs are content writers, link services and labor, and web developer costs. Overall there are tons of online workers available at a low cost and they don’t have much bargaining power because it’s easy to find and replace them with someone else. This makes the business model more profitable.
Threat of Substitute Products: High, if merchants decide that affiliate marketing is not working well for them anymore they can cancel their commission deals or if online users decide that search results are not as good as video results then they will simply switch to checking video results and not webpages.
There are also plenty of other review results and ways of achieving the same information (social networks, asking friends, youtube, going to a physical store). This is the biggest threat to this business model.
Barganing Power of Buyers: Medium, the merchants who are offering commissions and paying affiliates making up the revenue of this business model have a good amount of bargaining power if they don’t rely just on affiliate marketing as their traffic channel.
They can easily cut commission costs if there are many different affiliates who drive traffic for them because each individual affiliate has a small amount of power. The bargaining power decreases the higher percentage of a company’s sales you contribute.
For example, if your affiliate SEO business drives 80% of the company’s revenue then they will have less power but if the merchant has an even split of 20% from 5 different affiliates then each one has less power.
Overall:
- Site age, Google history, and domain authority make up Dog Food Advisors’ main competitive advantage because it would cost a lot of money to attain the power they have gained in Google’s eyes
- Since they have a high authority their operating costs are lower and they will make more money than an affiliate SEO business that has to pay higher costs for links and content when trying to match them
- Overall, a very profitable business but the business has a lot of high potential threats that could destroy it pretty quickly
- If Google changes its algorithm to reduce review results or another type of media or platform takes over the main user share of review content then the business could die
- If their affiliate partners decide to cut rates or switch to other marketing channels this could put them out of business as well
- They have some amount of economies of scale and branding that gives them their competitive advantage
When starting a business and deciding how you will compete in a market this is the type of thinking that needs to take place to determine how profitable the business will be based on the costs, time involved, and revenues as well as if this profitability will be durable as the market changes and new players try to compete.
Have an Idea? How to Learn More About Starting an Online Business
Here are some recommended resources and learning materials that will help you learn more about specific business models and to develop an overall framework and idea of what you want to create.
I’ve focused these resources on small online businesses that can be run by a solo person or a small team of people.
