Selecting The Best Online Business Model

So you’ve made the decision to take charge of your own destiny and have committed to starting your own online business. At this point, you should have completed Step 1: Choosing Your Niche.

 

Now it’s time to select the best online business model which should be based around your lifestyle, or the lifestyle you’re seeking.

 

Let’s discuss the pros and cons of the different online business models.

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Private Labeling & Manufacturing

If you’ve spent any time around entrepreneurs lately, or if you’ve been thinking about creating/manufacturing your own brand of products, you’ve probably heard the term “private label” tossed around. Or maybe somebody told you they “white label” their products and you weren’t quite sure what that means or how private label differs from white label, so you googled it and here you are.

 

While white labeling and private labeling will often be used interchangeably, there are some distinct differences that are important to understand in order to determine which is the best online business model for you and your niche.

 

When a manufacturer mass produces a specific product and then makes that product available for other companies to brand/label as their own and then to resell, this is what’s called white labeling.

 

The easiest way to truly grasp this concept is with a real-life example. Ironically enough, I just finished my semi-monthly trip to Costco, and I can’t think of a better example to give than Costco’s own Kirkland Signature brand. If you’ve ever been to Costco, you’ve undoubtedly seen the numerous products with the Kirkland Signature label. This is also referred to as their “house” brand. Everything from laundry detergent to batteries and everything in between can be purchased under the Kirkland label. You may not have realized this, but Duracell actually white labels batteries for Costco under the Kirkland brand (and for much less) which is something you may want to keep in mind when buying your batteries in the future.

 

Many of the biggest retailers have their own white label brands, and if you haven’t paid much attention in the past, I’m confident you’ll be noticing more and more white labels after reading this.

 

Here are a few white label examples:

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Wal-Mart-Great Value, Target has a variety of white label brands, including Market Pantry, Archer Farms, Simply Balanced, etc…

 

Remember, white labeling is similar but also very specific and critical differences from private labeling.

 

If you decide to private label a product, you will still work with a manufacturer to produce the product for you. However, the primary difference when private labeling is that the product being manufactured will be sold exclusively through you and/or your brand.

 

For example, I used to have a company that sold dog products. Our factory was manufacturing similar leashes and even selling them to some of our competitors, but nobody was getting our exact leash because we had a private label deal with the manufacturer.

 

The easiest way for you to remember the difference between white labeling and private labeling is to think of the word unique, so if you come across many different companies purchasing the same exact laundry detergent and simply adding their own label to the package, this is white labeling. Hence the name. Whereas a private label product is exactly that, it’s exclusive, unique, or “private” and will only be sold under that specific label or brand.

 

This is actually one of those rare cases where the name/phrase tells us all we need to know, so don’t go digging for some hidden meaning or agenda that doesn’t exist. The only thing left to decide is…To private label or to white label.

Advantages & Disadvantages To Private Labeling/White Labeling

Like everything else, you’ll find advantages and disadvantages to both private labeling and white labeling, so your choice really comes down to your primary goals/objectives.

 

When compared to designing your own product, the biggest advantages to either private labeling or white labeling is the amount of money and time you’ll save. This can be the difference between success and failure, especially in a startup or new venture where money and time are both key factors. With all the money you’ll save on product design, molds, etc…you can put towards marketing and advertising your new brand.

 

The biggest disadvantage to white labeling is that you’re selling the same product as dozens of your competitors and you don’t have anything differentiating your product from the competition. When helping others decide which route to go, I’m very clear to point out that you better be an incredible marketer if you’re going the white label route.

 

Think about it like this…If you have 10 bags of frozen corn on the shelf (and each bag is literally filled with literally the exact same corn) but with 10 different labels, you have to win that customer by the marketing on your label and nothing to do with the quality of the product, or whether it’s a better product or not.

 

Becoming a great marketer takes time and practice and involves learning psychology through persuasion tactics, etc…so if you are just getting started, you would be much better off creating a private label product where you can stand out from the pack by differentiating your product from your competition.

Related Questions:

 

  • How to find quality white label and private label manufacturers
  • As a newbie entrepreneur, is it better to private label or white label my first product?
  • Advantages/Disadvantages of both white labeling and private labeling
  • When selling on Amazon, should I choose to white label or private label

Dropshipping

Over the past decade, dropshipping has become extremely popular and must not be ignored when going through the process of selecting the best online business model.

 

Dropshipping is the process of selling products that you DO NOT STOCK. This means you simply setup a website with the product/s for sale, and when they are purchased by your customer, they are then shipped to your customer by a different company (typically the manufacturer of the product).

 

For example, let’s say I want to set up a website to sell shoes, but I don’t have the warehouse space to keep 20 pairs of each different size and every brand on hand. This is where I can reach out to Nike, Adidas, etc… and set up a dropshipping arrangement so that I’m able to sell their shoes but I don’t have to stock any inventory.

 

At first glance, going the dropshipping route may seem like a no-brainer. However, after spending some significant time evaluating this online business model, I’ve found much bigger disadvantages with very few advantages. Although, like I mentioned before, it really depends on what the goals of your business are to determine whether dropshipping is the model for you. My role is simply to give you all the facts, but it’s up to you to weigh the facts and choose the model that suits you and your needs best.

Dropshipping

Advantages of Starting a Dropshipping As The Best Online Business Model

Very low startup costs

 

The most costly aspect of just about every E-commerce business is INVENTORY, but with Dropshipping the cost of inventory is completely eliminated. All you need is a website and you can be in business making money immediately.

 

Expand Your Product Line Quickly

 

Again, you don’t keep any inventory when you choose to become a dropshipper, so this allows you to be very agile/nimble and you can test different products very easily by just throwing them up on your website. This is another huge advantage to dropshipping that no other business model offers.

Disadvantages Of Starting a Dropshipping Business

Always Relying/Depending On Others

 

This can become a major problem for many reasons. It’s also the reason I’ve steered clear of dropshipping with every business I’ve ever started. I became an entrepreneur so that I could rely/depend on MYSELF to become successful. However, with dropshipping there are so many other people who determine whether you will succeed or not. The biggest issue is that you’re relying on other people’s INVENTORY, so if they run out of stock, you also run out of stock and therefore don’t make any money.

 

You’re also relying on their fulfillment/logistics process to get the products to your customers on time. So if they screw up and don’t ship an important Birthday present out in time, you’re the one who gets blamed.

 

I’ll tell people, if you’re ok giving up all control, and you’re ok knowing that your business is dependent on many others, then dropshipping could be the right choice. It’s usually the business model chosen when you’re just getting started, don’t have much to invest in your business, and you want to get your feet wet but you’re not quite ready to dive in head first.

 

With so many disadvantages to dropshipping, you might be wondering why anybody would choose this model, but the biggest advantage dropshipping has of being such an inexpensive and low risk way of starting a business makes dropshipping an ideal candidate for many new entrepreneurs.

Affiliate

With over 25,000 entrepreneurs and advertisers alike depending on affiliate marketing as a primary source of income, becoming an affiliate is now more popular than ever before.

 

In the United States alone, we saw spending from affiliates exceed $6 Billion dollars last year and affiliate spending is projected to increase to nearly $7 Billion in 2020.

 

Due to the rapid growth we’re seeing in the space, more and more newcomers are jumping on the affiliate marketing bandwagon, but many are jumping in blindly before understanding all of the pros and cons of becoming an affiliate or setting up an affiliate program for your existing business.

 

So we’ve decided to provide some more insight to help you decide whether going the affiliate route is the right choice for you and your business.

 

Before we dive into the pros and cons, let’s first cover the basics of what it really means to become an affiliate or to set up your own affiliate program.

 

When signing up to become an affiliate, you start by selecting a product or products to promote inside of whatever niche you’ve chosen. You will be an independent contractor and you’ll make an agreed upon commission from each product sold. In many ways, it’s very similar to being an independent sales rep for the product/company you choose, but the biggest difference is that instead of making cold calls or going door to door, you’re selling is done by publishing content. Lots of content.

 

You do this by creating valuable content like YouTube videos, blog articles, social media posts, reviews, etc. to provide solutions to whatever problem your ideal customer is trying to solve. The objective is for your prospective buyers to come across your great piece of content that gives them their answer when researching something like “the best vacuum cleaner for picking up dog hair” and your piece of content should do such an amazing job of providing them with a solution to their problem that they click YOUR link and purchase product X on Amazon, which in turn pays you a commission. Amazon associates earn anywhere from 1-10% depending on the product you’re an affiliate for and I’ve seen other affiliate programs pay as high as 100% of the initial sale. Keep in mind, the higher payouts are typically for membership based products with recurring billing.

 

On the opposite end of the spectrum are the companies who have created their own affiliate programs. The best example of this again is Amazon. Although, don’t be fooled into thinking that only massive companies like Amazon can create their own affiliate programs. I’ve seen many small business owners and even sole proprietors create affiliate programs as a way to help drive more sales. If done correctly, an affiliate program can be a phenomenal way to add to your bottom line.

 

You can create your own affiliate program using any of the following trusted platforms:

 

You’ll need to decide how much you’re willing to pay each affiliate for every order they refer, then complete the rest of the setup process within the affiliate platform. The various affiliate platforms have made this simple within their setup process, so this should only take you a few minutes.

 

Now that you’ve setup your account, it’s time to let others know about your new affiliate program. Your one and only job now is to get your potential affiliate marketing partners to believe wholeheartedly in your product and excited enough to take action and begin promoting your products.

 

Let’s say you just launched your first product, a clever new diaper bag for new parents. You’ll want to begin looking for partners who have the ability to drive a significant amount of sales your way. You can start by scouring all of the baby channels you can find on YouTube and then introducing yourself and your product. The key here is to always provide value to the influencer before you ask for a favor in return. These influencers are bombarded with requests all day long by other business owners with an agenda, so the last thing they want to read is another email asking them to promote your product. This is where you need to be clever, do some research and figure out what it is that you can do for that person that would help them or their audience and offer to help.

 

If you’re not quite comfortable yet reaching out via cold emails, I suggest using our template for “getting to yes” when reaching out to potential affiliate partners. Shoot us an email at info@buildmybrand.xyz with the subject line: “Affiliate Partner Template” and we’ll send you the template.

 

As you’ve learned by now, affiliate marketing can be a great business model for the right entrepreneur and if done properly so you should definitely consider it as an option when selecting your online business model.

Subscription Service/Box

Unless you’ve been living under a rock, you’ve seen the rise in popularity of the “monthly box” or subscription service companies over the last decade. In this article, we’re going to tackle the pros and cons of subscription service companies as an E-commerce online business model and whether starting a weekly or monthly box business is the right online business model for you.

 

When I say subscription service, or monthly box, I’m talking about the companies like Dollar Shave Club, where you’ll receive a monthly supply of razors on your doorstep, so you can say goodbye to those late night, last minute trips to the store for replacement blades.

 

BarkBox is another subscription service you’ve probably heard of where they’ll send you a monthly box filled with new and novel dog products, treats, collars, leashes, etc…with the goal of introducing your dog to new products you otherwise may never have come across.

 

Or Birchbox, who sends out boxes filled with beauty products like lip balms, moisturizers, and anything else you can think of that will fill up the make-up drawers of millenials.

 

While subscription service businesses face many of the same challenges as traditional e-commerce businesses, there are some important pros and cons to these monthly box services that you’ll want to consider before deciding whether this is the online business model for you.

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Advantages of Starting A Monthly Box/Subscription Service

More predictable monthly income

 

Since you are collecting a recurring subscription fee from your customers, it’s much easier for you to predict next months revenue, and even revenue 6 months from now. It will take some time to get to this point, but once you can determine what your cost is to acquire a customer, as well as your churn rate (percentage of every 100 customers that will cancel each month) it’s easy to run the numbers and scale the business.

 

Consumers Love A Surprise

 

There’s something about that feeling of anticipation and excitement that runs through your veins when ripping open a new package filled with unknown surprises. And the thrill is taken to the next level because you always have next months package to look forward to. This has been a critical component for this business model and why these companies have become so popular over the past few years.

 

Build Closer Relationships With Your Customers

 

The benefit you have of sending weekly or monthly boxes to your customers allows you to constantly be ‘touching’ or communicating with your customer base. This is another big pro to subscription models and one that is often overlooked but just think about how much more brand loyalty you will have for a company that is sending you fun new surprises on a regular basis. These companies are constantly top of mind. Just think, if you go online to buy a bag of dog food once, you may not even remember the name of the website you bought it from, but if you’re getting a new box of different dog foods to try each month, you’re always going to remember this site. Howevere, keep in mind that this advantage can quickly become a disadvantage if your customer support is not on point or if you begin sending products out that your customers dislike.

 

Build Great Relationships with Your Vendors

 

Subscription boxes are filled with all kinds of different products from various brands which is what makes them so exciting to open. It also allows you to build great relationships with your vendors because your monthly box brand is essentially a marketing arm for their company. This often gives you the ability to negotiate incredible terms with vendors, and sometimes they are willing to donate a certain amount of units of their product because they see it as an advertising expense or customer acquisition cost. There’s a reason brands have been giving out samples of their products for decades. Take a store like Costco for example…Customers have come to expect samples every time they step foot in a Costco now and it’s clearly proven to be a worthwhile expense to the brands giving away the samples. It’s really no different than acquiring a customer through a channel like Facebook or Google.

 

We’ve covered the advantages of starting a subscription service, but there are also some major disadvantages to consider.

Disadvantages of Starting a Monthly Box/Subscription Service

Customers are terrified of commiting to contracts

 

We live in a world filled with contracts and commitments, yet we feel like we’re taken advantage of when we sign up for a “FREE TRIAL” and then begin to see a charge for that free trial hit our bank account. From past experience, you automatically begin thinking about the hassle you’ll go through just to get the charge cancelled. This alone creates a sense of anxiety and can ruin a brand’s reputation instantly. If it’s a small enough charge, you may even put it off for many months just because you think of the time it will take you to call and cancel as more of a hassle than it’s worth. This could be considered as a short term advantage to the owner of the subscription service, because you’ll be collecting additional revenue but in the long run you’re creating more damage to your brands reputation due to the perception your customers have of your company and even if they haven’t cancelled your subscription service or recurring monthly charge, they will without a doubt be telling their friends how much they despise your brand which will eventually be the demise of your brand.

 

The need to constantly ‘wow’ and always be innovating 

 

While this should be something you’re doing no matter what online business model you select, with subscription services it’s paramount to be providing shock and awe. If your customers begin losing the excitement or anticipation of opening your box each month, it’s only a matter of time until you will be losing customers and eventually closing up shop.

Niche Site Publisher

Whether you are just beginning your online journey as an entrepreneur or you’re in the research stage of selecting an online business model, you’ve probably been hearing the term niche site and you’re wondering what exactly a niche site is.

 

Niche sites have quickly become one of the easiest ways to start an online business and therefore a great business model to consider. Let’s break it down into simple terms so that you will quickly understand what a niche site is and the pros and cons of starting a niche site.

 

To understand what a niche site is, you must first know the definition of a niche. The word niche, depending on how it’s used, has many different meanings. In this case we’re using niche as it relates to business.

 

Definition of Niche: A smaller subset of a larger market.

 

I like to think of a niche site as a specialized website related to a segment/division within a market or industry.

 

For example, you could build a website that provides new parents with all the helpful information they need to know when choosing what crib to purchase. While some may say you’re in the ‘baby’ niche, it would be more accurate to say you’re in the ‘baby crib’ niche, seeing as that is the specialized division/subset of ‘baby’ which is the larger market.

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  • A website focused on chairs for people with bad backs
  • A website focused on saltwater aquariums
  • A blog focused on Sleep Apnea

 

Now that you fully understand what a niche website is, let’s dive right in and discuss the advantages and disadvantages to selecting a niche website as your online business model.

Advantages of starting a Niche Website As The Best Online Business Model

Low Overhead & Startup Costs

 

Building a niche website is one of the least expensive online business models you can start and your monthly expenses will also be very low. All you need is a domain name, hosting account and most importantly content, and you can create a WordPress niche website in just a few minutes.

 

Check out our top recommendations of where to buy your domain name and where to get hosting for your niche website.

 

Passive Income

 

Every time I hear the phrase passive income, I get a warm and fuzzy feeling inside and so many others do as well because passive income is something we all strive for and would love to have. At the same time, it’s very difficult to achieve and typically comes from large financial investments like real estate or stock dividends. You may not have realized it but niche websites are one of the best ways you can earn passive income and one of the only ways I know how to get passive income without a large investment up front.

 

When you start your niche website, you’ll be investing your time to create and share content on a specific niche that you have passion for and/or have knowledge of and this content will eventually be picked up by the search engines. Once you have a significant amount of website visitors coming to your site, google will start paying you to host ads on your site. Think of your website as a big plot of land divided up into different parcels (sections of the site) and google will pay you to rent that space just as they would to rent a billboard on the side of a highway. The more visitors that come to your site, the more you’ll make and it’s all passive income because you’ve already written the articles. I have sites up that I haven’t touched in 5 years, yet I continue to get direct deposits into my bank account every month from these websites.

 

Many Different Income Streams

 

Another one of my favorite things about niche sites is how many different ways you can make money from them. Of course you’ll get paid by google for serving ads on the site which is the revenue stream most people associate with niche sites. Although, if you like to think outside of the box, you can monetize the site through multiple channels. There’s affiliate revenue where you will link to products you mention on the site and my ultimate favorite is to create your own products within the niche you’ve selected and now you have an e-commerce business and a niche site all in one. There are many other revenue opportunities with niche sites which I recommend reading about and then deciding whether they are right for you or not.

 

Work From Anywhere In The World 

 

Niche websites are primarily focused on content, so you can run a niche site anywhere you have an internet connection and the ability to write articles/blog posts.

 

No Need For Staff

 

While some niche site owners will hire a writer to create and edit the content, it’s not necessary if you are good at writing yourself and enjoy the process.

Disadvantages of Starting a Niche Website

Making Money Takes Time

 

One of the biggest disadvantages to niche sites is that it takes a significant amount of time to start generating decent revenue. The main reason for this is simply because it takes time for google to begin ranking your content.

 

That being said, once your site is ranking for popular search terms within your niche, you’ll begin earning more and more revenue over time as your site begins to get more visitors. This ultimately becomes an advantage because you’ve created a passive income stream that can continue to provide for you and your family for a long time.

 

Tons of Competition

 

Competition is a good thing, but when there’s too much competition it can result in your niche site fading off and dying or never getting traffic to begin with. This is why it’s critical you do a good job with your search analysis and keyword research before choosing your niche. If you pick a niche that’s too broad, you may spend a lot of time creating content nobody sees and I don’t want to see that happen to you.

Amazon

I’m guessing you have a friend or family member who’s started an Amazon business and maybe you’re wondering if Amazon is the right online business model for you. If that’s the case, you’re in the right place. I’ve started numerous Amazon businesses, both FBA and FBM. I’ve learned many lessons along the way and will share some of those with you but more importantly I’m going to go through the pros and cons of running an Amazon based online business model and hopefully by the end you will know whether starting an Amazon business is the right choice for you.

Advantages of Starting an Amazon Business

Built-In Customers

 

One of the biggest advantages you get with the Amazon platform is their built-in customer base. This makes launching on Amazon to begin with a no-brainer in most instances. Many entrepreneurs are afraid they won’t be able to get visitors to their website or attract customers to purchase their products but Amazon eliminates this concern. With over 100 million AMAZON PRIME subscribers in the U.S. alone, and over 200 million people visiting Amazon.com each month, there’s no shortage of customers to get your products in front of.

 

Trust

 

As a consumer, you’re well aware of the role trust plays when it comes to your purchasing decisions and when first launching a new brand, it’s very difficult to get new customers to trust you when they don’t even know who you are. By using the Amazon platform, you’re able to “borrow” the trust your customers have in Amazon.com. This is why we will almost always recommend launching your brand on Amazon to begin with.

Disadvantages of Starting an Amazon Business

No Control 

 

As a seller on Amazon, you have no control of your success because you’re building your house on Amazon’s property. Think about it for a second, you are spending a lot of time designing and manufacturing your product, as well as all the time and money it takes to market your product, and then you’re putting everything you’ve built on Amazon’s platform. Again, this is one of those instances where you are relying and depending on somebody else for your business to succeed which doesn’t work for me. Don’t get me wrong, I’m not saying you shouldn’t use the Amazon platform. However, you shouldn’t rely solely on Amazon to make your living. There’s no such thing as an “Amazon Business” in my book. You may have a business that sells on Amazon, but Amazon should simply be one of the many channels you sell through in addition to your own website, etc…This is simple diversification. Just like you wouldn’t put your entire life savings into a single stock (or at least you shouldn’t) your business also should not rely on one platform.

 

High Fees

 

Before listing your products on Amazon, it’s imperative you crunch your numbers and make sure it pencils out for you to make a profit. I’ve seen far too many new Amazon sellers come to me

 

If you’d like to learn more about selling on Amazon, check out some of our other articles, or if you’re ready to dive right in, the best way we’ve found to be successful is to go through the best step-by-step Amazon training program.

 

Race to the Bottom

 

Most Amazon sellers become so terrified of the large amount of competition that has entered or will inevitably enter your niche, that they are constantly trying to compete on price. When you have hundreds or in some cases thousands of sellers all selling the same product, they falsely believe they need to continue lowering prices to get sales. When everybody has this mindset, it’s easy to see how it becomes a race to the bottom and everybody loses. Rather than competing on price, you should be focused on your UVP (unique value proposition) or what differentiates your product from the rest of your competition. Whatever you do, don’t jump in and join the “race to the bottom” or you won’t have a business for long.

 

As I’ve mentioned, Amazon is a great platform to begin with, but there’s so much to learn if you want to be successful on Amazon. If you’re just getting started, I highly recommend you go through the step-by-step training from Amazing.com. My team and I have gone through it and I wouldn’t have reached the levels of success I’ve had with Amazon if it weren’t for their amazing Amazon training course.

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