1.3. Online Business Models and Revenue Sources

There are many different types of online businesses you can start. The scope of business models and ways to make revenue online is wide. Some models are simple, some are more sophisticated and complex. Since the internet and the web environment are highly flexible, besides the basic online models and revenue sources described blow, there are also many other possible combinations.

Creating new models or new combinations that didn’t existed before are not uncommon in the online world and discovering unique one can bring substantial profits for the innovators.

Anyway, you don’t need to be extra creative or innovative to be successful. You can just follow a business model that works and be devoted and persistent.

1.3.1. Online Revenue Sources

Before we observe the online business models, first let’s see where online money come from. The revenue sources, also known as revenue models, are integral part of the business model itself.

There are five basic types of revenue that you can generate online: 1. Sales, 2. Affiliate Commission, 3. Subscriptions, 4. Publishing Ads and 5. Transaction Fees.

Sales revenue

The most straightforward revenue source online is from direct sales. You can sell (almost) everything online. Besides physical goods (like crafts, jewelry, office supplies, clothing, electronics, supplements etc) you can also sell digital products (music, videos, games, e-books, apps, software etc). You can also sell information and services of different types. In order to sell directly to your customers, you have to provide services, generate information (or content) or possess the goods/products. If you provide the services or create the products yourself that’s great, but you can also outsource them from suppliers. If you don’t what to hold inventory you can supply your store trough drop-shippers who can send the goods directly to your customer after they make the purchase.

Affiliate commission

If you want to make a simpler online business and avoid creating an e-store, produce goods, buy from suppliers and/or keep inventory, you can decide to recommend products from other sellers for a commission. The affiliate commission can start form 2% for physical goods and can reach to incredible 80% (or more) for digital products like e-books, software, tutorials, video lesions etc. The range of affiliate products you can offer is wide. Almost any known brand, like Amazon, Target, Apple, offer their products through affiliate programs. There are also affiliate networks like CJ and ClickBank that bring together the business who offer their products via affiliate marketing and the business or the individuals who want to earn affiliate commission. The process for integrating the affiliate model in your business is very simple. You first apply for a program, after you get approved you copy-paste the links, or embed the widgets in your site. Then you work to attract visitors to your site and motivate/send them to check the offer of the seller. If the visitors buy you get a commission.

For more details read our article: How to Start an Affiliate Marketing Business from Scratch

Subscriptions

If you manage to create a premium content, valuable (automated) web services or a software used as a service, you can generate income from subscriptions (weekly/monthly/yearly). In order to do so, you should have regular free content that will convince your user of the worth of your premium services, you should give a trial period, or you should already have built a loyal audience ready to pay for your offering . Since the internet users are used to have free content and free web services, you should create something very specific or with superior value, what is not easy to achieve if you are a beginner (unless you have already developed specific skills).

Publishing ads

The simplest way to generate income online is to publish ads on your site. The process of publishing ads is simplified by ad networks like Google’s AdSense. In order to get approved for AdSense, you need to have original content on your site and have some history and inflow of daily visitors. After you copy-paste the Ads’ code in to your website you will have to focus on bringing and retaining substantial number of visitors there. This can be achieved by creating original, useful and engaging content that can include, articles, tutorials, tips, videos, podcasts etc. It is important to note that some topics/niches can bring more income per visitor than others. For example, having a blog for financial issues can generate higher ad revenue than a blog on human rights per visitor. Anyway, if you could bring more visitors to the human rights blog and generate more total income, that might be the right choice.

Transaction fees

The intermediaries that facilitate the interactions and transactions between two parties online can generate transaction fees. Usually these intermediaries are trusted and reputable business that have gradually have built their brand, trust and users base. The transaction fee is charged when the deal is closed, when the payment is done, when the funds are transferred. The business that charge transaction fees include but are not limited to payment processors, auction sites, online markets, freelancing sites, advertising networks, affiliate networks, exchanges, accommodation services etc. If small and new business manage to bring users together and facilitate their transactions can also earn transaction fees.

1.3.2. Online Business Models

A business model is a simplified picture of the reality and describes how a business creates value and how it generates income. The following basic online business models can give you a clear perspective of what business types you can start on the web:

1. Informative websites (blog, online magazine, news, reviews, online advice, niche sites etc.)
2. Online classes and coaching. (Video lessons, lectures, one-on-one tutoring or training)
3. Selling digital products (e-books, tutorials, podcasts, images, video content etc)
4. Online services (personal services, business services etc.)
5. e-Shops (for any type of physical products)
6. Interactive websites (social media, online games, blogging platforms, forums)
7. Market creators (classified ads, auction sites, exchanges, online marketplaces or shopping malls, freelancing sites, etc)
8. Web services (email, hosting, search, etc.)
9. Transaction brokers (payment processors, B2B intermediaries, advertising networks, etc)
10. Online businesses without own website.

The list of the models is not definite since it lists the most common ones. The models can also be combined to create a blended one or a new model. For an example, you can combine an e-Shop with a blog or a social media site with a market creator. You can also combine e-shop of physical and digital products. If you combine web services with news and other information, you get something known as a portal like Yahoo or MSN.

Generally, the business model itself implies the revenue model too. For example; an e-store generates revenues from sales of goods, informational website that offer free access earn form ads or referrals, transaction brokers generate revenue from transaction fees and so on. Anyway, most of the business models can combine more than one revenue source. For example; an informative website can earn from ads and affiliate links simultaneously.

The given models, more or less, are listed according to the level of difficulty for implementation (form easiest to hardest, excluding the 10^th model). Anyway, the difficulty depends from case to case. For example, it might be easier to create an e-shop than to develop own digital product for selling, or it might get very difficult to create informative website in areas where it’s hard to obtain timely and reliable information. In addition, the 10^th model (given as a bonus) can be considered as the easiest one since it excludes the need to build own website. The different business (sub) models without a website can be included in some of the other listed models (selling on eBay as e-shop, providing services on Upwork as online services model) but it’s given as a separate one just to complete the picture of the online business a beginner can start.

Next, let’s discuss the above mentioned online business models from a perspective of a beginner in the online business world:

1. Informative web sites

Difficulty level: 2 (on scale from 1 to 10), Earning potential: 2-5 (on scale from 1 to 10),  Main elements: topic, website, content, promotion. Revenue sources: Main: Publishing Ads, Affiliate Commissions – Alternative: Subscriptions. Key competences: content creation/acquisition, promotion.

This is the easiest business model type you can start online. Even if you plan to start online business of another type, first try with an informative website. If you succeed to attract visitors you may consider expanding to additional online models, for example an e-shop.

For this online business model you just need a topic, a simple website and (enough) content. In addition, you will need to work on the promotion of the site and continuously add new appealing content in order to attract and keep the visitors.

The number and types of topics you can choose for your site is endless. You can start an informative site about fishing, diving, knitting, parenting, clubbing, crypto currencies and so on. You can choose wider topic like fashion or a narrow one like kids or even toddlers fashion.

Since content is the cornerstone of this model make sure you create appealing content for the selected target audience. If you don’t have talents for writing or you simply have no time or nerves, hire a freelancer. In any case, you will need interesting articles at least once a week.

Another important aspect of this business type (like in many others) is your ability to bring visitors to your site. There are many options how to promote your site but these set of skills is something you will learn gradually. We discuss the promotion later in the Guide.

The main revenue sources (after the visitors start to come in) for this model come from publishing ads and from affiliate links (If appropriate).

2. Online classes and coaching

Difficulty level: 4, Earning potential: 3-8, Main elements: classes (and coaching), website, promotion. Revenue sources: sales of classes and one-on-one coaching. Key competences: skills to teach/coach.

Recorded online classes/lectures and one-on-one life coaching (or training) can be considered as two different business types but since they are complementary you can practice them together for the best results. If you don’t have time to coach one-on-one you can focus only on the recorded classes. Once you record them they will be available 24/7 for your customers and you can easily scale you business (sell to a large number of clients) focusing mostly on the marketing. On the other side, the one-on-one coaching is more personal, you can focus on the client’s specific needs and therefore you can charge premium rates. Anyway, since the one-on-one coaching takes most of your available time the potential for earning is limited.

It seems that this business type is not for everybody since it requires specific knowledge or skills and the ability to transfer (teach or present) the knowledge either directly to the client or as a recording or text lessons. Anyway, sometimes we are not aware of our skills and the need for them. For example, someone might be good at dating, other at traveling at low costs, some at parenting, some at gardening and so on. Many other people lack these skills or simply have no experience and therefore are ready to pay to learn. There is much evidence that this business model works even for unusual types of classes, like teaching a piano online for example.

Besides the ability to develop classes you will also need a website that will nurture related content in order to attract potential customers and motivate them to purchase your lectures or coaching. In addition, you will have to implement some methods and utilize different channels to bring visitors to your site.

3. Selling digital products

Difficulty level: 2-4, Earning potential: 2-10, Main elements: product(s), website, squeeze pages, promotion, and affiliate network. Revenue sources: sales of digital product(s) or affiliate commission. Key competences: digital product development and/or promotion.

This business model has two faces, meaning two different approaches. One is to develop own digital product(s) and sell them for profits and the other is to resell/recommend someone else’s products for a commission.

If you choose the first approach, you need to develop your own digital products (one or more). The digital products you can create include but are not limited to e-books, tutorials, guides, podcasts, videos, software, apps etc. Some of these products are easier to do, like e-books and others are very hard, like software and apps. The type of the digital products also determines the channels where you can promote them. For example: the apps are mostly sold via app stores like itunes and palysore. Therefore, here we will focus on products that anyone with the ability to write or present, can create like e-books, tutorials, guides, podcasts and videos.

In order to be successful when selling digital products, first thing to do is to identify   a specific problem (or a need) that people have. Then you should offer a solution for that problem within the product (or series) of products you develop. Beside the product, you also have to create promotional materials like articles, banners, squeeze pages, promotional videos etc. If you don’t already have a substantial followers base or subscribers to whom you can market and sell your products the best tactic is to join an affiliate network where other members could promote your product. Since these networks have large number of members, there is a huge earning potential in this method that is measured in 6 to 7 figures of income, in case your product is in high demand, is of high quality and has low competition.

The second approach in this model is to sell digital products developed by others, available in the affiliate networks and earn commissions for every sale. There are many digital products out there that you could promote and earn. The commission for such digital products can go up to 85% of their value, what could reach $100 or even more. The most attractive digital products you can promote include: fitness and weight loss programs, healthy cooking recipes, gardening, landscaping and more. There are also other exciting products you can promote like sporting tutorials, pet training, parenting, languages, software, investment guides, travel guides etc. After you decide which product(s) to promote the only thing you need to solve is where to promote them. The first choice, of course is to build a web site where you can nurture related content and work on it to bring visitors. Another option is to promote the products (with direct links) in social media, forums, chats or so.

In any case, when you try to sell digital products of the discussed types, you have to know that making cold sales (sending visitors directly to the products’ selling page) is very hard. Instead, you should send them to warm-up articles or videos before sending them to the sales page. Since the consumers are mostly reluctant when buying such products, it is very handy to build a subscribers list around certain topic and warm-up the buying process with a series of free and useful emails.

4. Online services

Difficulty level: 2-5. Earning potential: 3-4. Main elements: service, website, promotion. Revenue sources: sales of services. Key competences: skills to deliver certain online services, promotion.

Under online services, we include all services that can be delivered via internet regardless if they are done in front of a computer or in the physical world. The difference between this model and the sales of digital products and classes is that here the service/product is not created upfront but upon order of a specific customer. In the other mentioned models, the service is developed with a target group in mind and prepared as a package (downloadable/accessible) for a large number of users. Here, the service is mostly custom and has no value or use for other clients. Therefore, this business model has limited earning potential. When you reach your own limits (full time engagement), you can hire others (employees or freelancers) to fulfill the orders, but your business can grow steadily, not exponential what might happen when selling ready digital products.

Services you may offer online include: writing, customer services, internet marketing, translation, legal consulting, accounting,  web management,  software and web development, graphic design, audio and video production, data services, admin support and many more.

Since the online space is full in (almost) all of these areas, you have to pay a lot of attention to the promotion. So, besides creating a simple website where you present your services you should enrich your continent with related useful articles, give free services, guest post to other sites, promote locally, utilize social media and so on. Still, there is a long road until you reach substantial amount of clients and become profitable. Having that in mind, one of the best advices when starting such online business is to offer your services at the freelancing networks where potential clients and freelancers meet. Starting at these networks is not easy too. The competition is worldwide and huge so the rates you can charge are low, especially if you are a newbie. Anyway, at these networks you can get customers faster than if you go with a website only. Since you can offer your services via freelancing networks and be successful it seems that a website is not quite necessary for this model, but, that’s not quite true. With a website you can build your business on a long term, gain reputation, build a brand and acquire customers directly at you site avoiding the competition and the low rates.

5. e-Shops

 Difficulty level: 3-5. Earning potential: 3-5. Main elements: products (own or outsourced), website, e-commerce plugin, payment options, delivery and return system, promotion. Revenue sources: sales of goods.  Key competences: skills to make (or outsource) competitive products, promotion.

The e-shops are probably the most obvious online business model. There are e-shops for (almost) everything. People can buy electronics, kitchenware, clothes, arts, toys, food, collectibles, music, video games and many more. We can roughly divide the e-shops in specialized and shops with wide assortment. The shops can also be local, national or global.

The space in this type of online businesses is dominated by the big players as Amazon, Walmart, Target, BestBuy and so on, but there is still room for smaller businesses if they follow the niche strategy. This means that if you want to start an e-shop, you have to select a specific niche (offer specific products to a narrow market segment). For example, instead of opening a biking store you can focus on biking accessories or only on biking helmets, or you can open, let’s say, a specialized online store for spices.

Starting an e-shop is challenging for many reason, especially if you are a newbie in the online business. Setting up your web store technically might not be that hard as finding the right and competitive products or as the efforts to reach your potential customers. Having that in mind, we recommend that you start a different online business type first, like an informative website, and later complement it with an e-store. Anyway, if you already have a brick and mortar business and you want to expand online, it will be less challenging than starting from scratch.

Whatever you decide to do, when you are opening an e-shop you have to offer something of greater value for your costumers than the competition. You can offer the lowest prices, the fastest delivery or extraordinary customer service. You could offer a specific product that is hard to find somewhere else. You can offer customizable products or customizable packaging. Another good strategy is to complement your products with a great content. For example, if you have e-store for spices you could tell their story and offer exciting recipes.

Since the competition is vigorous, another important aspect of your business would be the promotion of your store and the effort to turn your visitors to a first time customers and after that to a lifelong loyal customers.

6. Interactive websites (Web 2.0)

 Difficulty level: 5-8, Earning potential: 3-6, Main elements: website, interactive elements/plugins or online games, community. Revenue sources: ads, subscriptions, premium membership. Key competences: web development, promotion

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7. Market creators

Difficulty level: 5-9. Earning potential: 5-10. Main elements: website, back-end systems. Revenue sources: listings, transaction fees. Key competences: web development, promotion

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8. Web services

Difficulty level: 6-10. Earning potential: 6-10. Main elements: hardware, website, services, promotion. Revenue sources: ads, subscriptions, sales of services. Key competences: web and app development, promotion.

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9.Transaction brokers

Difficulty level: 8-10. Earning potential: 5-10. Main elements: website, processing  systems. Revenue sources: Transaction fees, monthly subscriptions. Key competences: web and app development, promotion.

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10. Online businesses without own website.

 Difficulty level: 1-4, Earning potential: 1-5, Main elements: products or creative work, Revenue sources: sales/commissions. Key competences: skills to make (or outsource) competitive products or skills to make creative work (arts, crafts, designs etc).

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In-Depth Readings:

How to Start an Affiliate Marketing Business from Scratch

Starting a Drop Servicing Business Online

10 New Blog Niches to Make Money

10 Home-Based Earning Opportunities for Moms (and Dads)

Online Business Coaching- Pros & Cons

Overcoming Challenges in Direct-to-Consumer (DTC) Online Retail