It is becoming more and more popular to have an online business, and rightfully so, it brings along a handful of benefits. But in this rush for gold, a lot of young entrepreneurs are left wondering because they simply do not know where to start.
I mean it may look easy, but when you look at it what is the real first step? Today we are going to answer this question once and for all.
Why do most people fail when it comes to an online business?
Simple, because they don’t understand the basics, and what I mean by basics is the business models, the market timing, and the career timing of their decision. If you manage to get those points straight you are off to a great start, and you will be doing better than 99% of people that are starting this type of venture.
Let’s talk a bit about online business models…
To better exemplify what we are going to talk about we are going to use a chart that looks like this.
- Transaction Value stands for what is the usual price paid for said product or service.
- Margins are profit margins; basically, what money do you take home after all expenses are covered.
- Upfront Works stands for how much work and time is required to get that business up and running.
- Fulfilment is how much work is required to deliver the product or service.
- Upfront Investment is how much money you must invest in order to get that business off the ground.
So, we are going to put red dots on the chart to visually exemplify what is needed for that business, and the further up the layer the better. So, for example for Upfront Investment if we have a red dot on the innermost chart, then it’s expensive if it’s on the furthest and biggest chart then it’s affordable. Now that you got the idea, let’s get started.
Dropshipping, one of the most popular business models.
Even if this is one of the most popular methods out there, it doesn’t mean that it is beginner friendly. You see, when it comes to dropshipping usually you have to burn through quite a lot of money to find the “winning product”, and if you find that winning product, and that is quite an “if” you still need to have the cash to burn on marketing.
I am not saying that is not possible to make money with a dropshipping store, I am just saying that you need to invest some serious cash and time in order to succeed.
This is how the char would look like:
The typical Transaction Value is anywhere from $30 to $200, so you have to sell between 50 and 300 units to reach $10k/month.
The Margins vary from 30% to 5%, because you need to cover ad spent, product acquisition, and most of the time delivery.
Upfront Work is very demanding as you need to do a lot of testing before finding a good product, and besides being time demanding it’s also expensive so definitely a downside.
As for Fulfilment, the idea can be scaled so there is potential in that but just like I said you need quite a lot of money.
Upfront Investment is usually upwards of $10,000 just to get things started, so for a beginner, it can be quite a lot.
Now, remember when someone says that they are making $100k/month with their dropshipping store that means that they are profiting about $5,000/month, and if you are a beginner and you are looking to take home about $500/month if you are making around $10k. So, consider this before starting out, and if you have the means go for it because it’s a very scalable and automated business after you get it going.
The Transaction Value is usually low, think of all the services or apps that you are paying they are usually staying below the $5 mark.
Margins are paper thin because of the development costs, and that’s without mentioning marketing and user adoption.
Upfront Work will take months or years in order to develop a good software.
After finishing it, you need to constantly update it so Fulfilment is hard.
Upfront Investment is extremely high because you have to pay a full team of developers and you need to run on a loss until you manage to get things started or until you manage to sell your app.
This business model is for people with experience in IT, and a lot of money to burn for months or even years before getting profitable.
This is one of the hardest business models, and if you are a beginner entrepreneur or an intermediate entrepreneur, or even an experienced one is best to avoid this. The idea is that if you might do it right you can sell it for tons of cash, but the emphasis here is on “might”.
Here is a good one, this is usually a great idea no matter how you put it into practice. But I recommend building your own agency because it shows a lot of professionalism and it doesn’t cost that much, as a matter of fact, you can get your web hosting for 6 months with just 1 Euro from us.
Transaction values here are great from $100 to upwards of $1000 depending on your skill level.
Margins here are great because they are usually 80% or higher, as this doesn’t require any product acquisition, and the only thing you may spend money on is marketing.
Upfront Work is easily done because all you need is a website and social media.
Fulfilment is great because you can delegate your work to contractors, so you basically have to do no work.
Upfront Investment is low because as I said there are not a lot of things that you need in order to do that, you can spend some money on extra courses to improve your existing skills, and you are set.
This is one of the best businesses to start as a beginner because you can start it at any time, it’s scalable based on your skill level and it cost almost nothing to create.
Digital marketing like SEO, SEM, programmatic, social media, content marketing, email marketing, websites and apps constitute a hundreds billion dollar industry, powering commerce locally and across borders, so you can always seek reliable digital marketing from professionals in order to help you boost your business to the next level. That way you can be assured that you are on the right path to success.
Those are some popular business models right now, we are going to talk about career timing and market timing in the next one, so keep an eye out for that.