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Step One to Online Money - Choose a Business Model

If you want to start an online (or offline) business the first thing you need to do is choose a business model. A business model is simply the method by which a company (or a person) will make money. The term business model is a buzzword that was used frequently during the dotcom boom when explaining that many online businesses had poorly thought out business models that couldn't possibly generate a profit.

Don't confuse business model with business plan. A business plan defines in detail the legal structure, marketing strategies and financial assets of a business. Although both a business plan and a business model can vary in amount of detail as desired, or as required to access investors.

There are probably thousands of different business models and entrepreneurs are thinking up new ones every day. For example one business model is to make, freeze, and sell pizza at the grocery store. Another is to make, bake, and deliver pizza to peoples homes or place of business. Papa Murphy's recently came up with a new business model where you tell the pizza maker which toppings to use, then watch the pizza being made, and then take it home to bake.

Common Business Models

  • Physical Product
  • Your Product
  • Others Product
    • Affiliate
    • Dropship
    • Turn-key Website
  • Service
    • Your Service
    • Others Service
    • Membership Website
  • Advertising
    • Content Website
    • Blog
    • Ezine - Newsletter
    • Social Website
    • Classifieds

There are many more business models than those listed above, and many variations of each of the models listed above. I could explain each business model in detail, but that would require a book, so I'll elaborate on just a few.

A physical product might be a true physical product, for example you might cast garden gnomes and sell them at craft fairs or online. Or a physical product might actually be a digital product like you might program a computer game you sell on CD or as a download. If you don't care to develop and manufacture your own physical product, you can sell someone else's product.

There are three main ways to sell someone else's product; 1. An affiliate posts links to products in a website, blog, or newsletter and when someone clicks on a link and purchases a product, you earn a commission. 2. You sell products, but don't actually keep any inventory. Instead you send the purchaser's information to a drop shipper who ships the product to the customer under your business name. 3. There are many online companies that will provide you (for a cost) with a website already set up with everything you need (catalog, payment processing, etc). All you need to do is market that website.

A service might be something like website design or SEO (Search Engine Optimization). Similar to a physical product, you can do the work of providing the service yourself, or you can sell someone else's work. Another option in the service category is a membership Website. To create a membership website you need special content, for example stock investment information, that people can access only after paying you a membership fee.

A vast number of websites use the advertising model. With this model you create a content website, a blog, ezine or newsletter, and earn revenue by selling advertising space on that website or in that periodical. Another way to approach this is by creating a social website (or a forum), letting the website's members create the content while you profit from advertising.

In the adverting category you also have the outright classifieds website. Generally, the way this model is used is that people can post classified ads for a limit duration for free, only being charged if they want special features like colored highlighted titles or front page promotion.

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