5 questions to ask when choosing a business model

28 October 2018

With the opportunities of the Internet, entrepreneurship has never before been as widely embraced as it is today. These days a global business can virtually pop up overnight.

However, starting an online business can feel daunting. There is so much information available about making money online, working from home and living a digital lifestyle that it can become a challenge to distinguish “information” from “misinformation”. If you start feeling overwhelmed and demotivated by the sheer amount of things you need to learn, it’s good to know that you’re not the only one.

It’s important to be well-informed so that you can make the right decisions. So, if you’re considering starting an online business, here are five questions you need to ask yourself to make sure you’re heading to the right direction.

1. Do you already have a product to sell?

Your product can be a physical product, a service, or a digital product, such as an e-book, software, music, membership, photographs, a video, a song - the opportunities are almost endless. Internet has effectively removed the limitations of physical location and logistics and there is no limit to what can be sold or how your skills can be converted into a sellable product. And if you don’t have a product in mind, don’t worry – you don’t need to create one. There are already thousands of product creators who are looking for affiliates or resellers to sell their products on their behalf.

Affiliate model

Product creators provide you with links to their products and you get a predetermined commission for every sale that gets generated through your affiliate link. Choose a topic you’re already knowledgeable of to maximise the benefits of the affiliate model. Create a website targeted at that niche and as you educate others on that topic, offer links to affiliate sites that complement your articles.

Reseller model

The reseller model resembles the affiliate model but the difference is that product creators offer you their products at a reduced price and you’re allowed to sell them as if they were yours. You would probably need to agree on the minimum and maximum prices with the product owner beforehand so that they remain within the industry prices.

If your business revolves around physical products, consider the effort and costs involved with the management and delivery of stock from the buyer to the seller. Are there minimum order quantities when placing an order from the seller? How will you collect, store and deliver the products? Keep these costs in mind when deciding which products you would like to resell.  Affiliate model and reseller model allow new businesses to pop up overnight, but it’s important to be familiar with all terms and conditions before plunging ahead.

2. What are your strengths?

What are you good at? Selling your own products, being an affiliate and reselling someone else’s products each have their own advantages and disadvantages that will highlight your strengths and weaknesses.

Advantages and disadvantages of selling your own products:

Selling your own products allows you to have complete control over pricing and delivery, but developing the product itself takes time and effort, so don’t expect to see profits immediately. How profitable the business will be also depends on how fast you can create new products and how well you’re able to keep up with the demand.

Advantages and disadvantages of being an affiliate:         

The great thing about being affiliate is that you have the product instantly at hand and you don’t have to worry about logistics costs. However, the product will never be one of a kind because other affiliates are selling it too. You’re also giving up control of when and how products are delivered to your buyers.

Advantages and disadvantages of being a reseller:

Compared to an affiliate, resellers have more control over pricing and branding. Products are instant but you are responsible for handling rebranding or branding and delivery, which can cause additional costs. If something goes wrong and an order is broken, missing or held up due to seller issues or customs clearance, you are the one who has to answer to buyers. How will you handle refunds and returns? Can online shoppers outside of New Zealand place orders? Consider these before opening a shop.

3. What is the primary role you would like to play within your business?

When you consider the advantages and disadvantages of each business model, it may be a good idea to choose a model based on your strengths and interests. For example:

If you are passionate about creating your own products, it would probably make sense to sell your own products.

If you enjoy marketing and would prefer to leave the product creation for someone else, you may want to go for the affiliate model where the focus is on getting new clients.

If you enjoy number crunching, the reseller model may provide a perfect challenge for you. You can focus on optimally managing profit margins to get maximum return on your online business investments.

4. How will you market your online business?

Many new online business owners set up a website without first planning how they are going to bring visitors to the website. If you’re selling your own products, you can choose to take the selling role for yourself or you can recruit affiliates or resellers to sell products on your behalf. You can even combine all three if you want to. If you’re selling someone else’s products, you need to do some research first to understand your potential customers. Once you have a thorough understanding of what they’re interested in and where they hang out, it’s time to take the next step and develop a strategy for:

Getting the right information in front of them by using for instance Facebook posts or LinkedIn articles.

Directing them to your website to read more about your business or product offering.

Encouraging them to buy your product or provide their contact details for you to contact them through with a newsletter or a phone call.

Deciding where to sell your products geographically is one part of marketing strategy development process. For instance, will you target local businesses or international end-users?

5. What marketing tasks will you outsource?

Once you’ve perfected your business model, identified your target market and developed your marketing strategy, it’s time to implement them.

One of the biggest challenges for online entrepreneurs is handling everything by themselves instead of focusing on what they’re already good at. Since online businesses can pop up overnight, it’s easy to forget that the marketing process is still the same for sole owners of small businesses as it I for large online retail stores.

Marketing roles within a large online retailer typically include:

Web designers who ensure that the design of your website serves both your business and your customer needs. Graphic designers and writers who are responsible for producing the content.

Media buyers and planners, who schedule and negotiate prices and placement of marketing campaigns as per the media planning schedules.

Campaign managers and analysts who implement, manage, and report on campaign performance.

All of these roles require specific knowledge and skills in order to do the job effectively.

These days it’s possible to find an online course to learn more about marketing, but ask yourself first do you really want to do that. Wouldn’t you rather focus on the things you already know you do well and outsource the rest? Time is an expensive resource for business owners. Be sure to ask yourself if it really would be more beneficial to spend time in learning a new skill instead of paying for a professional who can do the same thing much quicker.