Selecting the right business model for a new online business
Insights from Icarus Media Digital
Our focus at Icarus Media Digital is on supporting online business owners to see their ideas right through from early concepts to successful businesses that scale.
We work with various business models for revenue generation and have compiled this guide to help you select the most effective model for your business.
Business models defined
In the context of this article, we use the term business model to define how a business generates revenue.
You can develop a business that produces revenue from one source that you master or you may prefer to diversify into multiple income streams to reduce risks and expand your income potential over time.
Business model considerations
When selecting the best-fit business model, there are many aspects to consider, including:
● What problem does your business idea solve?
● Who is the ideal client for your offer?
● Is the market big enough to be interesting?
● What’s the competition like? How are the most successful competitors winning?
● Will prospective clients be willing to pay enough to generate an attractive profit?
● What is the best way to reach your ideal client?
● What budget do you have available for marketing?
● What return on investment do you need to meet your company’s growth targets?
We’ll explore some of the key online business models you could consider through the rest of the article.
These days you can find most products and services available online through electronic commerce. The industry has four major categories:
● Businesses that sell directly to consumers (B2C)
● Businesses that sell to other businesses (B2B)
● Individuals selling to other consumers (C2C) through platforms such as eBay
● Individuals selling to businesses (C2B), which has become mainstream through platforms such as Upwork.
Barriers to entry are increasingly low as accessible tools make it possible to set up a web presence and online shop with relatively little technical expertise required.
Within the eCommerce business models, there are so many ways to create revenue, from becoming a distributor for selling other products, selling your own products and services directly to your target market, dropshipping and subscription offerings.
Many brick and mortar businesses also choose to have an online element to diversify their risk and expand their potential market.
The possibilities are endless, and the choice you make should be based on the needs of your target client, the best way to reach them and the return on investment (ROI).
Advertising business model
Businesses that invest the time to create web presences that attract high traffic levels and build trust with engaged audiences are valuable to brands that want to get their messages in front of these website users.
Businesses that succeed with the advertising model need to master content creation, search engine optimisation and stay consistent in posting value over time.
Websites with high traffic that are the authority on specific topics can make money in several ways through advertising, including:
● Selling display adverts. Businesses often organise this through a relationship with an ad management company that acts as a middle man between brands and websites. Brands love the ability to reach specific demographics and interest groups by selecting the type of websites their ads feature on. For the business with the display ad space, this is a great way to earn a relatively passive income over time, especially if the content with the display advertising is timeless.
● Charging a fee for sponsored blogs or newsletter articles. This content may promote a specific product or service or mention the sponsoring brand to increase awareness.
● Negotiating commission-based deals for online product promotion activities. Here the business receives a percentage of all sales attributed to their promotion activity, similar to an affiliate relationship.
A subscription model occurs when your client pays a recurring fee for access to a specific product or service. It’s a common model with SaaS products such as customer relationship management tools in the B2B market, plus content streaming services such as Netflix and meal delivery models in the B2C market.
One of the advantages of this model is that if your offering is good, you establish a loyal customer base that stays with you. The model can create predictable revenue with less need to constantly attract a high volume of new customers, as can be the case with one-off sales models.
The priority with this model is to build trust, get customers to sign up, and then minimise your customer churn by offering a terrific service and staying competitive by innovating with your offering over time. As with many business models, once people see you are doing well, there will be a temptation for new market entrants to try and take your market share.
Another take on the subscription model is the freemium model, in which you offer a level of access to a product or service for free for life. This approach can effectively build trust with prospective buyers who see they have nothing to lose by giving the offer a try. Some may stay as long-term users of the free option, while others will upgrade if they can see the compelling value.
An affiliate model is one in which your business offers a commission to individuals who bring in sales for your products and services, typically through promoting their unique affiliate links for your products.
These affiliates are typically self-employed individuals, blogging businesses, or individuals in employment who have this as a ‘side hustle’ income stream.
Affiliate marketing can be an extremely cost-effective model because you only pay for successful sales that have ‘stuck’ for a specific number of days, typically the product or service refund period. Other than that, you may want to invest some company time in training affiliates, providing approved marketing materials and undertaking some spot quality checks to ensure affiliates represent your business as you would wish them to.
On the downside, you may experience a regular churn in affiliates, especially if their work is not converting into regular sales. Unless the affiliate is a super fan of your business, they will typically focus on affiliate work that is bringing them the most income over time.
Becoming an affiliate for another business that offers a complementary product or service, is another way that established businesses can add an additional revenue stream to their business.
Selecting a robust business model for your value proposition is a necessary foundation for creating a successful business. However, this model doesn’t need to be static over time. Many businesses start with one means of revenue generation, which they master, and then stack on additional income streams over time to diversify and grow the business.
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