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Online business models to start a low-cost, high-profit business

The Ultimate Guide to Online Business — Part 3

Online business models to start a low-cost, high-profit business

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Starting an online business is incredibly simple. All you need is a laptop and these key ingredients to make your first sale:

All you need to start an online business

WebsiteWebsite
Email listEmail list
EmailsEmails
Sales PageSales page
CustomersCustomers

But before you get there, you’ve got to decide what type of online business you even want.

There are 6 major online business models the average person can use. Some give you huge profit margins, take minimal time, and scale easily. Others require a lot of time, overhead costs, and are difficult to grow.

I’ve tested them all, so let’s walk through them real quick. Then you can decide which model is right for you.

6 Online Business Models You Can Use to Start an Online Business

Low overhead costs, low profit margin

High overhead costs, high profit margin

High overhead costs, low profit margin

Low overhead costs, high profit margin

Online Business Models: 6 Ways to Start an Online Business

Online Business Model #1 – Advertising

The most common business model online is advertising. Almost all of us have seen these. They’re little advertisements — usually Google AdSense — on the sidebars of a website.

Here’s how they work: as you get traffic, some people will click those ads. When they do, you get a few cents, or even a few dollars per click.

I tried this for IWillTeachYouToBeRich.com. But I quickly realized ads don’t make that much money. In fact, what I learned was that you need a huge amount of visitors, like 50 million visitors — or more — per month, to make a good income from ads. That’s a lot of traffic and not a good way to start a sustainable online business.

Back when I started in 2004, I decided “If I can’t cover my rent with ads, why bother?” They’re ugly and distracting. Plus, I’ll end up spending more time optimizing the click-through-rate on the ads than actually writing great content (aka Marketing Tactical Hell). So after trying that experiment for a little while, I checked the box and said I’m not interested in that business model.

Online Business Model #2 – Affiliates

Here’s an example of how affiliates work: A blogger will write a review of “My favorite credit cards.” and at the bottom they’ll say, “you can sign up for the card here — NOTE: this is an affiliate link.”

If you click that link and sign up, the credit card company is going to pay that blogger an affiliate commission. Sometimes it’ll be $50 or $75.

Over time, that can actually add up to a lot of money. And there are affiliate programs for everything — from audio books to weight loss products.

For a long time, I avoided affiliates because I didn’t want people to think I was recommending stuff just to make money. I only wanted to recommend the best products.

But eventually I realized that my readers trusted me, they were already going to sign up for the accounts I was recommending anyways. So I decided to try putting an affiliate link in with one of my recommendations.

When I did — virtually overnight — I became ING Direct’s number one affiliate in the world. I was making more than $10,000 a month — just by putting a link on my site.

But I soon learned this wasn’t a great long-term plan. My click-through rates tailed off and I ended up having to spend all this time dealing with advertisers.

In the end, I realized it wasn’t worth the time, so I stopped.

Online Business Model #3 – Software

If you have the skills to create software, then this can be a tempting online business to start. The media loves to tell us stories about hot new Silicon Valley startups and the founders of tech companies who cashed out for billions after their company went public. So we think starting an online business means doing something similar.

And yes, you could quit your job, seek venture funding, and spend the next few years trying to build the next Instagram.

But let’s face it, for most of us, this isn’t a viable option. We’re not programmers. We can’t code. And we’d rather stab ourselves with an ice pick than try to learn any of that technical stuff (at least I would).

And even if you can code, do you really want to deal with the never-ending challenge of marketing, distributing, patching and upgrading your app?

Luckily, there are other options out there. You don’t need to create the next Candy Crush to have a successful online business. You don’t even need any technical or computer skills for the other online business models I’m about to show you.

Online Business Model #4 – Sell Physical Products

I’m wary of this business model because the profit margins are terrifyingly low.

Just to give you an example, we have a notepad that our designers created internally for I Will Teach You To Be Rich staff. We would have had to price it at around $50 — for a teeny little notepad — just to break even if we wanted to sell it. And after we shipped it to people, our profit margin would have disappeared.

I know there’s some money to be made in this space. But I prefer the profit margins offered by online products.

With online products, the profit margin is higher, and it’s much easier to scale. Physical products just introduce so many variables and costs that I’m not interested in them.

Success Story

Tom Miller

The tutor who made enough with his online business to quit his full-time engineering job — and now has more time to spend with his family.

Read the story

Tom Miller: The tutor who made enough with his online business to quit his full-time engineering job — and now has more time to spend with his family.

Online Business Model #5 – Online information products

Take the skills and experience you have inside you and package it into something that the world will pay for. Tweet This

Now, my favorite online business model: selling something you create. Typically, these are information products, like an online video course.

You can create a video or written course that sells for $49 fairly quickly. But more expensive, high-end ones take a lot longer. For example, when we built Dream Job, we spent months on research, outlines, testing, creation, and design.

Online courses are low-risk, high-reward, and scale very well. You can use them to reach thousands of people all over the world. It’s become the crux of our business and now we generate over 95% of our revenue through our own products. I can’t recommend it enough.

This is going to be the main business model I focus on in the upcoming sections of the guide, but first, I want to share a counter-intuitive strategy to make money online.

Online Business Model #6 – Coaching

One of the fastest ways to start making money from your online business is to offer coaching.

This comes as a surprise to a lot of my Zero to Launch students - my premium course on starting and building an online business. They join my program looking to create an online information product. But as they build their email list, people message them saying: “Hey, I love what you do. Do you offer coaching?”

There are a few great reasons to take them up on this offer:

  • You can charge premium prices for one-on-one work or group masterminds
  • You’re basically getting paid to do customer research (more on this in Part 5). With coaching, you’ll learn their deep fears, desires, and barriers — information you can use to create an online product that thousands can use
  • It’s a chance to get great testimonials to sell more coaching/other courses
Coaching vs. Online Courses: which online business model is right for you?

You don’t have to build anything or have a big audience to get started with coaching, and you can earn money quickly. While online courses let you earn revenue automatically and impact a broad audience.

If you can’t choose, do both.

Here’s something that will help. Enter your email below for a free report on how to get your first coaching clients — even if you’re in a brand new industry.

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Online business models to start a low-cost, high-profit business