An Investor’s Guide to Popular Online Business Models

investors guide 2

Whether you’re looking for a side hustle or want to take ownership of multiple income streams, setting up or acquiring an online business could be the way to go. 

With low barriers to entry, the potential for lucrative ROI, and the freedom to own and operate your own venture, they are becoming increasingly popular with investors. 

Here is a list of some of the most popular online business models, including how they work and who they’re best suited for. 

Let’s dive in.

eCommerce 

popular online business model 1 - eCommerce 

Image: woman holding a credit card in front of a laptop

Perhaps one of the first online business models people think of, eCommerce is a popular way to make money online. 

Originally consisting of selling products via shop-enabled websites, auction sites, or third-party marketplaces like Amazon, eCommerce has expanded to include multiple online business models. Regardless, the digital nature of the shop allows you to make the most of a global audience. 

Dropshipping 

If you’re looking to break into eCommerce but don’t want to deal with the logistics, dropping shipping offers a more flexible option.

You market the products, and when an order comes in, the manufacturer or product owner deals with the inventory and shipping. 

A key benefit of this popular online business model is you pay wholesale for the product and pick a selling price.

But as much of your business is outsourced, it’s harder to maintain quality throughout the supply chain, which could harm customer satisfaction.

In addition, since you’re adding in an intermediary, there’s the potential for smaller margins as you have to pay drop ship fees on top of existing product costs.

Dropshipping is, however, also a good option for testing out the popularity of products with minimal risk. The winners could then be transitioned into a fully-fledged eCommerce brand, complete with their own inventory for more control. 

Best for: Those looking to sell products but avoid inventory/shipping management or testing product-market fit.

Private-label/Own Branded Store

Setting up your own store is more capital intensive and requires sourcing inventory with your branding. However, it often means you can buy in bulk leading to more significant discounts and higher profit margins. 

Operating your own store with your own branded products gives you greater control over the supply chain and fulfilment process, which has its benefits.

By taking control of the process, you can improve your brand image by offering fast and efficient services and a better customer experience as well as a healthier bottom line. This is something that you don’t often get when dropshipping directly.

But with higher set-up costs, the need to store and ship products, deal with returns and keep track of stock, there are definitely more moving parts than with other options on the list. 

Best for: Those who already have product-market fit and are looking to launch and scale their own brand. Also great for those who have a product that offers something competitively unique. 

Subscription Boxes

image: cardboard box full of fruits and vegetables 

image to illustrate popular online business model subscription boxes

A trending area in the eCommerce space, subscription boxes are an attractive business model due to the recurring nature of their revenue. 

Typically they offer one of three primary services:

  • A replacement for a frequently used item – e.g., Dollar Shave Club delivering replacement razor blades and other personal grooming products monthly. 
  • A curated selection of products around a theme – e.g., Barkbox’s monthly supply of dog toys, treats, and goodies or Birchbox and FabFitFun boxes filled with surprise beauty and lifestyle products based around established characteristics, e.g., skin tone, hair type, etc. 
  • Meal kit services – eg. HelloFresh and Blue Apron who provide the recipes and ingredients needed to make a set amount of meals.

Subscription-based models tend to command higher multiple valuations compared to traditional eCommerce businesses. This is because they have higher customer lifetime value thanks to recurring revenue.

As an example, Unilever purchased Dollar Shave Club for $1 billion when they were projected to generate $200 million back in 2016. That’s a 5X revenue multiple!

Best for: Those with e-commerce sites selling repeat-purchase products, e.g., shampoo, razors, etc., or operating within a niche offering a wide product selection that could be curated for customers.

Digital Products 

A growing aspect of eCommerce, selling digital products has one of the lowest start-up costs of any popular online business model on this list. 

There’s no need to have money tied up in stock with digital products, and there are no shipping or storage fees to worry about either. Not only that, but with limited “manufacturing” costs involved — it’s a one-time fee — your profit margins will be higher.  

Examples of digital products include eBooks, online courses, templates, photographs/printables, audiobooks, logos, and WordPress themes. 

These items can be sold via a personal website, eCommerce store, or marketplaces like Etsy, Skillshare, and Gumroad, without the need for a physical store presence.

Due to its digital nature, the endless supply means there is no need to keep track of stock.

A couple of downsides to consider are:

  1. Products can be easily copied even with copyrights, trademarks, etc., in place. For small businesses, this could get expensive to fight. 
  2. Depending on what you’re selling, there will be limited repeat sales (e.g., eBooks).

If this is something you’re interested in, but you don’t have the time or skills to create something yourself, products can be outsourced to freelancers or agencies — just make sure you obtain/retain ownership.

There’s also the option to resell someone else’s product, assuming you have permission, that is!

Best for: Anyone with an idea for/ experience creating digital products looking for a low-risk business. It is also ideal for owners of content sites trying to diversify their revenue streams outside of affiliate marketing and display advertising.  

SaaS 

image of a tablet screen showing various tracking software metrics

If you’re a software developer by trade and looking to earn extra income or go down the entrepreneurial route, software as a service could be an option.

As with most SaaS businesses, their products are hosted in the cloud to be made accessible to anyone, and users pay either a one-time fee or, more commonly, a monthly fee for a subscription. 

SaaS is a rapidly growing industry and includes anything from marketing and accounting software to onboarding and customer service. Typically when choosing this popular online business model, there are three options.

  1. Develop the software program yourself 
  2. Partner with a SaaS company and resell their products 
  3. Become an affiliate partner and direct leads to the vendor’s website. (Requires no training or development costs, making it a popular option).

After initial set-up costs, there are ongoing requirements to keep the software up-to-date. It’s a fast-developing industry, so you’ll need to innovate to stay relevant. 

However, as it generates a recurring revenue stream and has the potential to appeal to a specific audience, it’s an increasingly popular online business model. As a result, investors tend to value them at higher multiples than all other business models highlighted in this list (5-10x annual EBITDA).  

Best for: Tech-minded entrepreneurs looking to solve technical problems within a specialized industry.

Coaching/Consulting 

For those with marketable experience in industry, coaching/consulting can be a lucrative online business model.

With minimal start-up costs (typically just a website) and low ongoing maintenance costs, it’s easy to get started, although time investment is substantial. 

There’s no legal requirement for professional certifications, but having them puts you in a more credible position and will make marketing easier. If you have professional credentials/achievements, you may also be able to charge a higher price. 

Service-based businesses can be set up no matter the niche but are particularly lucrative in the business, finance, and fitness/health niches. 

With the flexibility to work anywhere and high earning potential, it’s a good option for those with the necessary skills. However, it can take time to build up a network, particularly if you are not a “big name” in your industry. 

For maximum efficiency, you want to try and automate as much as possible. For example, this could mean that instead of/alongside one-to-one sessions, you offer bundles of prerecorded masterclasses, tools, and resources to help the client succeed. Although initially time-heavy, this content will then generate passive income and give you something to market. 

Best for: Those with workplace experience looking to branch out on their own, the ability to network on and offline, and who can demonstrate the ability to deliver results. 

Membership sites

The gated communities of the internet, membership sites offer recurring revenue streams, making them a popular choice for those looking to set up online businesses. 

Customers pay a monthly subscription (or a mixture of monthly fees and upsells) and, in return, get access to exclusive content. Examples include private forums, online courses, digital products, or premium content like industry reports. 

Typically membership sites fulfill one of two purposes. They either enable a member to speed up learning/simplify a process through online course materials or provide in-depth, premium content on topics.

A great example is our very own Investors Club VIP membership. By signing up, members get exclusive access to our detailed due diligence reports, discounts on services, and a whole host of other benefits. 

Membership sites should have good brand recognition and authority within a niche and foster a sense of community to retain users.

A significant benefit of membership sites is the ability to fully automate the experience through plug-ins and email marketing, although the content will still need to be generated regularly. However, you could outsource content to freelancers or content-writing services like Alpha Investors for a more hands-off approach.

It tends to require regular recruitment — as it experiences high attrition rates — and the frequent updates needed to content can be too time-consuming for some. But, if you have the technical knowledge, it can provide a steady residual income that will only grow as your authority does. Of course, the ability to generate multiple income streams from one piece of content isn’t bad either.

Best for: Bloggers looking to monetize their sites, those who enjoy content creation and community management, or someone who already has a strong following, such as a Facebook group with active members in your niche.

Content Sites (Blogs) 

Content sites built around a specific topic (or topics) tend to have an audience actively seeking out that particular content. As such, they can be monetized through multiple channels, including affiliate marketing, display advertising, and sponsored content. 

With very low barriers to entry and the potential for high income (think 5+ figures a month), content sites are a lucrative and popular online business model.

Having said that, it can take a long time to build up an audience before you can monetize. But, as with any problems, there’s usually a solution somewhere, and for this particular issue, there’s Investors Club. 

Buying an existing website, preferably one that’s already making money, like the verified listing on Investors Club, enables you to start earning money from day one. With no buyer fees and a fee-free escrow as standard, you’ll spend less acquiring it too. 

Let’s take a look at the different monetization options in more detail. 

Affiliate Marketing 

How it works: You add affiliate links to your new and existing content that redirects readers to a product/service. Then, every time someone makes a purchase via your link, you earn a commission on the sale.

Requirements: You’ll need to research low competition and high intent keywords and aim to rank your site on them. You’ll also need to produce regular, high-value content that gets good pageviews and backlinks, although this can be outsourced. 

Site suitability: All sites, however, with niche sites or those specializing in hyper-focused content, the range of keywords available may be lower. 

Pros and cons: It doesn’t require customer support but gives you little to no control over the pricing structure. However, this is a great passive earner. 

Display Advertising 

screengrab of NYT front page showing a display ad along the top

How it works: Adverts are displayed on your site (usually as banners, in-text, or smaller images down the sidebar). If someone clicks or views the ad, you make money. 

Requirements: To qualify for most display ad networks, you’ll need consistent traffic and plenty of it if you want to make money. AdSense is the most popular, but we’ve listed some alternatives here

Site Suitability: Any site as long as it meets the minimum pageview requirements for your chosen network.

Pros and cons: It’s free to sign up and an easy way to generate passive income from the content you’re already creating. However, one of the significant disadvantages can be its effect on reader experience. Display ads can slow loading speed, and too many can make the site difficult to navigate, so it’s important to strike a balance here.

Podcasting 

A podcaster talking into a microphone

An increasingly popular medium, podcasts are free to listen to but can be monetized via sponsorships once you reach a certain number of listeners. Simply put, the more downloads you get, the more money you (indirectly) earn. Many site owners with successful websites are now looking to podcasts as an extension to their content marketing strategy.

Barriers to entry for podcasting are relatively low as you only need a microphone and some basic editing software. Once you’ve built up an audience of regular listeners, you can start reaching out to sponsors in your niche or have them reach out to you and form partnerships. 

Note – most potential sponsors will want to see data on audience demographics, engagements, etc., so keep track of it. 

54% of podcast consumers say they’re more likely to consider purchasing from a brand advertised on podcasts which is why it’s so essential to build trust with your audience. 

Having a website and social media presence that corresponds to the podcast makes it easier for listeners to find you and connect. 

For direct sponsorships, you’ll be paid per 1000 listeners/downloads, while affiliate sponsorships offer commissions on actions taken on links/referrals, making them a good option for smaller audiences. As long as the link stays active, you can continue earning from old content too. This can be lucrative as most new podcast listeners will go back through the catalog of episodes once they’ve discovered it. 

Best for: Those with knowledge/passion for a specific topic, the ability to create continuous content around the subject, and the time/ability to put together a podcast consistently. Also great for entrepreneurs with an active community in their niche.

Bonus Online Business Model: The Hybrid 

The great thing about popular online business models is that there are no hard and fast rules around structures. In fact, adopting a hybrid model of two or more options from this list could offer even greater returns as well as leverage. 

There’s nothing stopping you from launching one business and then expanding into other complementary areas. With online businesses, the world is your oyster! 

Examples of a hybrid online business model include:

  • Coaching businesses launching an informative and motivational podcast
  • Successful content sites launching paywall content, turning part of the business into a members-only site
  • Podcasts launching an eCommerce branch selling merchandise related to the show 
  • Content sites expanding into eCommerce or dropshipping and replacing affiliate links with links to own products 
  • SaaS businesses launching a content site covering topics related to their niche, e.g., accounting software and posts related to business finance 

Conclusion

By now I hope you’ve got a good grasp of popular models and the different combinations an online business can create leverage with.

Do you have an online business with multiple business models? Drop a comment below by telling us what’s working for you.

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Author
Hannah Beazley
Hannah is a content marketing specialist at Investors Club and a freelance copywriter. When she's not busy behind the keyboard, you'll find her baking her signature salted caramel brownies or trying to sink that elusive hole-in-one.

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