How Do Online Businesses Make Money? Types of Revenue for an Online Business


With rise of technology and the internet, the doors have opened for completely online businesses.

When an internet connection and a website are all that’s really necessary to reach an audience, it becomes possible for a small business to function and bring in revenue—sometimes a lot of revenue—without ever opening a physical office.

The obvious question to ask is: how do online businesses make money?

Whether you run a brick and mortar business that you want to move online or have an online only business that you’re trying to scale up, understanding the most common sources of online revenue can help you grow your business.

Affiliate links, online ads, and sponsorships can sometimes work to bring in revenue—but it’s difficult to build an entire business with these sources of revenue as a foundation.

Here are five of the most common types of revenue that can lead to a sustainable online business.

Selling services

If you are a lawyer, personal trainer, business consultant, freelancer, or life coach, you are using a service-based business model.

Service-based businesses are characterized by the exchange of time and expertise for money. By selling expert services to people in need of your expertise, you can build a client base and online business.

It worth noting that service-based businesses don’t only need to be offered online—it’s entirely possible to run a successful service-based business without even having a website (even if it isn’t recommended).

But online marketing gives service providers an opportunity to reach more clients more quickly, which can make it attractive for people running service-based businesses.

If you’re looking to start or expand a service-based business, it’s important to recognize the important limitation of this business model: your ability to grow your business will be limited by time. There are only so many hours in the day that you can spend serving clients.

That said, there are a few advantages to a service-based business as well:

  • It’s relatively easy to get started: In a service-based business, you are selling expertise you already have, making your only real barrier acquiring clients (as opposed to building a product)
  • You can work directly with clients: There’s no substitute for the audience knowledge that comes directly from working with clients. Not only can working with clients one-on-one be incredibly rewarding—you get to develop deep insight and understanding of your audience’s pain points.
  • You can charge a high hourly rate: If you provide services directly to clients, raising your rates is often a key pricing tactic for increasing your revenue. As long as you have a reliable client base, you can often make more per hour than you would while in someone else’s employ

Selling services is a common business model for online businesses that make money.

Physical products

E-commerce is an incredibly common model for online businesses that make money. In an e-commerce business, you sell physical products through an online platform.

E-commerce businesses can be a bit difficult to get started because of the logistics involved in creating, selling, and shipping physical products. Depending on the specific products you sell, you may have to manage sourcing materials, manufacturing, and shipping.

However, if you can manage supply chains and get your business off the ground, e-commerce can be a great business model. You can offer a variety of different products to a large audience.

As long as you manage your margins and can scale up processes slowly, there isn’t a theoretical revenue limit in the same way there is when you spend time delivering services.

A major benefit of e-commerce is that it offers the ability to more easily acquire repeat customers.

If customers are satisfied and you offer other products they may be interested in, you can use email marketing, marketing automation, Facebook ads, or general retargeting to send other offers that grow your business.

Information products

Information products are products that exist solely online—and are essentially vehicles for delivering expertise.

If you sell ebooks, video courses, worksheets, or other similar materials, you’re selling an information product.

Information products have a lot of advantages over other types of online only businesses. First, information products scale very easily. Once you’ve created an ebook, it doesn’t cost you anything to make another copy of the ebook—but you can sell more copies at the same price.

Second, information products can be especially appealing for people who currently run service-based businesses—if you can convey your expertise in a product instead of a service, you may be able to scale up your business more easily.

The downside of information products is that it can be a bit more difficult to get them off the ground.

You need to show people that you’re expertise is worth paying for. With a physical product, it’s relatively easy to see what you get in exchange for your money—with an information product, customers are putting their trust in the creator of the product.

This increased trust means that an information product-based business often requires a bit more of an investment in marketing, especially content marketing.

Still, if you can make the investment up front, information products can be a great driver for online businesses that make money.

Donations

It seems a bit odd to call donations a “business model,” but they are an undeniable source of online revenue.

Charitable organizations have run based on donations since before the internet existed. And anyone who has ever listened to public radio has heard pleas for a pledge drive.

But the spread of online communities and development of new donation services has led to a rise in donation-based online only businesses.

Patreon is best example of a platform that allows people to raise significant funds through donation. On Patreon, content creators can solicit regular donations from their fans (or “patrons”).

Through this kind of crowdfunding, artists, musicians, and other content creators can generate enough income to make creating new content their full-time jobs.

On the other end of the spectrum, charitable organizations have more fundraising reach than ever before. This can allow established charities to expand their reach—most famously through the ALS Ice Bucket Challenge—but it can also help smaller charities get off the ground.

Love Not Lost is a photography charity that takes free, professional photographs of people with terminal illnesses—so that their families have high-quality portraits to remember them by.

The charity is donation driven, and uses online channels, such as being featured in the YouTube series Tiny Empires or running a popular AMA on Reddit, to acquire donations.

Of course there are limitations to a donation-based business model. Not all business types are appropriate for donations, and there are probably limits to the revenue you can achieve through donations unless you go viral.

Still, online donations provide a revenue source that lets non-traditional online only businesses function day-to-day.

Subscribed communities

Technically, subscriptions can be either a product model and a pricing model.

Plenty of e-commerce businesses have moved over to a subscription model. A company like NatureBox, which provides a regular delivery of healthy snacks, relies on subscriptions to encourage repeat business.

Similarly, journalism has largely shifted over to a subscription-driven business model. Newspapers like The New York Times or The Washington Post found that a subscription model can be more effective than physical paper sales in the digital age.

Keeping a service on retainer or having a regular appointment schedule for clients is, in some ways, similar to a subscription as well.

In addition to these types of subscriptions, which blur the lines between online business models, it’s possible to run a 100 percent subscription-focused business. It’s a bit difficult to pull of, but it’s possible to charge for access to a unique community.

Charging for access to a community is difficult: it requires that you have access rights to a community of people that others find appealing.

Can you bring together a group of experts, or create a “mastermind” on a specific topic? Is there a very small niche of people that could get massive value out of just being introduced to each other?

If your industry satisfies those criteria, it may be possible to create a paid subscribed community. That said, subscribed communities are hard to create, and may be easier to develop after you’ve already built an online business based on some other type of product or service.

Still, if you do manage to get a community off the ground, the value of that community will grow through network effects—the larger the community becomes, the more valuable it becomes to everyone in it.

Conclusion: How online businesses make money

These are five common and accessible ways to increase revenue for online or small business owners. Some businesses rely primarily on one type of service or products—others use a mix.

Regardless of your business type, keeping in mind different business models and types of value you can provide can be useful as you think about growing your business—and learning from other online businesses that make money.

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