Whether you are about to start a new business or you are simply looking to improve your existing one, there is a good chance that you feel overwhelmed by the innumerable options available to you.
The decisions you make will define the nature of your business and may determine it’s success or failure.
If you’re facing such a challenge at the moment, take a deep breath and follow these tips from someone who has already been there. We hope these tips will help you to make more informed and successful decisions, and eventually delineate the most appropriate business model to adopt.
Let’s start from the top.
Am I Selling The Right Product?
Let’s take a look at the different types of products you can sell online. The majority of e-commerce businesses sell physical products such as food (Tesco) or clothes (Asos). Our material world means that physical products are still vastly more popular than digital products, even though selling them has the disadvantages of inventory storage, shipping, breakage, and insurance.
On the other hand, digital goods are becoming ever more popular. These could be music files, ebooks or videos like those being sold by huge online retailers such as Amazon or iTunes. They could be images like those on Fotolia and iStockphoto. Or they could be website templates like those on ThemeForest.
Unlike physical goods, digital products do not require any inventory storage or physical delivery since the consumer can directly download them from the Internet. This is a remarkable advantage to a startup for whom inventory can be a costly headache.
Moreover, margins are elevated since the same digital items can be used and sold infinite times. The disadvantage of digital products of course, is that the risk of piracy is substantial.
Services such as consulting, web design, content writing/editing are another category often sold online. These services require neither inventory management nor are they at risk of piracy. An example is Shopify Experts.
Would your business be more successful if the product you sold was different in some way?
How Am I Getting Hold Of My Products?
Getting your hands on a product to sell can be achieved in various ways. Here are a few:
You may decide that the best solution for you is to create your own product from the beginning. The advantage is that you can have strong control at each stage of production. The disadvantage is that manufacture is both time-consuming and has a lot of expenses attached – for instance raw materials and labour. Your skills or resources may limit the features of your product, whereas a pre-made product is simply ready to sell.
Another option is to have a manufacturer that produce the product for you. It could be done locally, which usually have higher costs – or outsourced internationally, which could be cheaper.
You can save yourself dealing with manufacture at all by choosing to buy from a wholesaler. In this case you purchase inventory composed of other brands directly from the manufacturer or supplier and resell them at a higher price. When retailing established brands this model is the least risky since in the case of poor sales you have not invested too much time or money.
Increasingly popular is the option to drop ship. When dropshipping, you sell a product you do not actually have in stock. How does that work? Simple – you take orders from your customers and forward them to your supplier/dropship partner, who then ships the product to your customer on behalf of your company. The profits are obtained by charging the clients more than the price you have been charged. The advantage is to be able to offer a large selection of a product but avoiding purchasing or managing the inventory yourself.
Could you benefit by sourcing your products differently?
Who Am I Selling To?
Is your trade B2B or B2C? The B2B (Business-to-Business) model indicates that the market you are dealing with is between two or more businesses. In other words, your business sells to another business. There are many advantages to this kind of business. Orders are more consistent in terms of volume and frequency.
On the opposite side, B2C (Business-to-Consumer) sells directly to the end consumers and is probably the most common business type. Markups are higher and there is a wider pool of potential customers.
Work out who is buying your products and see if you couldn’t make more money selling to someone else.
Have I Positioned By Business In The Best Way Possible?
How you compete with other players in the marketplace depends on few things.
You can decide to compete in terms of pricing. This is a good option for big retailers, which have elevated margins. But what about your small business? Chances are you can’t beat Amazon’s prices.
You could instead choose to compete on quality, which means having a superior product.
Also you can choose to compete on product selection, which is a great option to gain market-share, even if you do have to risk increasing inventory.
In conclusion, your business has a greater chance of success if you are ready and willing to challenge your existing business model and make radical changes where necessary.
We hope this overview can help you start deciding the most appropriate business model for your product.