The rise of technology and the internet has opened the doors for completely online businesses.
Today, all you need to reach an audience is an internet connection and a website. It’s now completely 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.
1. 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 exchange time and expertise for money. You find people in need of your expertise and offer your services to them. Help them to solve their problems and begin to build a customer base. Then bring your services online and build your online service 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 makes 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: time. There are only so many hours in the day that you can spend serving clients.
2. Physical products
E-commerce is another common model for online businesses that make money. In an e-commerce business, you sell physical products through an online platform.
E-commerce businesses are popular for those interested in how to start an online business from home. However, these businesses are difficult to get started because of the necessary logistics. You have to create, sell, and ship physical products.
3. Information products
Information products are products that exist solely online—and are essentially vehicles for delivering expertise.
If you sell–
–you sell information products. Information products have several 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 are especially appealing for people who currently run service-based businesses—if you convey your expertise in a product instead of a service, it’s easier to scale up your business.
The downside of information products is that it’s a bit more difficult to get them off the ground.
You need to show people that your expertise is worth money. With a physical product, it’s easy to see what you get in exchange for your money. With an information product, customers put their trust in the creator of the product. Your product has to deliver on that trust.
This increased trust means that an information product-based business requires a bit more of an investment in marketing, especially content marketing.
Still, if you make the investment up front, information products are a great driver for online businesses that make money.
It seems a bit odd to call donations a “business model,” but they are an undeniable source of online revenue.
Charitable organizations have run 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 a great example of a platform that lets people raise significant funds through donation.
5. Subscribed communities
Technically, subscriptions are either a product model or 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.