What do I mean business model. This is how you run your business in terms of products, revenue and overall operations. Listed below are the key models that web companies will use.
Affiliate – The affiliate business model is where the website links to another web site and a percentage ( 2-20+% ) of all sales generated from that link or visit is paid back to the affiliate. This is rather simple, just place a few links on your page to another web page and get paid. Sounds simple and actually is. The problem is that the visitors you send have to purchase something on the other website for you to get money. For good websites, the conversion ratio is 1 out of every 100 visitors will buy something. For less than optimal sites ( not well designed, not quality leads and many other reasons ), the ratio is more like 1 in 1000-2000 visits. This is not very good if you only send a few hundred to the site each month.
The good part about the affiliate model is that there is not customer service, no merchant accounts, no gateway accounts. This is a very simple model to use if you don’t want to worry about any customer service. You will need to generate a huge amount of traffic to make any money however.
Drop Shipper – This the most common form of a business model to use. The store owner ( you ) will essentially resell products from another business. Your store will take the order and send the order to the manufacture to ship directly to the customer. The benefit is that your store does not have to store any products. Simply send ( usually be email ) to the manufacturer and they will ship the products.
The drop shipper usually maintains their own ecommerce site where the store takes money ( credit cards, paypal, google checkout and more ) and maintains some sort of customer service with the customers. The customer actually communicates with the store owner and not the manufacturer. There is a lot more work to set up this type of model and a lot more time to run the store. The reason to choose this model is that they store owner can sell the products for a good margin, typically 30-50 or more. Compared to the affiliate program, the store owner can make a lot more money. The downside is the store owner will have to invest more time, resources during the setup and ongoing customer service.
Reseller – this is similar to the drop shipper except that the store owner maintains inventory in a warehouse or garage. The benefit in doing this is to prevent product shortages and to ensure prompt delivery. I would however recommend starting with the drop ship program first. This will allow the store owner to see how well the product will sell before investing in huge amounts of money into inventory.
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running an online store