5 IM Business Models – Pros and Cons

Hey folks!

When deciding to start an online business in internet marketing (IM) you have several business models from which to choose.  In this post, I outline some of the most common business models and list the main pros and cons of each model as I see them.

I have learned from long and sad experience that if you try to work on more than one type of IM business at a time when you are starting you will, in all probability, fail to reach your goals.  I can attest to that as I have tried several models over the years but did not focus on any one model so I basically got nowhere.  Well, almost nowhere – I’ll explain in a later post.

Here are 5 common IM Business Models found in Internet Marketing today.

• Affiliate Marketing
• Digital Product Creator
• Physical Product Creator
• Service Provider
• MLM (Multi-level Marketing)

Each of these models can be approached in different ways and each has their own pros and cons.  Regardless of the method chosen, you will always have to drive traffic so that is a common requirement to keep in mind that I will not mention in the pros and cons.

Affiliate Marketing

This is often the method that people start with as it is the ‘easiest’ to get started.   Simply stated, you sell someone else’s products using what is called an affiliate link and you earn a commission for each sale.

There are many marketplaces online where you can find products to promote for a commission. Clickbank is one of the first and most popular market places.

Pros

1. Small startup cost – domain name and hosting, autoresponder
2. No need for support for the product as the product creator/seller does that
3. No need to setup payment methods other than a way for the merchant to pay you your commissions
4. Returns and refunds are handled for you by the affiliate network

Cons

1. Commissions can be small, especially on physical products
2. You do not have control of the product(s) so they may be removed from the market at any time.
3. Commissions may take weeks or months to be paid

Digital Product Creator

There are many different types of digital products that you can create and sell online.  Some of these are books (ebooks or Kindle books for example), software, and so on.  As these are your products, you are responsible for the support for your customers and affiliates if you choose to have them.

Another type of digital product is PLR (Public Label Rights) where you create a product (usually reports, articles, graphics) that you sell to other people to use for themselves.

Pros

1. You have complete control over the product contents, price, marketing
2. You keep all the profits (unless you have affiliates selling for you)
3. No need for inventory as these are digital only products

Cons

1. Be vigilant to avoid your product being copied and sold without your knowledge
2. You have to keep coming up with new products and in some cases continue to update them
3. You are responsible for providing support as needed

Physical Product Creator

There has been a recent rapid increase in the popularity of selling your own physical products online with Amazon in particular or with drop shippers who store and ship the products for you.

Pros

1. You receive the full price charged (less fees) not just a commission
2. You decide what you want to sell and how much to charge (see cons)
3. Does not take a large capital investment to get started

Cons

1. You must source the product or have it manufactured
2. You need a reliable manufacturer and shipper who will not be overloaded as your business expands
3. You or your shipper must  be able to handle returns and refunds
4. Depending on what you sell, lots of others may also be selling it so you may find it difficult to stand out from the crowd and still make a profit

Service Provider

There are many types of services related to the Internet and marketing that you can offer to people, locally or online depending on the type of service.

Based on your skills, you can write books, sales copy, articles.  You can setup websites,  manage blogs, write software or provide SEO services.

Pros

1. Relatively easy to setup with little overhead and no inventory
2. Some services are easily scaleable (software, books, articles for example) so you can sell it again and again
3. You get to set the price (see cons)

Cons

1. Can be subject to ‘serial refunders’ – people who buy, download and then ask for a refund
2. Pricing can be more difficult to get right than physical products where you have direct comparison

MLM

Multi-level Marketing or Network Marketing has been around for ages and ages.  Amway is an example of a MLM business model.

Basically, you join the business under someone already in the business.  You sell products from the business and you and the person who enrolled you (and the one who enrolled them, and so on) all make a cut of the sale.

You are also usually looking to get other people into the business so that you will then get a cut of any sales they make.

Pros

1. Does not cost much to get started
2. The company takes care of supply and shipping
3. You can work as much or as little as you want from home whenever suits you
4. If you love to meet new people, this can be a good fit.  Although  some is done online, there is still a level of personal contact in many of these networks.

Cons

1. Usually start by marketing to your friends and family – this can be awkward
2. You have to keep getting new good people into the organization to really make it payoff and this takes time and effort
3. Usually you have to buy a certain volume of product each month to stay in the program
4. Beware of thinly disguised pyramid schemes masking as MLM (legitimate MLM is NOT a pyramid scheme)

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I have tried three of the above and have decided to stick with affiliate marketing until I am happy with the the income I earn from that. I don’t want to deal with product creation or customer service right now and most of the money I have made on line so far has come from affiliate marketing.

Then, depending on the time and resources I have available, I may branch out into creating digital products.  Only time will tell.

So, what about you?  Which one will you choose to start with?

Let me know which one you choose and why.

Later!

Barb