Revenue Models for Online Businesses
Let’s start off by clarifying that this is going to be messy. When talking about business models, there are no clear black/white lines. Everything below doesn’t fit in nice little buckets.
Most sites do a few of the below at once and mix and match the strategies. My hope is that this post broadens your thinking on your own monetization methods. If you’re only monetizing your site via 1-2 methods, it may behoove you to either add a method OR swap methods.
Most of this is going to be self explanatory for most but not all of you. Even if it is self explanatory, it’s good to have everything in one place to read through and think about your current method of choice.
Ecommerce
While this is a broad model, we’re going to define this as selling a *physical* product.
Amazon
Amazon is separated from other platforms below because it’s unique in scale and the fact that they can store your inventory which makes it a different ball game compared to say Ebay/Walmart.
I’m aware that both of the above have recently built out their fulfillment capabilities, but it’s not to the scale as Amazon.
Pros:
You don’t have to store and ship the products. You can have it manufactured and sent directly to Amazon.
You don’t have to build anything. Just learn how to use the interface.
Built in traffic on the site. You just have to find a way to get in front of the traffic.
Higher conversion rates given the popularity and ease of checkout.
Insane reach and ease for your consumers.
Cons:
High platform fees.
Amazon is ever increasing its pay to play model. Organic is getting more and more difficult.
Amazon is ever increasing its share of the PLP (Product Listing Page) with it’s own brands.
Amazon keeps all of the data and gives you the bare minimum.
Amazon will use said data to attempt to scalp your brand and build an Amazon Basics to compete with you. Then put their product above yours.
Other Platforms
Every website is trying to be a “platform” now a days. Your traditional platforms were Ebay and Amazon. Now Walmart and others are trying to get into the game.
Surprisingly, each platform has their own audience. I’ve met plenty of people that order off of Ebay and Walmart but have never touched Amazon.
DTC- Website
If you don’t know what this is, leave and never come back. This is more difficult than the platforms above but you own your consumer journey so there’s a lot more upside potential.
Drop Shipping
I hate this subject so much. The below is long term advice. If you’re just looking for a quick buck, ignore me. You’ll never hear me tell you to rug any customer for a short term profit.
Yes you can be successful with drop shipping, but the question is; If you can succeed from scratch with drop shipping in 2021/2022, why the hell would you be doing drop shipping in the first place.
Your margins are compressed given the acquisition costs. If you’re skilled enough to get past the compressed margins, you’ll be wildly more successful doing something else.
See below for this wildly unpopular advice. Almost no likes, because nobody wants to hear it.
Reselling
This is actually a great way to dip your toes into ecommerce to gain experience. While there are some success stories of people that started years ago and built 8 or even 9 figure business, it’s unlikely to be you.
You’ll make some money and learn a lot in the process. I’ve seen people clear 6 figures in profit by learning how to stack coupons with certain brands.
If you go this route, start by buying product from TJ max, huge discounts with affiliate coupon stacking directly from a brand, or after a big event when demand has fallen off and everything is on clearance.
Take that product, throw it in your garage and learn how to sell on Amazon/Ebay/Walmart/etc. Ship it yourself so you know the entire process. It’s pointless to send 20-50 units to Amazon for FBA when you’re just getting started.
DO NOT start your own website to try to sell this product. You’ll have a hell of a time getting past the acquisition cost while still being competitive with the main brand.
Affiliate
If you need a refresher, go here.
Guest Posts/Paid Placements
Links make the SEO world go round. Many sites will supplement their revenue and content generation by having other sites write content for them with the promise of a link back to their site.
If you decide to go this route, two tips.
Don’t over do it. There’s a balance.
Don’t advertise that you do guest posts on your site.
Don’t link to spammy sites.
Display
We all know what display ads are. They’re generally an add on revenue source for websites that don’t have a great monetization model.
Before you go down the display route, you should ask yourself some difficult questions.
Is my current monetization method tapped out?
Will the appearance of ads subtract from my main monetization method? IE, will less people click on my CTAs and affiliate links?
Is the decrease of performance of my other monetization methods offset by the display revenue?
Will X ad network revenue offset any degradation in speed, bounce rate, etc.?
The goal of any business should be to maximize long term profit. Ask these question and more while thinking short and long term benefits.
Courses
I may speak derogatory about “I’ll teach you to be rich” courses, but I have to admit one thing.
There are a lot of legitimate courses worth selling that aren’t scams.
Selling courses is nothing more than selling your expertise in a packaged and easily digestible format. With the internet, anybody can learn anything with enough time and work.
A course sellers value prop is that they’re saving you a lot of time by filtering through all the noise and delivering the most relevant information. The customer is paying to save themselves time during the learning process.
Time is the most valuable commodity we have so it’s not a bad value prop.
Digital Products
This could be similar to the courses above or completely different.
Everyone thinks of digital products as scammy, but it’s actually a very large market with some big and established player. As the world becomes more and more digital, digital products will take the place of a lot of physical products.
BTB keeps going back to missing the ringtone craze, but there’s a lot of digital products in the professional world that most people don’t realize exist.
Industry research reports are an example that most people don’t realize that companies are paying big dollars for. In this example, you’re keeping an eye on the industry, analyzing and synthesizing the data, publishing the report monthly/quarterly/yearly, and selling at a huge profit.
Other examples are:
Repurposed music
Software tools. Most are switching to the SaaS model though.
Licenses for fonts, logos, images, etc.
ebooks
Printable PDFs
Templates for business cards, presentations, legal templates, or any sort of design templates
Website themes/plugins
Academic papers
Code snippets, Zapier template, etc.
Sewing/Knitting patterns
Technical manuals
3rd Party Ads
This is a weird one to bucket and breakout. It can be very similar to Display ads above or it can be completely different. As mentioned above, the bucketing in this article is very messy. Display ads could obviously fall into this bucket.
Direct Ads
You can strike a direct deal with a 3rd party to advertise on your site. This could be display ads, or it could look more in line to what Healthline does.
The display ad is programmatic. The 3P placement is a direct deal between Healthline and betterhelp to place their ads on mental health articles.
If you go to the page here, you may or may not see the ad. Healthline has their own internal software that decides who or when to show their 3P ads to.
The benefits of these ads are that they feel and look much more natural in the article flow. This in turn gives it a much higher clickthrough rate compared to display ads.
Exchange Ads
There’s a lot of sites that will supplement their search with Google text ads. I don’t have a lot of real world experience doing this so I personally don’t know the performance around these ads for the site.
Another example of this on a very large site is Best Buy. Since they’re a retailer and not a “brand” per se, it may be beneficial in their revenue model. I’m guessing they did a test and their conversion drop (if any) was offset by their increased revenue of running Google PLAs, text ads, and display ads.
Note that these are 3rd party ads from Google and not affiliate links. You’ll see this at the bottom of their PDPs.
While I may not advise this on an ecommerce site, when you’re getting a quarter billion visitors a month as a retailer, the math may change… DYOR.
Lead Generation
The best way I can think to bucket this is inbound and outbound. This is likely not the best way but it’s what my brain is coming up with at the moment.
Inbound: Your website is collecting user interest for a product/service and your website is sending these leads to your customer. A user comes to your site looking for a lawn mowing service/repair man/ecommerce specialist/etc. They call “your” phone number and it’s directed to your customer’s company. Same with email. You could also redirect the user to your partner’s website landing page.
Outbound: Your website gives away a free digital product that can only be emailed to them. Say that digital product is about macro-economic trends during stagflation. You now send their email address to a financial advisor firm who uses their information as a lead for outreach.
Payment terms for these types of relationships can be Cost per Click, Lead, Call, email, etc. It can also be a revenue share agreement. With all things, it’s all in what you can negotiate.
SaaS
Seems the entire world has turned into a Software as a Service model. You don’t actually have to be a developer to build something like this. Even leaving aside no-code options, you could hire a developer to build some basic functionality that would be useful to a lot of users.
I’ll use TinyPNG as an example for this. I don’t know for sure, but I’m guessing that they started out with only the drag and drop compression feature. That feature and the basic compression algorithm likely isn’t expensive to build.
While their free tool is all I need, I pay the $25 a year for pro just to support the site.
Paywall Content/Walled Garden
Lets drop a few things in this bucket. Paid newsletters, subscriptions to news sites, subscription to a certain part of a website, etc. You get the point.
The beauty of this model is similar to SaaS and other digital products. Unlimited scale with essentially 0 incremental cost. The downside being that you have to continually create new product. Not a big deal if you get any sort of scale.
Data Collection
It shouldn’t come as a surprise that everything you do (data) is being collected and sold. Outside of the political division that comes from display ads (say anything for clicks), this business model when looked at through the effects of society, is arguably the worst.
I won’t go into the tiers of how all of the businesses and brokers work. I’ll just touch on how you can make money from this.
Everybody in the industry is in some way complicit and it’s what I hate most about the industry.
Email Renting
This is the most harmless in the data collection bucket. There’s a big market for customized email lists. This could be as harmless as a company “sponsoring” the current email that you’re reading. Again harmless.
On the other end of this is similar to the below. Some companies will buy bulk emails and spam them on behalf of a brand. Many times, the brand doesn’t realize that the user emails weren’t collected voluntarily, which can degrade their own brand.
Selling Emails & Associated Data
Getting into the second and more severe bucket of scummy is selling emails. How it works is a website collects emails and then sell them to a data broker or other company. They will also sell any other personal data they have on the user. Many of the people selling the data don’t realize how bad their actions are for their users.
These scummy people (I sincerely mean that. Fuck You if you’re reading this. Unsubscribe. I’ll return your money.) will never let you out of their CRM. Even if you do manage to get out of their CRM, they’ll just sell your data to another company or broker where the cycle starts all over again.
This is the spam phone call model. It will eventually lead you to getting a new email address.
A more professional (still unforgiveable) way to use this data is what bad SaaS sales people do. Picture you work for a crappy SaaS company that your product isn’t really needed by anyone. All of the ecommerce people that you’re trying to sell to know that your product is overpriced crap so they ignore your LinkedIn messages.
You then buy their emails and phone numbers. Your emails likely end up in spam since you’ve obviously added thousands of people to an email distro without their permission. So what do you do? You start calling their cell phone from their local area code with a similar number so they’ll pick up. You call 5 times in a row to make is seem like an emergency. You change numbers and do this every day until they pick up.
If you work for one of these crappy companies. Work for a better company/product that’s actually useful, find a better sales method, or see my bolded text above.
Another use by these companies and way less intrusive is to use those emails for retargeting purposes on social media sites and Google. The platforms explicitly ask if the customer has given you permission to use their email but nobody reads that stuff. While I don’t agree with this method, I’m not as angry at it as I am above two methods.
This is different from the lead generation model since the customer voluntarily gave up their email to acquire information or is looking for the service. They gave it to that company for that service. In this model, the lead gen company or customer will stop emailing you if you unsubscribe or ask.
What I’m trying to say in my angry rant above, is to never sell your customer’s data. If you do, make sure you’re selling the company or service associated with it.
Selling Data Collection via Tags
There are companies, that if you have enough traffic, will pay you to be able to place a tag on your site.
I’m not sure what data they’re collecting and how scummy they are so DYOR and try to think about whether you want to screw over your customers if they collect too much data.
Bonus Scummy (Not a Revenue Model for You)
This is arguably the worst BUT the market is controlled by larger players who have lawyers that don’t want to cross the line and get sued.
Say you’re a big brand that wants to run display advertising on a network other than Google. You and the display network want to track view through attribution so you allow them to place their tag on your website.
Harmless enough.
What you soon realize through their bragging, is that they’re collecting everything about your customer except their credit card number. Most importantly, they’re collecting their billing and shipping address.
The ad network is then matching that to United States Postal data. The way they see it is, you can use a fake email, get a new phone number, use PayPal, a fake credit card, etc. but you can’t hide your home address. This home address and the change of address form that you file when you move becomes your “matching key”. They can then track all of your email addresses, phone numbers, etc. through a better matching key than a cookie or an email.
What’s worse, this company’s tag is on most large ecommerce sites and they’re tracking most of your purchases around the internet.
They’re also buying credit card transaction data and any other data they can get their hands on…
Wrapping Up
Excuse the rant at the end. I thought it important to dive into some of the scummier parts of what is viewed as normal internet business models.
Outside of my rant, my hope is that you look at your digital business through a different lens. There’s likely more and potentially better ways to monetize your site than you’re currently thinking of.
Also, my rant should let you know what I think about internet privacy and protecting user personal data (your data).
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Fantastic post. Not from the US but reading the Amazon "cons" section gives me an idea of what our local marketplaces in Asia (Shopee, Lazada) will be pulling on us over the next few years.
Very helpful how you laid out the trade-offs between selling a product on Amazon vs. building a standalone DTC website. My impression from reading is that Amazon has lower downside and lower upside, which makes it the better route for someone starting out with no e-com experience (i.e. myself). Lower downside because it's easier to setup, there's built-in traffic, and they manage your inventory, but lower upside because of high competition (incl. from Amazon itself) and less data. Do you agree?
I have one other question: you said "it’s pointless to send 20-50 units to Amazon for FBA when you’re just getting started." So if I were to manufacture a product and sell it on Amazon, what are my upfront costs going to look like to reach an appropriate scale? Can you give me a rough idea in terms of # of units or cost (I think you said $20-50k in another article)? I am trying to gauge what the initial investment will look like (excluding any advertising and other costs).