By Anna Johansson
The universal availability of the internet has opened countless doors for countless entrepreneurs. If you want to make money online, you can start your own website for free, list products on online marketplaces like Amazon and Etsy, and start raking in the cash.
Of course, it takes more work than that to make a profit online. You need something to sell, someone to sell it to, and a way to procure those goods and services—reliably and indefinitely. If you’re just starting to consider the self-employed route, and you aren’t sure how your business is going to take shape, you should start by understanding the fundamental ways you can make money online.
Main Modes of Operation
There are essentially five main ways to sell products and make money online:
1. Self-production.
Your first option is the most straightforward; you can make the products yourself, in your spare time. This is a common option for artists and crafters who want to make some money doing what they love. You won’t be responsible for any overhead, you can make things at your own pace, and you won’t need to worry about excessive inventory. The downside is, of course, you’ll be somewhat limited in how far your business can develop. Your profit margins are going to be slim, and you can only produce so much in a day; ultimately, this business model is best left as a side business, rather than an enterprise you intend to scale.
2. Manufacturing.
Your next option is manufacturing. In this model, you’ll partner with a manufacturer to produce your products on a large scale—usually, the higher your production quantities are, the lower your cost per item will be. This method will allow you to scale up faster, and produce more total goods, which means it’s more viable for making significant profits. However, you won’t have direct control over how the manufacturer operates, and the cost to get started is somewhat high. You may also have to worry about warehousing excess production volume, which can push your costs even higher. There are ways to cut costs here, such as through a Manufacturing Execution System (MES). An MES will help you keep a closer eye on your inventory, integrating with your ERP software and existing inventory management systems, and can give you more accurate projections of key performance indicators (KPIs) that dictate the profitability of your operation. Ultimately, you’ll be able to increase your productivity and efficiency, and standardize the production process. Regardless, if you want to get involved in manufacturing, you’ll still need significant capital and volume to get started.
3. Buying wholesale and reselling.
Another option is to work with a manufacturer or third-party supplier to buy products that are already being produced. The idea here is to buy these products in bulk, at a reduced rate, and then store them and resell them for a profit. For example, you could buy 100,000 cell phone cases at $0.50 each, and resell them one at a time for $1.50 each. The main problem you’ll need to navigate here is warehousing; aside from that, you may need to worry about the consistency of your supply, the reliability of your vendors, and the profit margin you can comfortably maintain.
4. Dropshipping from a manufacturer.
If you don’t want to mess with warehousing and you don’t want to make products on your own, you could engage in a dropshipping contract with an existing manufacturer or supplier. Here, you’ll sell someone else’s production stock under a different brand name. When you get an order, you’ll notify the provider, and they’ll ship the product directly to the customer (usually as a white-labeled package or something branded in your name). This is a viable method—and certainly a convenient one—but your margins will be super slim, and you’ll need to put your complete trust in the manufacturer responsible for doing the shipping. If you can find a good partner, this approach is effective. Otherwise, you’ll face significant challenges in your execution.
5. Selling Services
If you decide to sell services (such as consulting, data analysis, etc.), rather than tangible products, you can make just as much money (if not more). However, you may have to adjust your approach. Rather than selling your services directly online, as you can with products, you’ll focus on obtaining leads online, which you can then follow up with to establish a professional relationship.
Hopefully, your understanding of these important fundamental options will lead you to a viable business plan—or at least the start of one. You’ll still need to devote significant time to understanding your target market, and the pros and cons of each approach, but at this point, you should have a firmer understanding of how the world of e-commerce operates.
Anna Johansson is the founder and CEO of Johansson Consulting, where she works with businesses to create marketing and PR campaigns.
