How to Start an Online Business That Will Last With 4 Examples
May 25, 2020
Can an online business be a long-term, secure source of income?
This is a bit of a ‘how long is a piece of string?’-type question.
On the one hand, there are many parameters you can easily test with an online business to track performance, including website conversions, profit margins, and traffic data.
Additionally, because of the sheer size of the marketplace compared to a physical business, which is limited by its location, with an online business there are way more opportunities to reach a global audience and grow.
On the other hand, Google and Amazon can in a sense ‘rule the roost’ and have a lot of power over a business that is solely reliant on them for traffic and/or income. Google updates and Amazon policy changes are common, which can make an online business owner feel overly dependent on these giant hosts.
Not to mention that with any business totally visible to the whole world, there’s always a chance that copycats are lurking around the corner.
With all of these factors at play, it can be difficult to weigh up whether an online business is a good source of income in general.
Why don’t we dive into the anatomy of what successful online businesses that are built to last look like?
Here are four examples of solid online business models, starting with the ever-popular Content Site.
1. Content Site – the Media Company
The concept is simple: a content business makes money by hosting content on a website.
The content can be articles, videos, images, GIFs, animations, or even advertisements. The content usually has a theme; for example, it could be a content site focused on baseball.
The purpose of the content is usually to promote products or services. For instance, the example baseball site could feature review articles of popular bats. This is where affiliate marketing comes into play. An affiliate – the owner of the content site – signs up with a company or a network (a network being a company that houses many offers from different businesses) to promote the company’s offers. The affiliate typically gets paid every time someone either buys something or executes the desired action after clicking through a link on the content website.
Affiliate marketing can also be done through Amazon as an Amazon Associate. The concept is largely the same, except the affiliate is termed an Amazon Associate. There are also some technical differences that we’ll get into in just a moment.
Another type of content site that is very similar to affiliate and Amazon Associates, as it hosts a lot of written or visual content, is AdSense.
This is where companies pay Google for advertising and then Google displays the ads on the content site. Google pays the content site owner every time someone clicks the ad since the company pays Google to run the ad.
Now that we’ve gained an understanding of how these business models work, let’s dig into what a strong content site looks like.
The Anatomy of a Content Site That Is Built to Last
Although content sites often run off of a single monetization (affiliate, Amazon Associates, or AdSense), a content site that’s built to last uses all of these avenues. We’ve seen plenty of six-figure content sites with a single monetization before, but having multiple revenue sources is almost always going to increase the security of the asset.
Of primary importance are the affiliations and offers, as well as the ad networks.
A commonality of not just content sites, but successful online businesses in general, is diversification.
Multiple Affiliations
It’s important that a content site has many affiliations and ad networks. There might be multiple affiliate networks or companies that have the same offers. If an offer from one network or company changes, is removed or has a commission cap imposed on it, then the other affiliate networks can act as safety nets.
This is also true for promoting multiple offers. With multiple affiliations, if there are any significant changes in any markets (e.g., if they start to die in popularity), the other affiliations will hold the business up. When the content site has affiliations with evergreen products or services, the foundations of the business are strengthened further.
Sales Tracking
With a solid affiliate structure, it’s important to set up tracking for every affiliate link. Tracking gives an overall view of how much profit each offer or niche is bringing in and whether it’s worth it to drop certain content and focus on higher-profit affiliations. For most affiliate networks, their provided dashboard will often be sufficient to successfully track whether or not an offer is profitable.
A major factor for affiliate success is how well the affiliate partner’s website converts, as this website is ultimately where the products or services are sold to a potential customer. Because this is out of the hands of the affiliate, it is important to drop affiliate partners that aren’t bringing in revenue. The offer could be great and there could be a high number of clicks, but if no sales are made as a result, then in most cases the affiliate won’t get paid.
It might even be worth searching for a better website that has the same offer to help get the maximum amount of sales.
More Diverse Content Brings More Income
With the diversification of affiliations comes the diversification and expansion of content. Diversifying between display ads and affiliate content allows you to take full advantage of both informational and commercial intent keywords, with the ads allowing you to monetize the informational content. The more content a website has, the faster it will become an authority, and the more authoritative it is, the easier it will be for search engines to pick up the content and send more free traffic.
Higher volume of content and more diversity also opens opportunities for more ad space and ad network affiliations, meaning more sources of income. Testing different ad placements can also have a substantial effect on performance. We have actually conducted a study on the ROI of content site investments. One buyer in the study increased their monthly net profit by 50% after testing ad placements, which would have given them a full return on their investment in just 24 months through that switch alone.
Conversions and Marketing
Having a site optimized for conversions through conversion rate optimization (CRO) also helps keep a content business profitable. CRO focuses on converting the traffic you already have into more clicks on your affiliate links and ads. In the case of one business owner in the ROI study, after they had acquired a content site, they employed some simple CRO tactics that led them to triple the monthly net profit in less than a year.
One aspect of CRO is the building of buyer personas. This is a breakdown of the target audience for the website that is regularly used in marketing to increase sales. One business in the ROI study employed this strategy and sent targeted content to the audience based on their interests. This led to a 10% increase in monthly net profit. The more tailored to the audience the content is, the more it’ll convert.
They sent the targeted content via an email sequence, which allowed the site owner to send the right content, i.e. valuable information such as consumer guides or cheat sheets, regularly. It’s also possible to target promotions to particular audiences that would be the most interested in certain offers. This would result in a much higher conversion rate than a general offer sent out to everyone.
Outsourcing
Once everything is set up with multiple affiliate offers and ads, virtual assistants (VAs) can be hired to run most of the operations that are simple but time-consuming, including performing manual backlink outreach needed to gain quality backlinks for search engine optimization (SEO), tracking affiliate link performance, monitoring conversions, and more.
This allows the site owner to step away from the day-to-day aspects of the business and focus on scaling their operations by finding the next best offer in the niche or setting up other monetizations to prevent the business from becoming stagnant. One business in the ROI study hired VAs to take over maintenance tasks and thus increased the monthly net profit by 10%, as they were able to focus on bigger-picture tasks that could move the needle faster.
Conclusions for Content Sites
It’s all about diversity. In this case, that means multiple affiliate offers from different affiliate networks, multiple monetizations such as affiliate marketing and display advertising, and diversified traffic sources. This, coupled with marketing and CRO efforts as well as hiring VAs to take over general maintenance, are the foundations of a rock-solid content business.
You’ll see many examples of what we have discussed when you browse our marketplace filled with affiliate sites for sale.
2. E-commerce – the Store
E-commerce is essentially running a store online. The store owner sources the products, keeps the inventory in a warehouse or even their home, and has a fulfilment service to ship the products out to customers. You can read a more in-depth explanation of the e-commerce business model here.
The primary way this business makes money is by selling products at a price and volume to make a profit after storage, shipping, and other associated business costs.
But there’s more to it. Let’s dissect the structure of a successful e-commerce store.
The Anatomy of a Solid E-commerce Store
Let’s start with the hosting platform.
There are hosting platforms like Magento, which is an open software e-commerce platform on which sellers can build their store.
However, not being familiar with the platform can lead to technical issues that can be difficult to overcome. This is also true for a store built on WordPress or even the popular Shopify platform. Whichever platform you do choose, make sure it is one you are comfortable with and want to learn. Many of them have different advantages and disadvantages depending on what you want to achieve.
On the Back End – the Operations
The quality of the product is one of the most important success factors.
Premium-quality products sell for a higher price than cheap products, which can potentially translate into more revenue. This helps to offset storage and shipping fees. Production costs can be higher for a better-quality product compared to the same product made cheaper, but it’s worth selling higher-quality products when you consider that selling cheap comes with its own risks. For example, a business based on low prices is often not far away from a price war that races to the bottom, where both they and their competitor may go out of business due to the small margins.
A quality product also brings in more great reviews and testimonials, improving the business’ brand reputation.
Aside from producing a quality product, inventory and manufacturing are two of the most crucial cogs in the e-commerce machine. Creating a logistics operation that works as efficiently as possible not only maximizes profit margins but also allows for a stronger structure behind the storefront to meet customer demand.
Getting exclusivity with a supplier on a product, or multiple products is a great way to fend off competition. This is especially true in dropshipping, where competitors can pop up selling your exact same product. Building a long-term relationship with a supplier is also beneficial in that you can avoid having to constantly test suppliers to find one that’s fast and consistently reliable.
Consider having multiple suppliers to build a stronger foundation; this way, the business isn’t solely reliant on one supplier, who may not be able to keep up with high demand during busy seasons or may have limits on production.
Then it’s on to shipping.
Having the best possible shipping operator who has the necessary storage capacity and can deliver the products for a reasonable price not only saves money, but also improves customer service and prevents stockouts.
Using sea freight shipping instead of more costly air shipping allows you to do more overall while moving the same volume (or more) of your product. Remember that everything is negotiable. You can often negotiate with freight forwarders for a better rate, especially if you are shipping large quantities of product. Having shipping discounts also helps increase margins.
It’s often a matter of looking at the storage warehouses and getting the best possible deal. Many e-commerce stores have negotiated storage with various warehouses, but if you’re an Amazon fulfilled by Amazon (FBA) entrepreneur, you might just rely on Amazon’s warehouses. In that case, you could save a significant amount of money if you ship your product to a third-party logistics (3PL) warehouse instead of Amazon’s warehouse. A 3PL warehouse will allow you to store products for a lower fee, and they will ship your product to Amazon’s warehouses as demand requires.
That’s it for the back-end operations. Now let’s look at the front end.
On the Front End – Selling the Product
Branding is likely the most important front-end factor that determines the strength of the business.
An e-commerce business owner has a lot of freedom to build any type of brand from scratch. This allows them to create an identity for their store. However, it has to be scalable.
A brand that’s too specific, e.g. artificial grass for balconies in Colombia, doesn’t have much room for growth, whereas something like artificial grass for balconies in general, is broad enough without being too specific.
A niche of this size also has the potential for growth. Cleaning products for artificial grass could be added to the store, as well as other related products. These additions create more organic traffic opportunities from search engines, and they increase bottom line without much risk.
This opens up opportunities for expansion.
There could be the option to add drop-shipped products to the store. This allows the owner to create new offerings without having to source them, which can be very profitable when combined with the original higher-margin products.
When it comes to increasing awareness of these products, SEO is probably the best long-term strategy. Once a site is ranked, it becomes an “evergreen” channel. This brings free traffic! For keywords that are helping the site rank highly, the more relevant the content, the more the site will become cemented on page one of Google search results.
A strong SEO presence makes a business far more defensible against competition. With paid ads, a competitor can run the same campaign or start a bidding war on AdWords.
Having said that, SEO shouldn’t be the only source of traffic; as mentioned previously, Google updates might undo a lot of SEO work, so it’s best to get traffic from social media or other sources in addition to SEO.
Market Share and Performance Metrics
It’s important to have as much market share in the space as possible.
One of the best ways successful e-commerce businesses achieve this is by selling through multiple channels. These channels can include Amazon, eBay, Overstock.com, Buy.com, and shopping comparison sites in addition to your own e-commerce website.
The more channels a store has, the more exposure it gets within the niche.
Aside from making the sales, another valuable metric to track and build on is the lifetime value (LTV) of a customer. It’s good if a lot of customers are buying once, but the real money comes from the follow-up – getting these customers to buy additional products from you. Doing this can drastically increase your LTV.
This is where we again return to email. Post-purchase automated emailing and promotional broadcasts can be massive money makers, since a customer is about 30% more likely to purchase from somewhere they’ve already bought from a second time.
While all of this business is going on, VAs can handle customer service to keep customers happy. This results in positive product reviews and testimonials, further building on the brand reputation.
You can see that many of the e-commerce businesses for sale on our marketplace follow the above advice.
3. Amazon FBA – the Franchise
Amazon FBA stands for fulfilled by Amazon and is a subset of traditional e-commerce. This is how the business model works:
- The Amazon seller (owner of the FBA store) sets up an agreement with a factory/supplier to provide a product.
- The seller has that product shipped from the factory to a warehouse owned by Amazon.
- When people buy the product off Amazon, Amazon fulfills the order by handling the logistics, including shipping and some customer service.
All it really takes from the seller on the operational side is to make sure that there is enough stock to meet demand. They receive the profits made on each sale minus Amazon’s order fulfillment costs.
The Anatomy of a Profitable FBA Business
Because the Amazon FBA business model is a close cousin of e-commerce, there are foundational practices that work very well for both. These include having multiple suppliers, multiple traffic sources, and an appealing brand, building an email list, hiring VAs, and selling scalable products.
But there are some foundations that are unique to Amazon.
Using Amazon for SEO
Although Amazon is probably the best place for getting free traffic to a store with minimal effort, strong FBAs with long lifespans often get traffic from other sources too. Traffic often comes from Google organically through a process called Parasite SEO, where the seller essentially uses Amazon’s presence on Google to increase traffic to their product listings.
Again, It’s About the Product
Product quality is one of the most important factors to monitor.
Having a third-party quality checker prevents undesirable circumstances, such as poor-quality products being sent to customers without being checked. This could definitely result in at least some 1-star reviews, which risk negatively impacting the reputation of the company. The risk of not quality-checking your product is even higher with digestibles, a risk that could result in you getting sued if not taken seriously. An FBA with a third-party quality control partner greatly reduces these risks.
In a study we conducted on the ROI of Amazon FBA business investments, a buyer of an Amazon FBA business improved the quality of the products. This resulted in an improvement of review scores on Amazon, a lowering of their return rates, and an improvement of their customer retention numbers. These changes allowed the investor to grow their monthly net profits from an average $2,500 to a staggering $12,000 per month.
Another factor related to quality is how easily the product can be copied.
Of the responses we collected in the ROI study, 35% of buyers of Amazon FBA businesses said that their biggest traffic challenge stemmed from growth of competition. Pursuing a trademark on your products helps prevent competitors from copying you. To piggy-back off that point, having a unique brand makes it difficult for competitors to control more of the niche and take sales, as they won’t be as able to position and sell the products in the same way.
On the Amazon Marketplace – Optimizing Your Listing
Listing content is also something that’s unique to Amazon. One buyer in the ROI study optimized all of their business’ listing-related content, including enhancing product photos and updating the listings’ copy. They also built out a fully optimized Shopify storefront site. After making these adjustments, the buyer grew the business by 15%. This illustrates just how effective an optimized storefront can be.
With Amazon’s multi-channel distribution program, it’s possible to set up a supporting e-commerce store off Amazon and still have them fulfil orders through FBA. This makes the business strong enough to survive if its listings are ever taken down from Amazon for violating their rules, which is not uncommon.
It’s also helpful to remember that Amazon is a global market. Selling to the UK, Germany, Canada and other large countries gives the business more stability and opportunities for growth if certain products are more popular in other countries.
One Amazon FBA buyer in the ROI study increased their monthly net profits by 5% through diversifying their marketplace strategy. They expanded to other marketplaces, such as Europe and Australia, increased profits with a relatively simple marketplace expansion while Amazon was still doing the heavy lifting in actually fulfilling the products. Often expanding to different marketplaces within Amazon’s ecosystem can be as easy as clicking a few buttons. The reason for this is that Amazon often has a central fulfillment warehouse that serves many countries all at once – this is especially true in European markets.
You can see many Amazon FBA businesses for sale on our marketplace that follow the advice above.
4. Software as a Service (SaaS) – the IT Infrastructure
This business model is based on a piece of software hosted on a cloud infrastructure (i.e., operated through a web browser), where customers pay a monthly fee to access the software.
This is slightly different from a software company in that the SaaS is hosted in the cloud. This eliminates the need for an end user license agreement to activate the software and any infrastructure to host the software. Instead, the SaaS company simply hosts the customer’s membership. The customer just has to log into their account to get full access.
Though there are multiple ways for a SaaS company to make money, which will be discussed shortly, generally they earn through a recurring membership fee.
Now that we understand the SaaS business model, you’re probably itching to know what the components of a SaaS business that will stand the test of time are.
The Anatomy of a ‘Money Pump’ SaaS
As in the business models previously mentioned, CRO, an email list, hiring workers to maintain the business, and having multiple traffic and customer acquisition channels are all important.
There are also some foundations unique to SaaS.
Marketing Channels
Because SaaS is typically business-to-business (B2B), focusing on all the marketing channels that other B2B companies use is important for generating sales. Also, with B2B there’s an opportunity to engage in outbound sales for high-ticket enterprise clients. As long as multiple channels are used and they’re effective for generating sales, the business will have the marketing side pretty much covered. If the SaaS also has unique branding, it makes it difficult for competitors to simply spend more on similar marketing campaigns and impact that income stream.
Protection of Property
For SaaS and for the brand, it’s especially important to have protection of intellectual property through patents, trademarks, or copyrights. This helps prevent copycats from stealing the software skeleton and making an exact copy. If you can patent a certain aspect of the technology, it may help you increase your SaaS valuation considerably depending on the popularity of the technology.
The owner of the SaaS business must also own all of the rights to the coding and intellectual property. Thus, if a developer decides to leave the company, they won’t be able to take any of the coding or intellectual property with them.
The Value of the Software
How important a SaaS is to your customer’s business operations will be a major factor in its success. If a SaaS is well integrated into a business’ operations, then even if a better alternative SaaS comes along, the business will most likely stick with the original SaaS because of the amount of work it would take to migrate over to the new SaaS.
Performance Metrics and Recurring Revenue
That being said, some of the most important performance metrics are as follows: the customer acquisition cost (CAC), how much it costs to onboard a customer; the LTV of a customer, how much is made from each customer in a lifetime; and the churn rate, how many customers leave over each month, quarter, or year. A low CAC and churn rate combined with a high LTV make for a financially robust SaaS.
A good SaaS business will have an LTV to CAC ratio of 3:1. That will account for a good churn rate of less than 10% for a SaaS with enterprise-level clients, or up to 30% if the SaaS serves small business clients with a lower-price-point service.
When it comes to income, monthly recurring revenue (MRR) is a more accurate measure of performance over annual recurring revenue (ARR). This is because ARR is less predictable; it doesn’t provide as clear a picture of how many annual customers will stay with the software. A good SaaS has strong MRR and ARR, but you should focus more on MRR for regular and reliable income.
A SaaS that has passed the ‘hypergrowth’ phase, where costs were at their highest, there was rapid data, store, and bandwidth expansion, as well as all sorts of technicalities to support newly acquired customers, means that it’s at the ‘stable golden goose’ phase. This is where the software and infrastructure can handle acquiring new customers at a rapid rate.
You can analyze the software businesses for sale on our marketplace here.
Conclusion
As in starting any project, it’s best to cover all associated factors.
Having strength in all areas is what makes an online business a secure generator of income.
Although the online business world is fast-paced and can seem volatile, with businesses sinking by 80% or more in a matter of months or rising at the same rate, knowledge is power. Knowing what an online business that is set up for long-term success looks like can help you start a business effectively and build it to last.
Any of these business models get you excited? Go back through this article and find out more about the businesses through the linked articles. If you have any questions, drop a comment below. We would love to help you out in any way we can.
