Saturday, January 23, 2016

Business Models, Ideas, Demand and Competition comparison

So every blog I suppose must have a first post that explains the purpose of my blog as well as gives something valuable to read.  In this blog I will be chronicling my journey through business.  What I've learned, what I need to learn, what I hope to learn.

I'm currently taking a class in online entrepreneurship and this past week we've covered business models and business ideas as well as demand and competition.  Having worked with a lot of businesses in my career I'm familiar with many of the business models but it was good to review them.  The ones I like the most are the merchant, subscription, and affiliate model.

The nice thought about the affiliate model is that if I focus on writing good content and making my website popular I should be able to generate a profit from it.  The affiliate model pays me anytime someone buys when they click on an advertisement or link on my site. Depending on the company I'm affiliating with I'll collect some form of commission, usually small, although I've seen some give as much as 50%.  You don't have to deal with inventory, refunds, or really customer service at all which is appealing as it lets you focus on the topics you really enjoy.  The downside about this approach is that it usually takes a long time to generate a large enough traffic that you make any meaningful amount of money especially since most sites only 1% of your users to your site ever buy anything and for some sites it's much smaller than that.  So... it's a slow growth model that takes a lot of users.  The other worry I have about it is more and more people are using ad-blockers and so this type of business model just won't work if all of the ads start getting blocked.

The next one I like is merchant and this is the one that is easiest to think of in terms of a physical store converting into a online store.  Your customers come to your store and order products and you fulfill those orders.  You can keep the inventory yourself or use a form of drop-shipping (I'll blog about that in a subsequent post).  You still have to deal with customers and sometimes with inventory, refunds, customer service, and competitors under-cutting your prices.  However, the revenue potential is a lot higher than affiliate.  If you do digital products which I see myself doing as a software developer, you can skip over the inventory piece altogether, although the issue of piracy becomes a problem with digital goods.

The model that I like the most is a subscription service.  I've worked with this a lot in previous business ventures and I like this model the most.  I have a service I am offering, whether that's content, access to a particular product, or something else.  You only have access to that service while you are paying a monthly (could be some other time period) fee.  I like this model as it lets you easily forecast revenue out and if you provide a great service you can get long-term customers and your revenue just continues to grow.  With the merchant model you have to cross-sell, or up-sell, or have a product that expires quickly in order to get the same customer to buy more.  With the subscription model the same person keeps giving you money and can end up paying much more over their subscription period than they would have been willing to pay up front.

Business ideas were something we covered as well but I'll just link to the article as it's a good enough review for me and for you to go through.  Here's the link

We also this week talked about demand and competition.  In the class we used google adwords as way to objectively compare different business ideas with different business models.  If we take an idea such as chess or snowboards we can look at google keywords and see what the monthly search volume is for that keyword.  Google also tells us how many other advertisers are competing for that same keyword.  It's not 100% precise but it shows what the demand (number of users wanting that product/service/idea) and the other companies competing in that space.  This was very informative to me and I now have a much better idea of how I can quickly determine if a business idea is even worth pursuing.  If only 300 people are searching for something each month and I think only 1% of them will buy and I make $10 a pop.... well making only $30 a month doesn't seem a very good business idea especially if it costs me $25 or even $40 to get those users to my site to even buy!

1 comment:

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