What’s A Business Model?

Welcome to Episode 21!

Since we’re talking about how to plan your business correctly from the start, now it’s time to figure out just what type of business model you want for yourself. This is not a legal discussion but merely a planning phase. Depending on what type of model you choose will depend on what kind of goals you should set for yourself.

Retailers purchase wholesale inventory from a manufacturer and sell products to the public. This model has the largest profit potential but it also requires the most money upfront. This model requires you to keep inventory as well as pack and ship to your customers.

Manufacturers create a product and sell it to retailers. You will spend most of your time physically creating your product and may have to outsource such activities as marketing or web design. If your product is popular, you may eventually have to outsource the production.

Dropshippers place orders directly with manufacturers who then ship directly to the customer. Generally there is less work involved and less money needed to start because the shipping and inventory are handled by the manufacturer but you still need to market the product either online or offline.

Affiliates have websites or blogs with links to particular products and they earn a commission each time a potential customer clicks the link and makes a purchase. These commission rates are usually low so you really have to work hard to get traffic to your website to make an income.

Each of these business models have their own pros and cons, which I discuss in detail, including how to handle inventory and returns. You really need to think of how each of these models would work for your business and plan for what changes you might need in the future when your business grows.