3 Ways To Run An Online Store

If you are interested in selling products online, you now have more opportunities than having to sit in a large warehouse. Here I look at three business models for you to run an online store.

Own warehouse

The most common way to run an online store is with your own warehouse. If you have your own brand with your own product or design, you usually do not have much to choose from. You will have to order home in larger quantities and tie up capital. If you leave the warehouse rent and look at only the purchase cost (manufacturing cost) then your own stock is what gives you the best margins. You also have the opportunity to squeeze and feel the product if questions arise from the customer.

Dropshipping

Something that the large department stores use is dropshipping. This business model has been great for a long time in the USA and Asia, but in recent years it has also found other parts of the world. The idea is simple – you let other companies take care of inventory and logistics. Often it is the manufacturer himself, but more likely it is a distributor who offers this service.

The whole thing works like that when your customer ordered a product from your store, you order it from your supplier. They pack and ship the goods to the customer. The supplier invoices you – and you invoice the customer. The difference will be your margin.

One big advantage (if not the biggest) is that you don’t have to tie up capital. You may even get paid by the customer before you pay the supplier. You do not have your own stock and are not so dependent on trends and products that are not sold. That’s why many stores can offer 10,000 or 50,000 products in their range.

Two major disadvantages are that you do not have full control over the flow and you have a lower margin. Your customer expects the same buying experience as if you have your own stock so good support and promised delivery need to be met. Is it a big webshop where you have 40-50 different dropship suppliers with different delivery days and shipping companies? Then it can be tricky.

You are also rarely unique with your product range so, in order to get the opportunity to sell something, you have to expect price scales on comparison sites or Google Shopping. But if you are in the starting blocks of running an online store, this is a good alternative.

Admittedly, the margins are worse than your own stock, but at first, you may want to spend money on marketing and visibility on the web. You can always start taking home your own stock later to raise your margin.

Affiliate

The third example of running an online store is with affiliates. You’ve probably come across these “stores”. In principle, all comparison sites are affiliates and all cashback pages receive their income through affiliate programs.

The business model is based on the fact that when a visitor in your store clicks on a product, they are transferred to an affiliate store with which you have signed an agreement. If they buy something there, you get a certain percentage of the order value. Popular networks for affiliates include Amazon & AliExpress.

This idea is reminiscent of dropshipping but here you do not need to consider either support or logistics. The only thing you need to work with is to keep your page updated and to get visitors to click through to your “advertisers”. And hope they buy something.

As with dropshipping, you are not unique with the products, but here you try to attract other values, such as guides, best-in-test or price comparison. Another disadvantage is that your margin is low and if you have several stores, it is difficult to update everything. There are also rules for how to market your store.

Regardless, the affiliate is an interesting way to run an online store. If you already run a store with your own stock or dropshipping, you can use publishers yourself to promote your products.

In future posts, I will delve into drop shipping and affiliate and show how to use Woocommerce for these business models smoothly.

To run an online store with different margins

As I mentioned, the possibility of running a store gives you different margins. I intend to give an example where the product to simplify it costs 100 US dollars.

Own warehouse
US $ 40
Shop Price: US $ 100
Margin: 40%
 
+ full control
+ opportunity for unique products
+ high margin
– tied capital
– high order volume
– trend sensitive
 
Dropshipping
US $ 20
Shop Price: US $ 100
Margin: 20%
 
+ don’t have to tie up capital
+ NOT trend sensitive
+ don’t have your own stock
– low margins
– releases control
– not unique products
– price dumping
Affiliate
US $ 5
Shop Price: US $ 100
Margin: 5%
 
+ opportunity for passive income
+ release support & logistics
+ requires a lot of traffic for profitability
– low margins
– not unique products
– sometimes complicated rules
 

I have included some things that I think are positive and negative. All business models have their shortcomings but also bright spots. and the table only shows what you have to move on after a clean sale. I have not included costs for warehouse, support, logistics or payment solutions. Not even marketing. What it may be for profit on the last line of the different models comes in a later post.

The model I have chosen as a good way to run your store is dropship. With the right product range and design, this is a business model that gives you the best conditions for success. When you finally get up the volume on your sales, a mix of own stock and dropship is a good alternative.

However, this is based on own experiences in industries that are heavily exposed to competition, such as the clothing industry, office supplies, and appliances. So in other industries, dropshipping is probably a bad idea and affiliate is best?

Profitability?

Whichever business model you choose for your store, you should consider from the start which goals you should have. All three models have, as mentioned, advantages and disadvantages and have different degrees of difficulty to profitability. But with the right packaging and endurance, I see opportunities in all three.

Feel free to comment with your own thoughts on the possibilities of online stores.

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