In the world of online selling, also known as eCommerce or digital marketing, there are different ways to make a buck. Each of these methods has its own advantages and disadvantages. Here’s what you need to know about each method so you can take advantage of the online selling model best suited to your investment comfort level and schedule. These models are listed from lowest to highest earning potential.
Auction selling involves selling individual goods online. In this selling model, you work with friends and possibly outside clients to source your items, after which they are listed by you on marketplaces like Ebay and Amazon. Many, but not all, of these online marketplaces can operate on an auction-style platform where potential buyers bid for your items and thus raise their final selling prices.
Minimal investment: There is little to no monetary investment required for sourcing your items- you simply find things in your own home that you wish to sell off, or you find friends and relatives who need to consolidate their belongings. Auction selling also coordinates well with area estate and yard sales.
Steady income stream: Thanks to holidays, birthdays and life events like moving, you will almost always have merchandise to sell.
Limited income: Your income level will be limited by how many items you can list and ship in a given time frame. Also, you may get stuck listing items that have very low profit margins.
Large time investment: Listing multiple different items on sites like eBay and Amazon takes time. You also need to weigh and ship your items.
Space constraints: Unless you are sending your inventory to a place like Amazon for storage and shipping, the merchandise will need to be stored at your own home or other associated property. Depending on where you live, you may not have enough room to store all your inventory.
In this selling model, you work with retailers and third-party online sellers to sell their items. In exchange for your efforts, you receive a referral or sales commission.
Low monetary risk: Just like with auction selling, you are merely selling items for other people and do not need to purchase these items yourself. If something fails to sell well, you can simply stop recommending that item and move on to something more lucrative.
No inventory: With affiliate marketing, you are strictly marketing the items that someone else has created and is storied. You are not responsible for holding onto inventory or shipping it out to customers.
Lower profit margins: Although there are affiliate products that carry 50% or higher affiliate commissions, that isn’t always the case with this selling model. For example, Amazon affiliate earn only between 4-6% in commissions. Profit margins will limit who you’ll want to work with and for how long.
Less control: You are at the whims and subject to the decisions of the product creator in terms of your affiliate commissions and selling styles. Also, the product creator could one day decide to close up shop or lock out all affiliate sellers and you can’t do much to change this decision.
With retail arbitrage, you source your merchandise from area or online retailers and then sell those items online. With arbitrage, your purpose is to buy low and sell high, thus making as high of a profit margin as possible on your sourced goods.
High profit margins: Once you become adept at understanding your market and how much your customers will pay for a given product, you can buy items in bulk and sell them at a very high profit margin. Some resellers make a full-time income by engaging in retail arbitrage.
No (potential) inventory: You can buy and store all your inventory with Amazon using a service like Fulfillment By Amazon (FBA). Doing so negates the need for you to store your inventory and then ship it to individual buyers.
Higher risk: If you spend $10,000 to buy 100 units of item X and it doesn’t sell well (or at all), you have now lost $10,000 on inventory that you cannot move.
Possible legal issues: As outlined in this retail arbitrage post, the practice of reselling can incite the ire of retailers and manufacturers. Thus, you often cannot openly state that you are engaging in retail arbitrage or announce that you are a reseller.
In this model, you work directly with manufacturing companies to create and sell products under your own label or trademark. This results in you becoming a wholesale distributor of product lines to your customers and/or retailers.
Unlimited income: With this online selling model, you can leverage your efforts and recruit online sellers, affiliate marketers, and retailers to sell your goods and kick back some of the profit to you. With a constant rate of recruitment, your online income could experience unlimited growth.
Total control: You can work with better manufacturers to improve the quality of your items and/or reduce their wholesale costs. You can also select your desired profit margin and which retailers and other sellers you wish to collaborate with. In a nutshell, because you are selling a product you created, you are in control of all points of production and sales.
High monetary risk: You can make the wrong decision when it comes to which product you should create, or how to sell it, or which manufacturer to use when generating it. Each wrong decision can cost you thousands of dollars.
Manufacturer risk: It’s notoriously difficult to select a quality manufacturer who will produce your products cheaply and to your specifications. You may have to order several samples from different manufacturers, and pay associated their freight shipping charges, before finding a good manufacturer to work with.
The Bottom Line
When considering selling online to either supplement or replace your current income, it pays to know the individual advantages and disadvantages of different selling models. In this review, I’ve named some of the biggest traits of each selling model. Can you name a few other advantages or disadvantages of each online selling model?