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How to Start an Online Business (The 6 Models)

Starting an online business can set you up with a lucrative source of passive income, or even plant the seeds of your next career. It can also be a lot of work: Planning how to get your online business off the ground and making a profit is no mean task.

Luckily, if you follow these eight straightforward steps, you’ll be well on your way to starting your own online business.

1. Consider low-cost small business ideas

Take some time to consider inexpensive business options. There are plenty of business models that let you get started for less than $1,000. Add a little elbow grease and a spark of inspiration, and you could well be on your way to a digital empire.

Traditional ecommerce

Certain ecommerce business models come with low initial investments and potentially massive payoffs. For instance:

  • Vintage stores, which often resell inventory hunted down in thrift shops or at estate sales
  • Online courses, consisting of self-produced instructional videos and live teleconferencing sessions
  • Handmade jewellery, created using inexpensive materials and tools
  • Stickers or enamel pins, which can be produced inexpensively in bulk using remote services
  • Handmade pet treats, which you can make and sell without the use of a commercial kitchen

These are just a few ideas to get you started. When it comes to low-investment ecommerce, there are plenty of ideas waiting to be put into action.

Shopify, Amazon, Etsy, and eBay are four of the most popular platforms for operating an online store.

  • Shopify: Highly customizable, Shopify comes with tons of plugins, and lets you run just about any type of ecommerce store you can imagine.

  • Amazon: While it has more stringent limitations on what you can sell and how, Amazon also has a global reach. And their Amazon fulfillment plan can take warehousing and shipping off your hands.

  • Etsy: A thriving marketplace for handmade and vintage items, Etsy is nonetheless host to many large scale ecommerce businesses—so there’s plenty of room for growth.

  • eBay: An old mainstay of online stores, eBay is also a great place to sell vintage wares, and may potentially reach a wider audience than Etsy. That being said, eBay has less of a community focus—it may take longer for you to build credibility as a seller.

Drop shipping

The drop shipping business model completely outsources all your inventory and shipping. It’s up to you so set up a store and market products. The orders themselves are fulfilled by suppliers who you’ve established working relationships with.

So, as soon as a buyer clicks the checkout button, the sale is out of your hands. You collect your profit, and the rest of the money goes to the supplier. After that, you just need to be available to provide customer support if something goes wrong—like the package getting lost, or arriving late.

The drop shipping model is appealing because of its extremely low startup costs; with a laptop and less than a thousand dollars, you can start a business from a table in your favorite coffee shop.

But, because of that easy accessibility, drop shipping is competitive. And you’ll still need to jump through the usual hoops to set up your business, get your financials in order, and pay taxes. Our guide on how to start a drop shipping business breaks it all down into digestible steps.

Affiliate marketing

Similar to drop shipping, affiliate marketing lets you profit from selling products without ever handling a piece of inventory.

With this business model, you embed affiliate links on your website, blog, and social media posts, or else in a newsletter you send out to your email list. When customers click the affiliate link and make a purchase from the affiliate’s store, you get a cut—typically a 5-25% commission.

If your strong points are content marketing or social media, life as an affiliate marketer may be right for you. And if you’re already a blogger whose content appeals to a certain niche, you may be able to turn your WordPress pastime into a source of passive revenue.

So long as you’re putting out content your followers value—and attracting traffic through search engine optimization (SEO) and ads—you’ve got all the infrastructure you need to jump into affiliate marketing.

Startup costs are low—all you really need to get going is web hosting, a domain name, and a WordPress account, plus a little know-how when it comes to blogging for your target audience.

Keep in mind, though, the infrastructure you need may take time to build; search engine credibility, large follower counts, and archives full of high quality content don’t show up overnight. If you’re planning to start affiliate marketing, be prepared to invest time and energy building up your online assets.

Pay-per-click (PPC) ad revenue

PPC earns you money every time a visitor comes to your website and clicks an ad. It’s often used in tandem with affiliate marketing. And like affiliate marketing, you’ll need a strong base—such as a popular blog or website—to work from.

So, while PPC isn’t a business model per say, it can supplement your revenue from existing online content. That’s worth taking into account as your put together your business plan, mapping out revenue streams and creating financial projections.

Working as a freelancer

Ready to quit your day job? Online freelancing may be the answer. If you’re already doing work that can be handled remotely—coding, design, marketing, accounting, copywriting—then you’ve got a valuable asset that can earn you cash as an independent operator.

Even if your job is hands on, you can still use online freelancing platforms like Upwork or Fiverr to set up a consulting business. For instance, maybe you already run your own successful wedding photography business. You can earn side income by marketing yourself as a photography consultant, helping mentor other business owners.

Whatever you specialize in, be prepared to set up a website for your freelancing business, as well as profiles on any freelancer platforms you choose to use. Also, assets like an active social media presence, blog, or newsletter can help you build credibility and stand out from the crowd.

Finally, if you’re used to working for someone else, becoming a freelancer will change the way you do taxes. Our independent contractor’s guide to taxes has everything you need to know.

Starting a podcast

Podcasts brought in almost $500 million in revenue in 2018; by 2021, that number is expected to hit $1 billion. If you’ve memorized the weekly release schedules of all your favorite podcasts, and you figure you recognize the ingredients to an addictive program, then the microphone could be your path to stardom.

Podcasters typically earn their income through affiliate marketing. Obviously, embedding links isn’t the way to go—it’s up to you to promote businesses on your program. Podcasting platforms like Podbean and Buzzsprout connect you with affiliates from day one, so you never have to go hunting for a sponsor. They’ll also host your podcast, and help you promote it and track your progress.

Besides the cost of hosting, be prepared to spend most of your startup budget on promotion through ads and sponsored posts. There’s also the matter of your studio; entry level professional microphones range in price from $100 to $500.

Accounting 101: Set Your Finances up the Right Way

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2. Write a business plan

Your business plan is a roadmap for your online business. It describes where you are now, and where you’re headed. As your business grows, you can return to your business plan for help planning growth or anticipating future challenges.

Having a plan in place before you get off the ground is key to building a successful online business. It keeps you centered on your goals—so you know what’s important and what isn’t when it’s time to make important decisions.

A few questions your business plan should be able to answer:

  • What need is your online business fulfilling for customers?
  • Who will you be competing with?
  • What assets will your business draw on? These can include startup funds, your professional skills, or intellectual property (like the exclusive podcasting rights to a juicy crime story).
  • What will your financials look like in your first year? How about your second year?
  • How long can your business go without making a profit?
  • What sort of sweat equity will it take to get your business established?
  • What will you need to earn each month to break even?

Your business plan can follow either the lean model (quick and dirty) or the traditional one (extensive and deeply researched). Our guide to creating your first business plan gives you a step-by-step process.

3. Choose your business structure

How you elect to structure your business will determine how you will file and pay taxes. It also determines your liability—whether your personal assets are on the line in case your landscaping business can’t pay its debt or gets sued.

The five main types of business entity recognized by the IRS are:

As soon as you start earning money from your own business, the IRS considers you a sole proprietorship. Meaning, you and your business are identical for tax purposes.

In some ways, that makes life easy—you don’t have any extra paperwork to deal with. Partly for this reason, the sole prop structure is popular with freelancers. On the other hand, it doesn’t offer any liability protection—so your personal assets are on the line in case you get sued or default on a loan, for instance.

A single-member LLC structure is the next step up. It gives you liability protection, while still functioning much like a sole proprietorship. Many small business owners start out as sole props, then become LLCs.

Our guide to business structures lets you compare your options, and see the strengths and weaknesses of each.

4. Register your business name

If you freelance under your own name as a sole prop, there usually isn’t any need to register a business name. But as soon as you begin operating under a different name—"Greg’s Graphic Design,” instead of "Greg Jackson”—you’ll need to register it. Also, if you’re using any business structure other than sole prop, you’ll probably need to register your name.

Here’s how you do it:

Make sure no-one else is using your name

Do some research online to make sure no-one else is using your business name. To be extra thorough, you may want to hire a patent and copyright attorney to check for you.

File a doing business as (DBA) form

To run your business as a sole proprietor under a name other than your own, you’ll need to file a DBA with your state.

LLCs, corporations, and partnerships register their business names when they elect their business structure for federal and state tax purposes. However, you’d like to operate under a name different than the one you’ve registered, you’ll also need to file a DBA.

5. Snag a domain name

Once you have your business name, it’s time to register a domain name. Even if your main marketing platform is social media, and you don’t need a website, it’s best to register a domain now. There’s always the chance that once your business takes off, someone else may try to register your domain for their own business, and that lower your standing on Google search results page.

Plus, while you may not absolutely need a website to run your business, even creating a small, simple one could benefit you in terms of SEO, helping you come out at the top of Google’s search results when someone searches for you.

Google Domains is a good one stop shop for your new domain. They make the process easy to navigate, without the upselling techniques used by other providers (“For just $9.99, add YourCompany.biz!”). Once you decide to build a site, you can automatically import your domain into Squarespace, Wix, Wordpress, Shopify, or Weebly.

6. Sort out sales tax nexus

If you’re running an ecommerce store, you may be required to collect sales tax in multiple states. If and when you do is determined by your sales tax nexus. Sorting that out can be a bit tricky, but our introduction to sales tax nexus makes it simple.

7. Launch your social media presence

Maybe you’re planning to use Instagram as your number one sales channel for your vintage clothing store. Or maybe you’re launching an online consultant business, and hadn’t considered using social media at all. Either way, one of the first steps you should take after launching your online business is to create a social media presence.

Even if you’re not selling through social media, having an active account shows potential customers the lights are on: It proves that you’re engaged and accessible as a business, and can serve as a point of contact for customers who have questions.

The most important social media platforms for marketing your small business are:

Facebook

When it comes to younger demographics, like millenials and zoomers, Facebook has seen a decline in popularity. Nonetheless, on a global scale, it’s still the most popular social media platform overall. Maintaining a Facebook profile makes your business easier to find by improving your SEO score.

Instagram

Especially among younger cohorts, Instagram has seen a surge in popularity for marketing products. Hashtags let you research and target specific groups of users, as well as seeing what your competitors are up to. And since it’s primarily a visual platform, it’s the perfect place to showcase new products.

If you offer your services as an online freelancer, Instagram may not be your first choice in terms of social media—after all, you don’t have any glitzy products to sell. But keeping a tastefully maintained personal account can help prove to people researching your services that you’re a “real person,” and trustworthy.

Twitter

If you’re publishing blog posts, videos, or podcast episodes, Twitter can be an excellent platform to keep your followers updated. It may also give you the chance to network with other businesses in your industry. But unless you’re publishing regular content—or launching a quirky brand identity—you can probably skip it.

Pinterest

A visual platform similar to Instagram, Pinterest is a good fit for niche businesses, especially ones dealing with handmade products. It’s a popular source of inspiration for crafters, decorators, and hobbyists. Pinterest may be perfect for promoting your Etsy store, but if you’re starting a software company or hiring yourself out as a business consultant, you probably don’t need an account.

LinkedIn

Even if you’re not much of a networker, having a LinkedIn page for your business is valuable. It proves you’re legitimate: You may be your company’s only employee, but it lets potential customers put a face to a name. If you’re running a drop shipping or affiliate marketing business, where fly-by-night operations are all too common, a simple LinkedIn profile can make you more trustworthy.

YouTube

You already know the biggest search engine in the world is Google. The second biggest? YouTube. With one billion hours of video watched every day, YouTube has massive reach. And the sky’s the limit when it comes to what kind of content you can create: From educational mini-documentaries on your industry, to interviews with thought leaders, to step-by-step overviews of your products. Try entering search terms relevant to your business—"motorcycle parts” or "stain remover”— and see what’s out there. You may find a new fan base just waiting to be targeted.

8. Get bookkeeping right from day one

Organized bookkeeping means an organized business. When your financial records are in order, you’re able to anticipate the future and make smart business moves. And it’s especially important to have tidy books come tax time; the more organized you are, the faster it is to file, and the easier it is to take advantage of tax deductions.

Bench is especially suited to online businesses. We automatically import your bank statements, and transaction records from payment services like PayPal. If you’re already operating a paper-free business—with all your financials online—then Bench integrates seamlessly.

The best part? You get a professional team of North American bookkeepers who handle your bookkeeping—so you don’t have to. Try one month of bookkeeping free.

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This post is to be used for informational purposes only and does not constitute legal, business, or tax advice. Each person should consult his or her own attorney, business advisor, or tax advisor with respect to matters referenced in this post. Bench assumes no liability for actions taken in reliance upon the information contained herein.

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