I am very excited to touch base on the topic of online business vs traditional business.
My family has owned a traditional business for about 13 years now. That’s where I was first introduced to the sales world straight out of college. Extended family such as uncles and cousins also have their own traditional businesses. I am the only one in the family scaling an online business. In total, I’ve created three startups online.
I’m a fan of both but favor one more than the other. Lets talk about the pros and cons of both an online business and a traditional business. We’re going to dive in on the costs to start one, scalability, time to earn money, and flexibility.
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The first time I had an entrepreneurial moment was when I was a kid. I didn’t know it then but I know it now.
My grandmother had given me a few bucks and I had bought a variety of candy. I then found a small clear plastic box where I combined all the candy together. I remember going around the household charging $1 for a few pieces of starburst, skittles, and sour ropes. I’ll never forget it.
I don’t know why I did it. The instinct of opportunity perhaps? Having been heavily involved in both, I understand the differences between a traditional company and an online business. Lets start with the costs to start one.
How much does it cost to start an online business?
Starting an online business is a lot more cost efficient than starting a traditional business. With an online business your startup costs are a website, domain, email, and any additional widgets you choose for your website. This can run anywhere from $200-$500.
In some cases you can accomplish this for less. But if you’re paying someone to design your website it can cost between $1,000-$5,000.
I designed my own using Bluehost. Why? Simply because it’s cost efficient and super easy to use. Bluehost is integrated with WordPress and works well with any type of online business. It’s $2.95/mo. and your domain is free your first year.
How much does it cost to start a traditional business?
In most cases, a traditional business is going to require you to raise more capital. If your company uses any sort of machinery combined with software, the costs are going to be quite high. The startup cost of a traditional company can range from $10,000-$40,000+.
A traditional business also needs to be registered in your county and requires a sellers permit if you intend in selling a service or product.
You might also have to buy small business insurance to cover any possible damages. Like an online business, your traditional company will still need a functioning website to attract your customers to your service or product.
Startup costs of an online business vs a traditional business
When looking at the costs of a startup, an online business wins vs the traditional business. A traditional business is nowhere as cost efficient.
This is the pro to an online business and con to a traditional company. An online business will have very little to no overhead while a traditional business may have a massive overhead.
Scalable business model: Online vs traditional
The scalability of both an online business and traditional business is very different. This is where a huge separation can take place.
Scalability with an online business
Because an online business is global, it can reach a global audience. An online business can sell products online internationally and produce content that reach an audience at massive scale.
Online businesses with a lot traffic have an advantage over a traditional business. An online business can profit from:
- Online product sales / service sales
- Affiliate programs
- Advertisement display
- Monetizing content via video
An online business can create a loop that drives traffic essentially multiple streams of income online. A monetized YouTube channel can draw traffic to a monetized blog displaying ads. A blog may also contain affiliate links that collect commissions. Not to mention whatever this website has to sell or offer via its business model.
This multiple stream of income loop allows an online business to constantly be earning money, 24/7.
Scalability with a traditional business
A traditional business will always be limited by a demand for your service or product. This type of business is usually limited by its location as well. Most small businesses cater to their surrounding area and tend to expand outward with time.
What limits business owners with a traditional business is their growing overhead as their business scales. When a traditional business scales new employees must be hired, more money has to be spent on payroll and other possible discrepancies that are human nature. Lawsuits, raises, insurance, etc.
Although scaling a traditional business can be very rewarding, the responsibilities at this level compound as well. The costs to run a traditional business when scaled go up and your business may become stagnant due to the increase in cost of goods and minimum wage.
A traditional business cannot scale without the addition of new employees and increase in sales. An online business on the other hand requires traffic, or an audience which has no limit.
Time it takes to make money from a startup
The amount of time it takes an online business to earn money is also very different from the time it takes a traditional business. Here is where a traditional business has the advantage.
How long does it take for an online business to make money?
An online business can take quite some time to make money. I would refer to this disadvantage as a con. An online business takes time to monetize, especially if you’re not selling a service or product per say. Even so, selling a service or product online takes brand building and brand recognition. This is just as competitive as a brick and mortar if not more challenging.
I monetized my online business the first month of it going live but didn’t start making any ‘rent money’ until after a year of non-stop dedication. I would work on building it after my 9-5. Now I work on my online business full-time.
Now, I wasn’t selling a service or product so this does not mean it’s going to take you over a year to make money from an online business. My online business revolves around advertising displays and affiliate programs. You may have an outstanding pre-launch that enables you to earn money your first month or two in.
How long does it take a traditional business to make money?
If you have a product or service that’s in demand, your business can begin earning sales revenue in just days to weeks. Landscaping and mobile car wash detailing businesses just have to knock at peoples doors. Someone will schedule you. I know people in these businesses that started earning money right away.
If you know who to target, your traditional business can start earning sales revenue fairly quickly. Even if it’s just to break even. While most businesses don’t don’t profit until their second or third year in business, those tackling it hard may profit their first year.
Running an online business often times requires you to be tech savvy and marketing oriented. These skills take time to build which means earning money online may take more time for new entrepreneurs.
Flexibility: Online business vs traditional business
Flexibility is a deal breaker for most entrepreneurs. The flexibility an online business provides is way different from that of a traditional business.
The flexibility you have as a business owner with a traditional business is almost non existent. Lets dive into it.
Online business flexibility
With an online business you have the flexibility to work from anywhere in the world. Most online business owners work from home and tend to work on their business while they travel once they’ve figured out how to scale.
This flexibility makes an online business such an attractive business model to most younger entrepreneurs.
An online business allows you to earn money while you’re on the road with absolutely no overhead. Some online businesses do have teams of intrapreneurs growing the business, but even this small team does not compare to the amount of employees a traditional business needs in order to scale.
Traditional business flexibility
A traditional business on the other side has very limited flexibility. Most business owners cannot manage their business on travel. And if they do, they don’t truly get to relax due to the amount of physical responsibility they’re leaving behind.
Unless you’ve hired a great management team that can take care of business while you’re out, your business requires you to become a worker yourself within your own business.
In a lot of cases, entrepreneurs who fail to build a team end up becoming a slave to their own business. This is essentially when time off is almost impossible.
Online business pros
- Startups are more cost efficient
- Scalability is limitless
- Provides the flexibility to travel and work from anywhere in the world
- Allows for multiple streams of income to loop with one another
- Ability to earn passive income 24/7
- ROI takes longer to receive in most cases
Traditional business pros
- ROI may be quicker than an online business
- Brick and mortar companies attract a local community
- Startup costs require building capital in most cases
- Flexibility is severely disrupted
- Scalability is also limited compared to an online business
Which business model is right for you?
Figuring out which business model is right for you will determine on what you value most.
If you value your time and flexibility than an online business is tailored for you. If you don’t mind a traditional business model for the sake of a simpler and offline experience then go all in.
Both an online business and traditional company are going to allow you to earn a lot of money. Each model will provide a unique lifestyle that is tailored just for you. And it’s up to you to find out what type of lifestyle you would like to get from it. Is it the laptop and travel lifestyle, or is it the tangible business owner lifestyle.
I favor the online business model. Most of my family favors the traditional business model. But I think it’s because they’re significantly older, too.
Is there a hybrid business model of online and traditional?
Of course. There are many businesses who implement both business models in order to diversify the way they connect with their customers and audience.
If you have a traditional brick and mortar and are looking to scale it online you can certainly do so. You can do this by starting a blog on your niche industry or publishing YouTube videos online. You would then need to monetize your content with advertisement.
This hybrid business model will allow you to run your traditional business as you have while earning passive income when your company is closed through the content you publish online.
Hybrid model with a blog
If your plumbing company is doing well but becoming a little stagnant, you can always write about your experience as a business owner in this industry via a blog. My beginners guide walks you step by step how to accomplish this.
Hybrid model with a YouTube channel
Back to the plumbing company example, you can leverage YouTube channel views by publishing videos for an audience.
You can do tutorial videos for people to gain knowledge from and create episodes others will find enticingly valuable.
No matter what your industry or business is, you can earn money 24/7 with it online once you monetize a platform such as a blog or YT channel.
Hybrid startup model
A hybrid online business model will allow your traditional business to earn revenue even after its doors close. Is your company closed during the weekends? A hybrid online business model can earn you revenue while your businesses’ doors are closed.
If you enjoyed this post please be sure to give it a like and give it a social share. Let me know in the comments section below if you’d like me to get more into detail of what a hybrid online business model is. I’d love to help take things a step further for your traditional business.
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