Welcome back true believer! I’m super glad you’ve reached part 2 of my series on “How to make money online“. In part 1 of this series, we discussed “Freelancing” as a method to earn money online. It was the first of the 4 business models of making/ earning an income online.
Here are the 4 categories for a quick refresher.
- Sell your own service (Freelance)
- Sell your own product (With or without service) (Business)
- Sell other’s products or services (Affiliate Marketing)
- Buying and reselling
In this post, we will be looking at the second way to make money online and learn how we can earn an income by creating and selling a product.
If you haven’t already read part 1 of this series, where we talk , you can read the post here.
Before we start, let’s quickly get on the same page about what we mean when we say, “Product”?
What is A product?
So what is a product? In the most simple terms, A product is simply a solution that solves a problem that your audience is facing. A product can be physical or digital. Examples of physical products are cars, books, cameras, coaching classes, etc (Everything you see around you is an example of a physical product). Examples of digital products are audiobooks, ebooks, video games, movies, apps, music albums, online courses, etc. Services like Amazon and Flipkart fill the gap by using a digital product (their platform) to sell physical products.
The advantage of selling a product over a service (freelancing)
There are two advantages of selling a product over a service. The first advantage is the ability to scale very quickly at little or no cost. The second advantage is the ability to earn a passive income. Let’s look at both of these in more detail.
Advantage #1: Scale Quickly
The first advantage, scalability! When your business grows and wants to serve more people, a product-based business is much easier to scale and meet client demands! Unlike a service-based business (Freelancing or other sell your services based jobs) that needs to hire more people to serve a growing client base, a product-based business can grow with fewer changes to their organization. This is especially true for digital products based businesses.
For example, an author writes a book. This book is now the product. If tomorrow, the book becomes a viral sensation and more people want to buy it, the author simply has to ask his publisher to print more copies. With Amazon’s self-publishing, this becomes even easier as Amazon only prints and ships out books as and when their customers order a book. There is no need to store a bunch of books in anyone’s warehouse.
Advantage #2: Passive Income
The second advantage is the ability to earn a passive income. What is passive income you ask? A passive income is any source of income that doesn’t need you to actively work on the source in order for it to generate money. For example, in your day job, which is an example of an active income, you exchange your time for money. The day you stop showing up at work, your income stops as well. Unlike an active income, a passive income asset will keep generating money for you even when you sleep. For example, renting your home, investing in mutual funds, etc, selling online courses are examples of passive income streams because they produce an income even when you’re not actively working on them!
Physical vs digital products, which is better?
I have heard many people say that digital products are, without a shadow of a doubt, absolutely better than physical products. I cannot agree with that analysis.
Digital product evangelists argue that digital products are easier to create, scale and distribute. However, this is true only for a beginner entrepreneur. Yes, I agree, it is objectively easier to make a profit from a small digital product than a physical product when you are just starting out. However, physical products can also be easy to manufacture, scale and distribute if done the right way.
For example, it can be costlier to ideate, build, test, deploy and sell a new app than it would be to manufacture and sell a gaming mouse. If you don’t believe me, take a trip to China (the hub of electronics manufacturing). In the end, your profits will depend on marketing and not about what kind of product you create (physical or digital).
After years of working with different people and companies, I have come to the conclusion that choosing to build a physical product or a digital product comes down to the individual’s skills, interests, market requirements and goals.
There are no clear winners.
For Example, Elon musk who first created digital products like Paypal is now building spaceships to go to Mars. Google which was a software company is now investing heavily in hardware. See the pattern?
So don’t feel restricted to do one or the other. Create products that solve a real problem in a domain that you are passionate about based on the resources available to you.
How to get started?
A good idea for any product is simply being able to offer a better solution to a problem that a lot of people have. However, that doesn’t mean you try solving problems in domains that you are not personally skilled, experienced and/or knowledgeable in! My most important lesson to new entrepreneurs/first-time product designers would be to try and solve problems that you as an individual are struggling with and have talent/ insight and exposure to resolve!
So that’s step number one, identify a problem that YOU have that many others have as well and see if you can create a packaged solution for this problem. If you are struggling with something there is a high chance that millions of others have the same problem! If you’ve identified a real pain point and a solution, you can bet people will pay for the shortcut.
As I said, when you solve problems that you are personally facing, you have a distinct advantage of being able to understand the problem better and provide a simpler and more practical resolution.