Who wants to be a millionaire? We need to be careful because there is a lot of hype around the E-commerce business, especially when it comes to Amazon FBA. Today, I want to look at running an e-commerce business and converting it into an automated business for passive income.
E-Commerce is the buying and selling of goods over the internet. Yesterday, in the article “Start a Passive E-Commerce Business,” I looked at selling digital goods. Today, we are going to hold physical goods in inventory and sell them to others.
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Types of E-Commerce. Before we go further, let’s review the various types of E-commerce.
1) Direct sales. With direct sales, you sell directly to the customer with a product that you produce. For example, you create a bath lotion that you sell on your website.
2) White Labeling. For white labeling, you take a pre-existing product and attach your branding and advertising. It takes much less money to start and carries less risk. However, you have less control.
3) Wholesaling. With wholesaling, you get a large bundle of products, usually at a discount, and then resell them at a profit. It’s hard to get significant discounts when you are moving small volumes of products, however.
4) Dropshipping. Dropshipping sees you selling products directly to customers, but the inventory comes from a third-party source—this allows you not to acquire overhead or inventory. The shipping will usually be slower because another vendor is fulfilling the order; you, in essence, are a middle person.
5) Subscription box model. In this model, customers sign up for a subscription to receive a mystery box of products you ship them. I use a subscription service called Loot Crate. I love the idea; however, it is a large amount of production.
How to start your shop. Now, we want to start our shop. We did not need to have a shop with affiliate marketing because we could drive traffic to someone else’s shop. In today’s case, we will set up a shop of our own.
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There are two main ways to create a shop. We can start our website or build a shop on Etsy, Amazon, Walmart, etc. There are pros and cons to both approaches, but I will give a straightforward comparison below. Please read “Ecommerce 101” for a full breakdown of the differences.
Creating your own website. When you make your website, you will have to drive all of the traffic to it. There is no inherent traffic like on larger sites like Amazon. However, you can customize the shop any way you wish. Most importantly, no one can change the rules on you or kick you off of the website.
Creating a web store on an existing platform. Starting a web store on Amazon, Etsy, or Walmart allows you to tap into their huge customer base. If you can get the proper search engine optimization (SEO), you can drive customers to your products via search.
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However, there is a tremendous amount of competition on these large sites. You will always be looking over your shoulder because you can lose your lead in search categories. Also, these sites will push you to use paid search results. That means that you need to learn how to create powerful advertisements using keywords and snappy descriptions.
Ultimately, they can remove you from their platform for any reason. So, if you build a big following on Amazon, you could wake up one day with no account. Do you feel confident in building your livelihood atop someone else’s platform?
A quick story. I started building my book business atop Amazon earlier this year. After reading more books like “How to Make a Living with Your Writing,” I knew I had to create multiple income streams from my writing.
I decided to host half of my books on my website for free. I have a better chance of creating an infinite return by playing by my own rules. Yes, it is much more challenging to gain traction on your own website; however, the results can be much stronger over the long run.
Creating your products. The purpose of this article was to sell our products, so we need to decide what we want to sell. Before you do anything, you want to conduct market research and data analysis to see if your product is market. The book “How to Start a Microbrewery” does a great job of explaining how to conduct market research and analysis.
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In the article “Sell Your Creativity for Passive Income,” I talked about selling your digital wares. The same applies to physical items. If you create great things, say miniature figurines, then you can sell them online. The good news is that you can sell your items on a place like Etsy and your own website.
When creating your product, remember that you will be the bottleneck in the system. You can’t sell more than you can produce—this isn’t necessarily a bad thing. Rarity is a special thing in today’s world, so embrace it. This is an excellent time to mention that you can tokenize your product and sell it as a Non-Fungible Token. Yes, you can sell NFTs that are physical products—which is a great way to validate the uniqueness of your items.
White-Labeling. You can also white-label products from other manufacturers. White-labeling consists of you buying products, say health supplements, and building your branding on top. White-labeling is an excellent way to get products fast and focus on marketing and advertising.
One disadvantage of white-labeling is inventory management. You will always have to keep an eye on supply and demand because holding inventory can be costly. Keep an eye on your list and data to ensure you maintain the right amount of products for your various stores.
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Create an automated business. Now, this article will focus on how to automate your business. Once you have completed all the hard work of creating a product, a website, creating a sales funnel, driving traffic via SEO and advertisements, managing supply, etc., it is time to automate the process.
There are three ways to automate our business: automation via systems, out-sourcing, and management. We will most likely have to use all three methods to automate a supply-heavy business because you will need a human element to control and manage supply and advertising.
Automation via systems. The portion we can automate is our sales funnel and re-ordering. The sales funnel consists of running ads, hosting landing pages, and sending follow-up emails. Getting people into our sales funnel is the most critical part of our process, so having this automated can be a major win.
Out-sourcing. Out-sourcing is the process of hiring a virtual assistant to conduct remote work for us. Many of these virtual assistants work from distant countries and cost much less than hiring Americans. Please read the book “The 4-Hour Work Week” for more on out-sourcing.
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We can out-source the lion’s share of data analysis, advertising upkeep, and supply management. We can also outsource customer service as well. It’s important to mention that we can hire a higher-level virtual assistant to manage a larger piece of the business.
Management. Finally, we can hire a manager if we want to remove ourselves from the daily grind and live the laptop life. I would attempt to conduct as much of the business with automation and out-sourcing before hiring a manager. We don’t want to have this person become overwhelmed.
We want our manager to create, monitor, and adjust advertisements—as advertising is the best way to get people into our funnel. It would also be great if our manager could write a blog about our product to drive SEO. If they can’t write the blog, they can out-source the writing and manage the blog.
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The manager needs to be a capable version of us. They should be able to handle the majority of the issues that arise from the business. You should do an excellent job of documenting everything you do throughout the week to give a standard operating manual to give to your manager.
Management costs. If your business makes a profit of $2,000/month and you have to pay the manager $1,500/month to manage it for you, that’s a win. You can’t look at the profit without looking at the time. To build a business in a couple of years and receive $500/month in automated passive income is enormous.
As a side note, these types of businesses are great to pass along to your children. To be able to give your college-aged child a $1,500/month, almost passive business, would be a massive win for their lives. Always look at the big picture.
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Conclusion. Yes, it seems like a lot of work to make $500/month of passive income. Don’t forget; you can always keep running and growing it yourself. I am not about that life. I want a lovely cash flow retirement where the money comes to me from various sources, including an automated business.
There is a lot to learn in the world of e-commerce. You can lead your product by first creating content. A content-first approach is the best way to sustain your business for the long term.
Please read a few books and take a few courses before jumping into the world of e-commerce. Some people will make it seem easy; however, it can be challenging to gain traction with SEO and advertising.
Trust me; I am at the point where I am receiving ten clicks a month from Google Search, a month. Yes, ten clicks a month! That’s not a lot, and I am not selling a product. I have been writing for a year. I am ecstatic about these numbers, but my business model doesn’t include a product.
These are things to think about before you jump into the world of e-commerce. Prepare yourself for the long run, and you will do quite well. Please join my Facebook Group if you want the latest articles and free books delivered to your news feed. Also, you can contact me inside the group and ask questions. I also have a Facebook Page where you can see my latest articles.
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