Which model is best for your new business?
- Aug 24, 2022
- 10 min read
Your business idea is really taking off, how exciting!
One of the big decisions you will need to make early in the process is whether your business will be online or offline…or a mix of the two – a hybrid business.
For some of you, it will be clear what business model will work best for your business. For example, a new hairdressing business will likely set up your salon close to its clients. A new café owner will seek a convenient and busy location for their coffee shop.
An online vet coaching business will set up a substantial web presence to find vets all over Australia.
For those entrepreneurs (and this maybe you), where the business model is not so clear, the most important factor to consider is access to your target audience and customer base.
Puzzled over what business model to choose for your business? To get the ball rolling, let’s explore the pros and cons of each business model.
Online Business Model
An online business is any business that sells their goods and services (this includes software as a service, like us, here at Sleek!) entirely on the internet.
What are the pros of an online business model?
- Access to global customers:
- Customers love shopping online. Opening your business online has the potential to connect with an almost endless supply of new customers - according to Statista there are 4.66 billion internet users!
- Lower operating costs:
- Selling online is less expensive than opening a bricks and mortar. You need very little office space to conduct business. In fact, your business can operate from anywhere and potentially pay no rent! This can also reduce your overhead costs such as utility bills, insurance costs, rent, maintenance costs, and employee salaries.
- Flexibility:
- Your business can adapt, pivot and evolve as swiftly as your market and customers do. Quickly add products or services when new opportunities arise, install customisation options for different sets of customers or offer attractive discounts to bring in sales during off-peak times!
What are the cons of an online business model?
- Customer retention is low:
- Holding onto a customer can be harder. Your competitors may only be a click away. It’s difficult to provide a human experience to improve service on a technology driven base.
- Requires big investment in digital:
- It’s the digital experience that wins over your customers online. Your technology needs to be slick to find an audience, impress visitors and turn them into customers. Digital start-up costs include website designers, graphic designers and the professionals to maintain it, as well as hosting and SEO.
- Dependence on technology:
- Your online business will rely heavily on the internet and technology. Your business depends solely on the availability of the internet from your end as well as at your customer’s end. Technological hiccups and downtimes prevent customers from visiting and accessing your business AND purchasing! Then there are cyber security and data integrity risks. Investment in security software and procedures needs to be highly considered.
Here’s a suggestion – There are plenty of budget-friendly and easy to use ecommerce platforms to help you set-up your online business. Try Shopify, Squarespace, Woo Commerce, or Wix. For larger businesses, there is BigCommerce and Magento.
The hard work is done for you and there are plenty of add-ons like cyber-security to expand the software to suit your online business.
Offline Business Model
An offline or bricks and mortar business is one with a physical shop or office that is open to customers to visit, browse and buy.
Your local greengrocer and the dentist are considered bricks and mortar businesses. Other examples include shopping malls, franchises, and business offices.
What are the pros of an offline business model?
- The ultimate in customer experience:
- Customers find real enjoyment by connecting directly with the people in your business. Your customers can freely ask questions, find out about product or service information, and return purchases so much easier and quicker than an online business.
- Assumes a level of trust:
- The physical location of your business brings a level of brand legitimacy and longevity. In industries such as builders and locksmiths where trust is important, a storefront may help to strengthen trust, especially when your business is establishing itself.
- The all-important instant gratification:
- Your customers have the immediate pleasure of their purchase. The whole process of paying, packing and being handed your new purchase to use straight away never loses its excitement.
What are the cons of an offline business model?
- High start-up costs :
- Setting up your store or office comes with some big expenses. You are required to sign a lengthy lease (business leases are traditionally longer, from three years, up to seven years). There are costs associated with fitting out the space plus the cost of purchasing enough stock to fill the space.
- Higher overhead costs:
- Your business will need capital for overhead costs Wages for staff to run your business and assist customers in the shop or office. There are bills for electricity and water, business insurance costs as well as the maintenance of the building or space.
- A limit on your customer base:
- Your bricks and mortar business can only reach so many customers. Or more accurately, only so many customers can reach your business, limited by distance. For example, a suburban gym serves its local community, as customers only want to travel short distances for workouts several times a week.
Here’s a suggestion – when you are first starting out try markets, pop-up stores, renting space in an existing shop or co-op working spaces. The overheads won’t drain your bank account and will give your business a chance to grow!
Hybrid business model
This is the best of both worlds. Where customers can buy from a business online as well as visit a store or office.
We’ve seen some cool names for this business model recently emerge – phygital (a word mash-up of physical and digital), click and mortars, and our favourite, bricks and clicks!
A hybrid model can work for businesses who sell directly to consumers or to other businesses. It will depend entirely on the product or services you are selling and where your customers are.
Remember, that integrating a hybrid business model will see the pros and cons of both an online and offline business models come into play here, so careful consideration is recommended. It might work better to start your business as either an online or bricks and mortar business. Then as your business grows and becomes stronger consider a hybrid business model.
Before we go!
check out the legal requirements for each business model, as they will differ.
For example, an online business must display its terms and conditions on its website for customers to clearly see. There are also strict regulations on handling and protecting the personal data you collect from your visitors and customers.
A bricks and mortar business will have local council regulations to follow such as, zoning, disabled access and the number of bathrooms it must provide. A hospitality business must follow food safety regulations, or if selling alcohol you will need an alcohol licence.
Look closely at your target audience and their preferences for shopping and buying from you – it makes it easier if you consider their needs. Having worked with countless entrepreneurs and business owners, Sleek can direct you in the right direction. Chat to our professionals online now or contact us here.
