How to setup an online shop to earn passive income


Not investment or financial advice. This is not an endorsement or recommendation to buy, sell or hold.  The staff of this site may own the asset/s mentioned on this page. Investing is risky and you may lose all your capital. Do your own research. See full disclaimer.

We receive no direct payments from the mentioned companies. Some links on this page are affiliate links, at no extra cost to you, we may receive commissions when you use them. However, we try our best to keep our articles fair and balanced.


   

An online store is a web interface that allows users to order products in an easy and user-friendly manner. Amazon.com are the masters of online stores because they have perfected a system that focuses on the customer experience. The better the customer experience, the more likely customers will buy and return.

There are different systems which allow you to build your own Amazon-like online store. We will explore them in this article.

What are the advantages of setting up an online shop

  1. Semi-passive income – exit the rat race by creating your own income.
  2. Be your own boss – work for yourself – set your own agenda.
  3. Work from anywhere in the world – become a digital nomad
  4. Scale easily – sell products not time – a business allows you to hire people who work for you and thus have the potential to increase the profits.
  5. Learn about business management, sales, marketing and product selection.

There are primarily three ways to create an online shop selling physical products.

  1. Setup your own website, which uses drop shipping to deliver products to the paying customer.
  2. You can sell your own products on eBay.
  3. You can sell on Amazon
  4. Promote third party products through an affiliate system.

Setting up an online store using dropshipping 

Creating your dropshipping store:

An independent online store does not rely on third parties for the management of the web-interface, user experience and payments. Today there are systems which automate the shipping which are called drop shipping, these automate the sales, shipping and returns process.

When building an independent online store you are creating a shop, this puts you in control, with a lot more flexibility and a lot more responsibility.

There are two main parts to selling you need a customer and products which are supplied by a supplier. Suppliers are much easier to get than customers! An independent online store gives you “direct contact” with the customer, while a shop on eBay or Amazon does not.

Tools to build a dropshipping store:

Shopify and Oblero are probably the two key tools for building independent online stores using drop shipping.

The advantages of an independent store which uses drop shipping

Does not deal with stock directly: There is no warehousing, warehousing costs or logistics to be dealt with, these are managed directly by the manufacturer.

You own an asset rather than a sales channel: A drop-shipping store, is a website with its own domain name. With this, you can create your own look and feel, user experience, marketing content and deals with wholesalers. Building a drop shipping web store is like building your brick and mortar store on the main road when you build your shop on Amazon or eBay is more like to build your store in a shopping mall.

Recurrent sales and loyal customers: One key advantage of dropshipping is that you can easily establish a direct link with customers. This direct link will allow you to sell more to the same customers through email lists and direct offers. eBay and Amazon are a shopping mall, where the shopping mall itself owns 95% of all the other stores in the mall, reflect on what this might mean for your own store.

Dropshipping, The Ugly: When you are building your own e-commerce site you are on your own. You have to manage the site design, customer experience transactions, payments chargebacks and stock routing issues. You can hire experts to manage all this, but they cost money. eBay and Amazon, manage all of the above and in addition provide great user experience, product checkout and payments systems.

DropShipping Passive Income: Some elements of an online shop can be automated, some tasks can be delegated to a product manager or a shop manager.

However, to arrive at this level of automation you would need to have the experienced dropshipping yourself. There is no replacement for experience, and if you do not have it, you will become a potential target for your own employees.

DropShipping has the potential to be a low-intensity side hustle or gig but is not a fully passive venture. You need to spend time every day to manage the shop.

Selling on eBay. 

eBay is different than selling on your own independent store or on Amazon. The eBay users feel like they are in a garage sale of sorts they are looking specifically for:

The advantages of selling on eBay: With eBay, it is easy to get started as you can sell any item. As long as you describe it well, it will be sold at the market price. On eBay there is a ready and willing market ready to spend money. Sellers have great tools to create product pages that convert.

eBay, Sellers beware:

Fees: eBay charges listing and success fees. They provide a service to list products and a stream of potential customers. These do not come for free.

There are a plethora of eBay fees: Insertion fee, final value, insertion, upgrade, PayPal. However, eBay does provide some free listing to sellers. Learn more: eBay Seller Fees  

Marketing: Listing on eBay might reduce the marketing costs, but your product will be one of many, just like it would be on Amazon. This means it might be easily compared to others or overlooked. If you have your own web store it is harder for the potential seller to compare your product with others or you might offer alternative products on your own site.

eBay Passive Income: There is an element of “passive income” when selling on eBay as you do not have to be present in your shop all the time, on the other hand, selling on eBay is probably the most labour intensive option of all three. On eBay, you need to pack and ship all products yourself and the re-listings are not automatic. However, there are ways to bridge between Amazon and eBay. See Also Joe Lister

Selling on Amazon FBA 

Amazon allows anyone to become a seller and set up shop on the Amazon platform.

Amazon FBA pros: Amazon has captured some consumers through their prime next day delivery membership. This provides ease of use, generally cheaper prices and a guarantee to return products. Prime makes customers loyal to Amazon.com. The loyalty is to Amazon and not to the sellers.

Buyers on Amazon tend to spend more than buyers on eBay, higher prices mean higher margins!

Negative feedback can have a negative impact on your sales, but it seems that Amazon is more open to managing feedback than eBay is.

Risks in setting up shop on Amazon FBA: When operating an Amazon FBA store, the stock needs to be bought beforehand This means that you need upfront capital to manage the shop. There is a risk you do not sell your products and risk losses.

Amazon also charges warehousing costs to store the products you have on sales and listing fees to list items on their store and also sales fees whenever a product is sold.

Selling on Amazon, the potential cons: When building your shop on Amazon, you are in effect entering into a partnership with Amazon, they have a lot of leverage in this relationship. Amazon will know all your sales data and bottom-line profit, they could potentially become interested in selling similar products to those you are selling!

There are two ways to operate your Amazon shop, either having the orders fulfilled by Amazon (FBA)  or having the seller ship the products directly to the buyers.

Amazon FBA passive income: Since the focus here is on passive income, FBA is more interesting, it eliminates the hard work of packing and shipping. You can automatically list products until products last and the product returns and sales are handled all automatically. There is no time needed to manage the website because this is done for you by Amazon. This might give you more time to focus on sourcing or creating new products.

Passive income from an Affiliate based online shop

An affiliate online shop is a website or social media channel which provides information on specific products. For example, a website can focus on snorkels, masks and flippers. It will compare the ease of using these products compared to similar ones.

The product reviews would contain pictures and other data such as photos or graphs. Reviews would place similar products “side by side” and compare the features of each product compared to others.

When this is done honestly, it adds a lot of value to the internet. The readers are offered links to shops that sell the products under review. If the users buy products from these shops then the owner of the review site gets a commission.

This is the truly passive way of having an “online shop”, there is a focus on good quality content which helps users understand where products fit within the marketplace. With an affiliate online shop, there is no need to manage stocks or suppliers but on the other hand, the profits will be much smaller.

Users are seeking the latest product reviews and information, there is a need to keep the site content fresh and up to date. An affiliate based online shop is in fact an information-based business, selling information products for free. Where the business model is based on earning commissions from selling these products.

In order to get traction, quickly a website can be bought and then transformed into an affiliate based online shop.

Conclusion:

The most important thing when setting up your online shop is setting up a niche. This can be anything from photography, art or anything that can be sold legally on the internet. An online shop is a system that manages three flows

The first is turning finding potential buyers (marketing), turning them into visitors and then to  buying customers (sales) and then to a recurring loyal customer.

The second is stock management; finding, sourcing, purchasing and packaging items.

The third is profit oriented making sure that the least amount of time, energy and money are going into the above two flows.

In this management process your job is to make sure the other two main jobs managing customers and managing products are done in the most efficient way possible.

The most passive of online shops is a shop based on affiliate marketing, where the only thing that needs to be managed is the content. An online shop is an excellent tool for building wealth.


Not investment or financial advice. This is not an endorsement or recommendation to buy, sell or hold.  The staff of this site may own the asset/s mentioned on this page. Investing is risky and you may lose all your capital. Do your own research. See full disclaimer.

We receive no direct payments from the mentioned companies. Some links on this page are affiliate links, at no extra cost to you, we may receive commissions when you use them. However, we try our best to keep our articles fair and balanced.


   

Author: Jim Reynolds
Jim Reynolds. Is passionate about finance, passive income and cryptocurrencies. He writes about his passions on NodesOfValue.com. He has worked in the tech and financial industry for a few decades. He holds a masters in business admin and a bachelors in IT. All his writings are not investment advice.


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