Trying to figure out what to sell online?
Stepping into the unchartered world of entrepreneurship can get your anxiety pumping. You want to hit a home run with your first idea, but you don’t want to chase rainbows, either.
I get it.
While there are hundreds of potential niches and millions of products to sell online, the foundation of your business model comes down to this one decision:
Are you going to sell physical or digital products?
Your answer to the above question will drive decisions on ecommerce platform, business plan and marketing strategy.
If you’ve been wondering about the pros and cons of each approach, I’ve got you covered with cold, hard data and advice from 30 successful online entrepreneurs. Some have sold both physical and digital products online. Some swear by the digital product model and others the physical.
Before we get into the expert advice, I wanted to give you a birds eye view of the B2C markets of physical and digital products online sales.
Here’s what the data says:
Global B2C Ecommerce Sales Of Physical Products
Physical product sales dwarf digital. This is a 1 trillion dollar market. A large percentage of these sales are dominated by global brands. The compound annual growth rate from 2016-2020 is expected to be around 11%.
Top Selling Ecommerce Product Categories
The data below is based on 2012 US retail ecommerce sales. This includes digital sales of books, music and video (about 9% of total sales).
The data below breaks down the projected growth of those product categories from 2012-2018
Now that we have a basic understand of the big picture. Let’s take a deep data dive on digital commerce, a subset of ecommerce.
Global B2C Ecommerce Sales Of Digital Products
Digital commerce is a huge segment in itself. Since you’re probably not a movie producer or rap star, we’re going to leave out video and audio and focus on the popular paths for online entrepreneurs:
- ePublishing/eBooks – Selling information in digital books.
- Online Courses – Selling information in protected content.
- SaaS Products – Selling software products.
ePublishing/eBooks Market Growth
eBooks are the fastest growing digital product online. 2016 revenue is expected to be roughly $16 billion. Compound annual growth is projected to be around 16% between 2016 and 2020.
Overall growth during that time span is expected around 93% – making eBooks the biggest growth segment overall. Expected sales in 2020 is $29 billion.
Self-Paced E-Learning/Online Courses Market Growth
While the overall numbers for eLearning (corporate, universities) are massive, this report shows dismal growth in the self-paced eLearning market. In the US, sales of online courses actually decreased in 2015.
These figures include retail packaged content, custom content development services, and authoring tools/platforms.
Software-as-a-Service (SaaS) Market Growth
The global SaaS market is estimated around $78 billion in 2015 and is expected to grow to a $132 billion dollar industry in 2020 (69%).
Check out this market growth research from @darrendematasClick To Tweet
Expert Advice On Selling Digital Vs Physical Products Online
Hopefully, all that data gave you direction in on where the growth markets are.
But data isn’t the end all be all, is it?
Experience goes a long way, which is why I asked 25 entrepreneurs the following question: what’s the single biggest advantage of selling digital vs physical products? I also want you to answer the flip side of that question.
Responses are below (in no particular order, Tor 😉 )
Two words: no inventory! Inventory is a huge time and resources drain on any online business. You have to order just the right amount or you lose money. With a digital product, you have a free warehouse with unlimited space! And no matter how many units you buy, your price per unit is the same.
On the flip side:
A physical product is much easier to demonstrate, which is HUGE for selling. Just look at Shark Tank: 75%+ of the businesses on that show sell physical products. Why? Because their value is super easy to demonstrate. The same can’t be said for a digital product, which usually requires a lot of finesse to sell.Digital products requires a lot of finesse to sell vs physical products via @backlinkoClick To Tweet
The biggest advantage to digital over physical is the potential for really high margins. Physical products usually require an upfront investment, and for those that don’t, such as with dropshipping, the margins won’t compare to the kind you can get selling digital products.
However, that being said, I’ve found that there’s a higher perceived value with physical products, allowing the potential to charge for more. A physical book will usually sell for a lot more than its digital counterpart.A physical book will usually sell for a lot more than its digital counterpart. @coreyvfClick To Tweet
John Paul Aguiar
For me, coming from an eBay selling background, the fact there is no shipping or handling after the sale is what makes digital products the way to go. If done right, your selling, delivery and follow up can all be done automatically.
Selling digital removes the small fees that go into shipping and handling, leaving you to put more of the profit in your pocket.
Now on the flip side, I don’t really see any benefit to selling a physical product, unless it is something you create, now if you design and create something I would see the value and benefit to selling physical.I don't see any benefit to selling a physical product, unless you create it via @JohnAguiarClick To Tweet
To know that people enjoy what you do and are willing to pay for it can be very rewarding. Plus if you are the ONLY one that creates it, you can pretty much set any price that you want since you’re the ONLY place they can get it.
Selling digital products has a huge advantage over selling physical products, and that is the ability to scale infinitely.
With physical products, you have to deal with overhead, inventory and the likes. With digital, you have one thing that you can sell over and over again without the need for ongoing production.Selling digital products has a huge advantage over physical, infinite scale. via @bgardnerClick To Tweet
During most of my corporate career, I worked with physical products. What I loved most was (a) designing tangible products and (b) managing complicated launches.
I enjoyed getting around the table with designers and manufacturers to ensure we created the best possible product to serve customers (compromises were always required!); and big product launches were challenging in a nice way: making sure all different parts of the business and its supply chain were aligned—that we’d have enough stock for the launch, that the supply chain was set up, that the sales and customer service teams were trained, that all marketing material was ready (and accurate!).I love the simplicity of the digital business model. @HennekeD Click To Tweet
However, when I started my own business, I decided to sell digital products (ecourses and ebooks). I love teaching, sharing knowledge, and giving others the gift of becoming persuasive communicators (I teach business owners how to write better). The investment in my business has been minimal and I can run almost everything on my own. I love the simplicity of the digital business model.
Digital products have the overwhelming advantage of being able to be ‘delivered’ to your customer effectively for free and effortlessly around the world. You don’t have the hassle of needing packaging, logistics companies, and most importantly (and valuably) the time to pick, pack and ship the product.
On the flip side, I feel the personal satisfaction of selling a physical product, whether directly through your own ecommerce site & warehouse or drop shipping through various channels is far greater as you can physically see the product be shipped out.
The single biggest advantage to selling digital vs. physical products is you do not have to worry about shipping with digital products. When you deliver digital products, the product will be given to your customers automatically as soon as they order and your customers are put in an autoresponder sequence so that you can onboard and upsell them.
If we look at the flip side, the single biggest advantage of selling physical products vs. digital products is that you do not have to take the user through a long onboarding process.
In most cases, you can ship the product with instructions, and as long as you have given the customer what they expected, then you are done with the transaction. Now you can focus your energy on providing that customer with value and upsell them other products.
All around, digital products and services have a higher profit margin. That’s because they’re typically less expensive to create and maintain, attract more affiliates and allow for instant delivery. People want their physical products within a few days. They want digital orders to be delivered immediately. Use a system that allows for instant delivery and more shoppers will be enticed to pull out their wallets.
The biggest advantage of selling digital products is that they can be tried online.The free trial is a powerful way for prospects to get their hands dirty with a product. - @bmasseyClick To Tweet
The trial download or free trial is a powerful way for prospects to get their hands dirty with a product. For obvious reasons, this can’t be done with physical products. The challenge with the trial is that there are two conversions.
Conversion one is converting a prospect to a trier. The next is converting a trier to a buyer. This last conversion is not well executed by most digital product vendors. It requires a full on-boarding process and frequent communication with the trial users. Optimize this first.
I’d say the biggest advantage of selling a digital product is not the low cost of starting up because there is no need to invest in massive amounts of inventory. Low risk, high reward.Digital Commerce Is Low Risk, High Reward @AmitiRothsteinClick To Tweet
A disadvantage would be the time and effort that needs to go into creating a high-quality product.
John E Lincoln
Selling digital is everyone’s dream.
No need for shipping (which is a killer!), lower overhead (usually) and no inventory management. It is a great thing to be able to sell digital.
For example, when I launched my book “Digital Influencer, A Guide to Achieving Influencer Status Online” all I needed to do was create the Kindle version push publish and start to market.
Selling a real product is much more intensive. For example, our client Jovani.com sells a variety of dresses. This means they have to manage inventory on the site (colors, sizes, styles), calculate shipping rates and deal with cash-flow issues as a result of buying and selling. So selling digital is the clear winner in almost every way except one.
That is, anything that is sold digitally online is usually very competitive because everyone wants to do it. This means depending on the niche it can be very hard to market and prices are driven down. Also, with the major push for in content marketing over the last 3 years, most of these digital sale items can be found for free online if you look hard enough. Now, if it is a online course, that usually cannot be found for free. But you need credibility to sell an online course, so you will need to build that up first to see success.Most digital sale items can be found for free online if you look hard enough @johnelincolnClick To Tweet
Digital is the most sustainable way to distribute information. Books are information. Five hundred years from now people will be shocked that we cut down trees and mashed up their pulp and sent flakes of it around the country so people could get information.
500 years from now people will be shocked that we cut down trees to get information. @LPOBryanClick To Tweet
High school students will laugh in total shock when they find out that we trucked the unwanted flakes back from stores and mashed them up and used the residue to build more roads to truck more information around!
“Why were they so wasteful?” they will ask their equally baffled teachers.
The flip side, of course is that if you sell something that is not information you need physical product. The question really is about how much we can turn into digital! Experiences and travel are the next big thing to go digital with VR. How to mix stories in with experiences is the next big challenge for story tellers.
Every digital product you plan on selling has the potential to scale beyond your wildest dream if you get the target market right. You will have easy access to market within the shortest possible time when you sell a digital product. And the low barrier to entry makes it insanely easy to test any idea, get feedback and iterate where necessary.
In the year 2085, people will continue to spend millions of dollars buying physical products, because we need most of them to survive. You can get a piece of the pie if you choose a product that solves a real problem.You can get a piece of the ecommerce pie if you choose a product that solves a real problem.Click To Tweet
It takes time and most likely a lot of resources to get started but once you are serving a niche market with a right product, your chances of success are high.
The single biggest advantage of selling digital goods vs physical products is a fixed-cost model rather than a variable cost model, so there is ease of scalability and potentially high profit margins.
Biggest advantage of digital: there are very few/any costs to holding stock of a digital product so you can scale significantly quicker without additional overhead.
Biggest advantage of physical: there’s a whole demographic (mainly older people) who only buy physical products. If you’re only selling digital products you have no way to access that market.
Digital products require no stock, no manufacturing logistics, no raw materials, no shipping (unless you really want to). This means the overhead is kept low and you can never run out of inventory. Digital is a lot easier when it comes to customer service and self-service.Digital products require no stock, no manufacturing logistics and no shipping - @chrisgarrett Click To Tweet
The advantage of physical products is it is harder for people to consume your product then ask for a refund, or copy it 🙂 Physical products often have a higher perceived value and there is a joy in owning something physical (think beautify coffee table book of photography versus a Facebook photo gallery) that digital products rarely reach.
The biggest advantage of digital products is you can create them for free. @neilwaterhouse1Click To Tweet
Neil Waterhouse is an eBay Multi Million Dollar Seller and the author of “Million Dollar eBay Business From Home”
In an ideal world, I’d have a store selling physical products and a premium digital product that complements the physical one!
Advantages of digital over physical:
- Huge margins, since the only cost is upfront to create the product
- Instant delivery
- Infinite customization
Advantages of physical over digital:
- Less chances of piracy
- There’s something exciting about anticipating when your purchase will be delivered
- More potential for repeat purchases
The key advantage of digital products is no manufacturing or inventory. The key advantage of physical products is that many people still demand “touch and feel” to perceive value.Many people still demand “touch and feel” to perceive value. #Physical #Digital @StartupPro Click To Tweet
The biggest advantage of selling digital is the elimination of certain supply chain costs including the need for any physical inventory and all of the associated expenses with warehousing, shipping, vendors/suppliers, raw materials, etc.
On the flip side, you won’t get any repeat buyers for a digital product – once they buy it there’s never a need to buy that same product again.
The most obvious advantage to selling digital products is the profit potential and the ability to set up automatic sales that sell 24/7/365 with little work on your part.
Also with the advent and growth of mobile devices the audience for digital products is growing. Just last month, mobile devices were responsible for over 35% of my sales. I sell both digital and printed products.
My decision tends to be mostly around the length of the work. I find that an eBook that exceeds 150 pages is just to long for a digital product. So my two flagship products – The Complete eBay Marketing System and The Complete Amazon Marketing System are printed because they run about 350 pages each.
I use a print on demand company who drop ships the books for me, so like an eBook, my system is pretty much on autopilot. When a book is ordered, my shopping cart generates an email to my publisher who prints the book and ships it out – the same or next business day.
But even with my printed books I do frequent updates electronically with downloadable PDF files. However I should also say for those people who only want printed products, all of my eBooks are set to allow printing so the buyer can send the file to a print shop and have it printed and bound if they wish to.
Since all of my work is copyrighted and print shops will not print copyrighted material, I have a statement in the front of the book that tells a copy/print shop that the reader can print out one copy for their personal use.
Skip McGrath provides advice and training to teach people how to sell on eBay and Amazon.
Single Biggest Advantage of Digital vs.Physical Products: Speed to market. From the instant in time a digital product is ready to deliver it can be up for sale and into the hands of the clients who need it.
Single Biggest Advantage of Selling Physical vs. Digital Products: Value concept. It’s easier for buyers to perceive value in a product they can see or touch, whereas buyers who don’t understand the learning, time and other resources that come before a digital product can be developed may have a more difficult time believing its value is equivalent to its cost.
Elizabeth Kraus is a freelance marketing consultant who specializes in bringing buyers and sellers together.
Selling digital products totally rocks.
Let me first explain a bit about selling physical products.
When I was working as a chief of logistics for the biggest martial art equipment supplier in Norway, we imported goods from China.
There were several costs tied to selling physical products:
- If you are going to make a good profit, you need good margins on your
products. The cost price on your goods for will mainly depend on how many
items you buy of each specific product.
To lower your cost price you need to buy in large quantities.
- You will have the cost of renting a warehouse
- You need the manpower to manage your stock (handle incoming goods,
store the goods, package and send out goods)
- You need to spend a lot of capital on filling your warehouse
- You probably need an IT-system to manage your goods
- Some of the products will be defected and you will need to handle the
complaints and compensate your customers (this will cost you time and money)
I could probably have mentioned a gazillion more costs, but seriously, it’s so boring talking about it…and you are probably about to doze of, if you haven´t fallen asleep already.
The big advantage with selling digital products is…
The production cost is low for a digital product (text, audio, video or webinar).
In addition, when your product is finished, you can set up an email sequence that builds a relationship your audience, sells your product, collects your money and *then* gives the customer access to the product.
There is no delivery time.
And the cool word we are looking for here is…
Automation!When you have an automated process that converts, you just need to put more targeted leads into your funnel. @TorRefslandClick To Tweet
This can easily be done by using Facebook Ads, guest posts, Webinars and use the leverage of getting other people (affiliates) to sell the product for you (just to mention a few options).
This means that your business model is…
Your cost will almost be the same if you have 1 sale or 1000 sales of your digital product.
You won´t have the costs of storage space or spending a lot of capital BEFORE you have sold your products.
But selling physical products isn’t all bad.
The big advantage with selling a physical product…
If you are able to deliver to a niche where people are consuming your product on a regular basis and they constantly want / need to buy more, you can earn a lot of money by repeating sales on the same product by the
Being able to display on video how a workout machine works might be easier than displaying how great you feel after you have a read an ebook.
If people have bought a workout machine they don´t use anymore, they can at least hang the clothes on it to dry.
For starting entrepreneurs selling digital products is the way to go. Low cost, low risk, the sales process can be automated and it’s scalable.
That´s quite awesome, right?”
Tor helps online entrepreneurs NETWORK with influencers and position their BRAND so they can attract the right CLIENTS fast. Award-winning blogger. Check him out at Time Management Chef. Follow him on Twitter.
There is no delivery cut-off date for big promotions/special occasions. During peak trading (Black Friday weekend through to after Christmas), there are still delivery issues that customers face even though retailers are getting smarter with fulfilment services.
A digital product can be purchase at any time and downloaded instantly for use, avoiding any last mile issues (excluding any tech glitches like browser/server errors during download!).
For physical products, there is an additional customer interaction that you can influence to drive satisfaction and brand reputation. If a customer collects in-store, the store staff can add value, capture data (e.g. email signup) and ensure the customer walks away happy. If an order is delivered to home, then (a) if it’s courier delivered, the retailer can use packaging to impress the customer, such as branded gift wrap (b) if delivered by the retailer’s own fleet, delivery drivers can be trained to focus on customer service and ensure the customer gets a positive impression of the brand.
Of course, you can use digital products to deliver ongoing communication, such as app notifications, but it’s impersonal.
James Gurd is an ecommerce consultant with experience in developing & implementing ecommerce strategies, helping Clients translate brands into sustainable digital channels. Check him out at Digital Juggler. Follow him on Twitter.
The single biggest advantage of selling a digital product vs a physical product? Definitely the low cost and simple set up!
Whereas a physical product might need weeks (or months) to be produced, it can take less than a day to create and set up a digital product for sale.
This means shorter sales cycles, immediate profit and also higher margins due to the lower set-up cost and lack of shipping and handling costs. Seeing from a customer’s perspective, a digital product gives instant access to the purchased item, so it’s a win-win for both provider and client.
The biggest downside of digital goods? Many people still prefer physical products, so take your ideal clients’ habits and product preferences in mind when deciding on one or the other model.
I personally love the concept of shifting physical products from a warehouse to customers’ hands but the flip side is simply SCALE. Warehouse space is finite, physical space in most customers’ homes is also finite.
Digital products on the other hand have infinite shelf space with ridiculously wide profit margins, especially when a significant amount of time and effort has been invested at the point of creating the digital product for longterm leverage.
Digital goods are intangible in nature and categorised across a wide spectrum of product types that includes: e-books, downloadable music, digital subscriptions, digital tickets, online courses, virtual goods in online games, digital images, website themes, etc.
Ecommerce entrepreneurs that sell digital products have to constantly grapple with two major issues: the first is that the ever changing consumer rights legislation across various country jurisdictions can be challenging to track and adhere to and the second issue is that is piracy; the ease of digital theft and copyright damages.
I think the sweet spot is somewhere in between i.e. connecting the sale of a digital product to some sort of tangible physical product or experience. As an example, an eBook seller transitioning or adding physical books or conferences to his/her offering. Or virtual goods online gaming transitioning to physical merchandise for the online game. I personally will not stick to a single product type as there is no right or wrong.
The biggest advantage in selling a digital product is the margins. The margins for digital products are much higher because there is a very low cost of goods. Additionally you never have to worry about inventory/supply, so scaling is not an issue.
That said, physical products have their benefits, in that they are more difficult to copy.
I know a few guys who launched a course and almost immediately it was posted online in several blackhat forums for people to access all the content for free.
Digital products are just a lot easier to pirate. Not to say I’ve never seen a knock off of a handbag, because I have, but I think it’s more difficult.
Dave Schneider runs Self Made Businessman and is the Co-Founder of blogger outreach software Ninja Outreach. Learn how he built a 6 figure software business in a matter of months. Follow Dave on Twitter.
I don’t focus on product initially. I focus on audience. What do they want? How can I serve them? I know of huge businesses being built using all various models – physical goods, digital goods, or both models together. The real goal is growing a large loyal audience who is excited about your stuff and talking about it.
There is a beautiful dance that happens when both physical and digital are combined in your model feeding off each other and complimenting each other.I don't focus on product initially. I focus on audience. #ecommerce @jim_cockrum Click To Tweet
The perfect model imo includes three legs on the stool – physical, digital and community (strong social presence).
The biggest advantage of selling digital products over physical products is, the product is created once–then sold repeatedly, with no supply chain or shipping issues. Not to mention labour and overheads are significantly reduced, especially if dealing with refunds and returns
The biggest disadvantages to selling digital products? Hmmm… If you’re putting out a quality product that helps people get the result or knowledge they signed up for, I don’t really see that there is one.
Yes! The sales cycle can require more personalized interactions (depending on your price point) but that’s equally true for more high-end physical products – the touch points are just a little different.
Selling virtual products over physical products presents some clear advantages: logistics and shipping expenses are lower, and there’s no dealing with delivery or complaints about delivery. The reason there are no delivery issues is because there’s no stock! This means you never have to check stock, worry about resupply or perform a yearly inventory. And you can sell worldwide, without having to think about international shipping. All you need are quality translations of product pages.
On the flip side, having no inventory means no reason to have flash sales, which can be a great incentive to buy.
Big thanks to these entrepreneurs for sharing their advice. I wanted to bring together different perspectives and data to help you decide what to sell online. Here is a quick recap on some of the key points:
- eBooks is projected to be the fastest growth market
- Physical products will always be in demand and growth is expected to continue
- Competition is more fierce with digital products because they are easier to sell, pirate and market growth is generally slower
- You have to build authority around a personal brand to sell digital products effectively
What Do You Think Is Better To Sell Online, Digital or Physical?
Let us know in the comments.