Online Business: What it is and How it Works

What is an Online Business?

An online business is a business that runs on the internet. It is the art of using the internet to sell a product or service; it  can also be referred to as any business activity that happens over the internet.

A business owner who does business using the internet, is running an online business.

The Internet has helped many people build successful businesses. Many people are becoming millionaires from all across the world. This has caused a lot of people to become interested in owning an online business.

Every year, the number of people starting an online businesses keeps increasing thanks to the amazing benefits of an online business.

Before we proceed let’s take a quick look at the benefits of owning an online business.


Online Business Benefits

While we can develop a huge list on the benefits of owning an online business, we will minimize the list to the major advantages:

  • Low Startup and Operation Cost
  • Always Open 24/7/365
  • Flexible work time
  • Huge Income Potential
  • Simple and Convenient
  • Automation
  • Opportunity for Passive income
  • You sell to the World
  • Low Risk
  • Long term venture

This list can go on and on since there is still a huge number of advantages and benefits.

While a lot of people are starting online businesses, it is shocking to also note that:

“90% of online businesses fail in the first six months. And many will fold up in the first year. Among the other 10% of online businesses that survive the first year, another 80% will fold up in within 5 years

If you are looking to setup your own online business, you definitely want to be successful, but with the alarming rate at which people fail, you will definitely want to stand out and join the few successful ones.

One of the major reason most people fail at building successful online businesses, is simply because they approach it without a full understanding of what it is and how it works.

Whether you already have an online business or looking to setup one, you will not succeed online without a full understanding of what an online business is and how it works.


Understanding Online Business

It is important for you to note that an online business is a “business”. And business is all about providing valuable goods and service.

Note that I didn’t I didn’t use the word Online “Quick Money” or “Online Fast Money”; It is “Online Business

Because it happens online doesn’t change this fact.

I decided to hammer on this, because a number of people see online businesses as a get rich quick scheme or some magic button to make money.

For you to properly understand online business, you must realize that the internet is not the trade, it is only a “TOOL” of trade.

“The internet is not the trade itself, it is only the tool of trade.”

If you want to make money, you must sell something; it is no difference online, it is a business and like every other business requires a product or service to be sold. It also requires the right ingredients to be successful.

With that said, let’s take a look at how online business works.


How Online Business Works

Before diving into other aspects of building a successful online business, it is important to understand how an online business works.

You need to fully understand what you are going into; since this will help you create the proper foundation to succeed with your online business.

If you don’t understand how online business works, you won’t know the right things to do, to get your desired results. This is why many people fail online.

Online business is a business and works pretty much like every other business. The difference is that while the real world, business transactions takes place in-store, offices or specific business locations, online business transactions happens online (i.e. on your website, or app, page etc.)

Here is how it works:

  1. A User visits your website, landing page or app where your product is listed. (Traffic)
  2. The user learns about your product and goes on to purchase the product (Conversion)
  3. You make profit or money from the purchase (Sales)

If we were to illustrate this steps using a formula, it will be:

Traffic + Conversion = Sales

What is Traffic?

Traffic is simply the number of people who are viewing or seeing your offer. Or if we are to look at it from the offline perspective, let’s say you own a store somewhere along a busy street in your home country. Your traffic rate would be the number of people who are visiting your store on a regular basis.

What is Conversion?

Conversion is the ability to convince these people on your website to buy your product or claim your offer.

You need to keep driving traffic to your website or landing page using various traffic generation strategies and you must make sure that you generate more sales to cover the cost of your traffic.

So, your two-major focus as online business owner would be to:

  1. Drive as much traffic as possible to your site and
  2. Keep increasing your conversion so as to convert the traffic into sales

While this can seem like a fail proof plan, it is important to note that there is one part of the equation most people miss.

This part of the equation is the most important part. It is the economics of your online business. 

The most important part of your online business is the  economics behind it!

Now Economics is the ability to maximize the potential of every traffic you receive.

Let me throw more light on this…

Let say after setting up your website and you have a product that sells for $47. You begin sending people to your site through Facebook advertising.

In the end, you spent around $500; got a thousand visits to the site and you sold about 10 products.

Let’s do the math…. 10 x 47 = $470

Will you be happy with your results?


Whether you are happy or not, one thing is clear… You JUST LOST MONEY. ($30)

You spent $500 but only made $470, if this keeps happening, it is only a matter of time before you become broke.

To avoid this, there are two things you need to do; either you…

  • Reduce your traffic cost and increase your conversions or
  • You Sell more products to this existing 10 customer

This is where economics comes in.

What is Economics?

Economics is the process maximizing your resources and making sure that your overall profit is always higher than your expenses. It is the act of making sure your output is always greater than your input.

This is where the tactical triangle comes in. Look at the image below:

Tactical Triangle:

This triangle, created by Perry Marshall and Jack Born shows the process online businesses must go through to be able to become really successful.

Let me use the explanation of Matt Lloyd in the 21 Steps Business System. He explained that:

In order to sell something you have to get Traffic (eyeballs in front of your offer), and you have to convert that traffic (cause a percentage of prospects to reach into their wallets and spend money with you).

Economics means you have to make a profit on what you sell (after taking into account the costs to generate your traffic), which is the actual reason why you’re in business.

Once you are making a profit, then you can re­invest it into getting more traffic and converting that traffic into even more sales, which means much better economics.

As contradictory as it sounds, when you start your online business, you need to think backwards. Instead of first thinking, “How do I get more and cheaper traffic?” you should first focus on your main goal of “making a profit.”


From this, we can deduce that traffic and conversion alone is not enough to generate profits rather:

Traffic + Conversion + Economics = Profits

So if you want to be successful with your online business, you must focus on the economics. The economics of your online business include:

  • Your Online Business Model
  • Average Customer Value
  • Cost Per Click
  • Your Key Traffic Sources
  • Your Back end Products

If you get this things into place, you will definitely be successful. The Mistake most people make is that they focus on traffic. Not knowing that traffic alone does not make money.


If you wish to build a thriving Online Business, it is important that you have the right training and know fully what you need to know.

The internet has made building a business as easy as possible and has opened the doors to massive opportunities for entrepreneurs all around the globe.

This is the best time in history any entrepreneur can be alive.

So, step out and take advantage of this opportunity.

In your Journey to building a Successful online business, there will be ups and downs and you will make a lot of mistakes along the way. What I want to you to always bear in mind is that, every effort, every sacrifice and every single time you will invest into this, is really worth it.

Go and Succeed.

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