The key difference between online businesses vs. brick and mortar businesses lies in their primary mode of operation. Online businesses offer flexibility and global reach, operating through websites and digital platforms. Brick-and-mortar stores provide a tangible shopping experience with physical locations customers can visit. Ecommerce offers convenience, but it can lack the personal touch. Meanwhile, physical stores offer personalized experiences but face high overhead costs.
Brick and mortar store and online business are both profitable business models. Reports states that Mr. Beast earns $54 million thru his content creator business. Some sources estimate his net worth to be as high as $500 million. PR Newswire states small and medium retailers have an average monthly revenue of $22,341. They also have an average gross margin of 51%. Yardbird, Neighborhood Goods, Burberry, and Wilding are some of the successful brick and mortar stores.
In this article, I’ll show you more about the pros and cons of online business and brick and mortar stores. I'll explore which business model suits whom. I'll also cover the traits needed for success in each venture. At the end of the article, I’ll introduce a different business model. It might be more profitable than a brick-and-mortar store and an online business.
Online Business Pros & Cons
Pros of Online Business
Cons of Online Business
Broad reach: Digital marketing businesses eliminate geographic boundaries. This increases potential customer base compared to physical businesses
High rate of product returns: Customers return items because of mismatches between what they expected and reality. They can't physically examine products before buying.
Low overhead costs: Online businesses can save up to 22% on overhead costs because of lower operational expenses.
Fierce competition: The global e-commerce business hosts 12-24 million sites, intensifying competition. This elevates the challenge for you to stand out and secure customers.
Streamlined scalabilty: An ecommerce store is more scalable because they aren't limited by location like physical stores. Cloud-based technology enables cheap, rapid growth. It does this by scaling resources to meet changing demand.
Dependence on technology: Online stores’ success hinge on flawless technology. Website downtime, payment issues, and slow load times can frustrate customers. They can also harm your reputation.
Ability to operate 24/7: Online stores are always open, allowing customers to shop at their convenience time. This allows for online sales promotions even while you're not working.
Shipping costs and logistics: Customers have become accustomed to free or discounted shipping. A Baymard Institute study found that 61% of online shoppers abandon their carts due to extra costs. Shipping is a major cause.
Advanced customer data collection: Businesses use CRMs to gather customer data. This advertising data helps customize marketing and personalize customer experiences.
Cybersecurity issues: Small businesses are prime targets for cyberattacks. A 2022 Verizon study found that 43% of them were hit. Their limited resources often prevent cybersecurity defenses.
Brick and Mortar Business Pros & Cons
Pros of Brick and Mortar Business
Cons of Brick and Mortar Business
Immediate transactions: A study by Retail Dive showed that 49% of customers like physical stores. They like them because they can take purchases home right away.
Limited customer base: Physical stores rely on foot traffic and only attract customers within a limited area. A University of California, Berkeley study found customers. They travel only 20 minutes from home for regular shopping.
Face to face interaction is better for building relationships: Salesforce notes that 66% of customers expect companies to know their needs. This highlights the need for a personal touch. This translates to better customer experience and lifetime value.
High costs: Physical stores require prime locations with high rents, much costlier than warehouses for online stores. Brick-and-mortar expenses can account for 20-35% of a brick-and-mortar business's gross revenue.
Likely to benefit from word of mouth marketing: Word-of-mouth marketing is very effective for brick-and-mortar businesses, especially locally. Nielsen reports that 92% of consumers trust family and friends' recommendations the most. They trust them more than any online ads.
Susceptible to physical factors: Extreme conditions may force stores to close. This will lead to lost sales days and potential revenue. Studies on Hurricane Harvey's economic effects found a 20-30% drop in retail sales.
Ability to benefit from community involvement: Stores can have in-store events, sponsorships, and partnerships. These boost brand visibility, goodwill, and a strong local identity.
Employees required: Physical retails depend on employees. They help with product demos, advice, inquiries, and problem solving. Various industry reports say labor costs for traditional retailers often are 15-20% or more of total sales.
Brand Identity Opportunity: Physical stores give retailers a better chance to build brand loyalty. They also let customers align with their values.
Employees required: Physical retails depend on employees. They help with product demos, advice, inquiries, and problem solving. Various industry reports say labor costs for traditional retailers often are 15-20% or more of total sales.
Brick and Mortar vs Online Sales Statistics
Will Brick-and-Mortar Stores Become Obsolete?
Brick-and-mortar stores won't become obsolete because many still prefer to check the size and quality of items before purchasing. While there are many benefits of buying items online, some products like high-end gadgets, footwear, and furniture are best bought in-store. There are also businesses that started as "online-only" stores like UnTuckit, Warby Parker, and Casper Mattress that found the need to open brick-and-mortar locations as part of their business expansion plan.
Will Online Stores Become Oversaturated?
Online stores can get saturated since the industry is steadily growing at an 8.5% rate. There are currently 26.5 million ecom stores in the world competing for the attention of 2.71 billion digital buyers. The industry might become increasingly competitive because ecom platforms and digital tools are becoming more accessible now.
Brick-and-Mortar VS. Online Business: What People Say Online
What People Say on Reddit
According to some Reddit answers, people choose to sell online because it's easier to market, doesn't need a large inventory volume, and it offers more flexibility.
You'll also get better margins and easier cash flow if you sell direct-to-customer online as a small/starting business. Selling online allows you to test proof of concept and sales viability with little investment before you go for the physical store.
What Experts Say on YouTube
Janet has been running an online retail business for over 10 years. She used to work at a brick-and-mortar retail store, so she has an idea of what it's like working in both business settings. She recommends online store over brick and mortar because of its cost-effectiveness and management flexibility. According to her, online businesses are easier to operate and has lower overhead costs than physical ones.
According to Candy Valentino both brick and mortar and online models could work, depending on the target audience and business goals. She explained that although brick and mortar has higher overhead cost, establishing trust within the local community and attracting traffic is easier with physical stores. Online businesses have lower overhead costs, but gaining the trust of virtual customers and implementing digital marketing strategies can be challenging.
Who Should Start a Brick and Mortar Business?
Entrepreneurs who can engage with customers face-to-face and have strong leadership character to lead and manage a team are best suited for brick and mortar businesses. They should be passionate about serving customers and are comfortable with face-to-face selling and interaction. Brick and mortar entrepreneurs should have excellent communication skills and can handle objections from customers. He/she should also be efficient in handling daily business operations in physical stores. Since work is less flexible, physical store owners should be willing to fill-in the roles of their staff in case they're absent.
Is Brick-and-Mortar Good for Start-up Businesses?
Brick-and-mortar might not be a good option for start-up businesses who have limited capital and resources. Ongoing expenses such as rent, utilities, insurance, and salaries can quickly accumulate, so you need substantial cash to keep the business afloat while it's gaining traction in the market. Physical stores have limited reach, so startup businesses are limited to customers within a specific selling area. As a result, the store is at risk of low foot traffic, and might not attract enough customers to sustain business operations.
Sara Stonecipher’s Testimonial: Why She Had To Close Her Brick and Mortar Retail Store’s Second Location
Sara had to close her physical store's second location because it did not have enough customers and she was losing money. Her customers liked the vibe of her first store better, and its downtown location was more convenient for them. She also offered more generic items in her second store but the demographic in the area preferred unique pieces, which she failed to provide.
Sara Stonecipher's First Store
Sara's first store was a boutique located in a busy downtown area, within a strip plaza, and covered a 1200 square feet area. The store was doing really well because of its great location and excellent management. The good foot traffic and the unique shopping experience that the store offers helped it thrive in the last 8 years. Sara was originally planning to expand this site but the neighboring store's lease contract restricted her from doing so. This led to the idea of opening her second location 45 minutes from the first store.
What Went Wrong with Sara Stonecipher's Second Store
Wrong Brand Positioning: Sara's decision to offer generic merchandise in her second location made it less appealing to customers who are looking for unique pieces. As a result, it did not stand out against the larger competitors, Target and Nordstrom Rack.
Bad Location: The second store was located in a suburban area where customers were looking for unique pieces not generic items and budget merch that they can easily find in department stores.
Financial Downturn: The bad performance of the second store already affected her overall business. As her last resort, Sara had to close the second location to stop losing money and focus on improving and expanding the first store.
Who Should Start an Online Business?
People who are self-motivated and have the entrepreneurial drive should start an online business. They should have substantial knowledge in the digital space and are skilled in virtual goods sale to survive and thrive. Online businesses are suitable for those with limited capital because it's not as expensive as starting a physical store. Online entrepreneurs should be comfortable in using digital tools and platforms. Since most online businesses sell digital products and services, entrepreneurs should have at least a basic understanding of websites, sales funnels, algorithm and SEO rules, and digital marketing.
Factors To Consider Before Starting an Online Business in 2024
What are the Top Online Businesses to Start?
The top online businesses to start are:
Conclusion: Is Online Business Better Than Brick and Mortar?
Online businesses often hold significant advantages over traditional brick-and-mortar stores. Lower overhead costs can lead to higher profits for online sellers. Online business owners earn between $10,000 to $80,000 annually. Customers like the 24/7 convenience of shopping from home. They also like the ability to compare prices and find niche products that local stores may not have. Changes in consumer behavior make local lead generation an appealing online business model.
Online stores have a global audience. But, local lead generation focuses on a specific area. This lets you target a smaller, more defined market. It has less competition for customer attention. Selling physical products online involves costs like inventory management and shipping. Local lead generation deals with services, eliminating these expenses. With minimal overhead cost their profit margins could be 50% or higher per lead. Lead generation companies earn between $5 to over $1,000 per lead or $500 to over $2,000 per site monthly.
The number of clients you have paying for leads impacts your income. Leads with detailed customer information fetch a higher price. This is because they have more potential for conversion. The number of clients you have paying for leads impacts your income. As your business grows, you can expand your client base without significant overhead costs. This translates to a leaner business model with higher profit margins. Local lead generation is a smart online business model that leverages the power of the internet with the advantages of a local focus.
