Online Business vs Brick & Mortar Pros and Cons

March 28, 2024

online business vs brick and mortar: pros and cons

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

  • A survey of consumer shopping behavior shows 63% of shoppers prefer buying from physical stores when given the option. This shows the importance of in-person experiences. It highlights an enormous advantage for physical stores. It also stresses the lasting value of physical stores in a digital market.
  • Consumer psychology studies and BigCommerce surveys show that 62% of consumers prefer to see, touch, or try items before buying. This preference shows that physical stores are key for touching products. Touching them affects buying decisions and highlights that in-person retail is important.
  • A survey shows 44% of brick-and-mortar owners experience high stress, versus 13% of online owners, underscoring the stress gap. Main challenges for physical stores include overhead, staffing, and managing foot traffic. This data emphasizes the need for strategic planning and stress management in retail.
  • 8 in 10 business owners confirm online retail has lower costs. They are lower than those of brick-and-mortar setups. For service businesses, this advantage is acknowledged by 6 in 10. This showcases online business models' distinct cost-efficiency advantage, crucial for optimizing profitability.
  • 51% of experts view online businesses as side hustles. This is true for 20% for brick-and-mortar stores. Ecommerce is seen as extra income 2.5 times more often. This may be because of their younger age and lower revenue.
  • 3% of the surveyed experts view a reduced workload as an online business advantage. Yet, 30% highlight significant time spent on digital reputation and social media. Another 30% cite the lack of face-to-face interaction as a major time drain. It often leads to miscommunications.
  • 66% of experts think online businesses are less likely to fail than physical ones (5%). 30% see no difference. The pandemic showed online resilience. It shifted pre-Covid opinions. Before, 41% preferred physical stores to online's 7%. This highlights changing views on resilience post-pandemic.

Who Should Start a Brick and Mortar Business?

Starting a physical business is for those who value in-person interactions and aim to build relationships with customers. Good traits for this type of business include a love of personalized customer service. They should also have the ability to create a unique feel in their store. Brick and mortar businesses often operate in physical locations, like storefronts or offices. They offer customers an immediate shopping experience.

Who Should Start an Online Business?

Starting an online business is for entrepreneurial people. They are resilient, adaptable, and tech-savvy. They possess patience, a long-term vision, critical thinking, and strong communication skills. Their goal should be to leverage the internet's reach to build a brand. They should serve a wide audience and fill a specific market need well.

What are the Top Online Businesses to Start?

The top online businesses to start are:

  • Digital Marketing Business: A digital marketing business provides online branding strategies and services. They help other businesses reach their target customers. This includes services like search engine optimization (SEO) and social media marketing. It also includes email marketing, pay-per-click (PPC) advertising, content creation, and website design. They can specialize in one area. Or they can offer a wide range of solutions.
  • Affiliate Marketing Business: Affiliate marketing is performance-based. Individuals or businesses (affiliates) promote other companies' products or services. Affiliates earn a commission for each sale or lead. They generate them through their unique referral links. They often do this through blogs, websites, social media, or email marketing.
  • Amazon FBA Business: Amazon (FBA) involves selling physical products on the Amazon marketplace. They source products and ship them to Amazon's warehouses. Amazon handles storage, order fulfillment, shipping, and often customer service for the seller. This allows the seller to focus on their products and marketing. It makes the sales process simpler.
  • Dropshipping Business: Dropshipping allows you to sell products online without holding any inventory. You set up an online store. When a customer buys something, you buy the product from a third-party supplier. The supplier then ships it to your customer. This model has lower upfront costs, but can have lower profit margins.
  • Print on Demand Business: With print-on-demand, you partner with a supplier to customize white-label products. These include t-shirts, mugs, books, and more. You customize them with your own designs. Orders are printed and shipped only as they're purchased by customers. It's a low-risk model because you don't pay for products until you sell them.
  • Digital Product Business: A digital product business focuses on selling downloads or streams. These products include courses, templates, stock photos/videos, music, software, and fonts. These products can be sold through your own website or via online marketplaces.
  • Content Creator Business: They build an audience by making valuable or fun content on platforms like YouTube, Instagram, TikTok, blogs, and podcasts. They might get revenue from sponsorships and affiliate marketing. They might also make money by selling their own stuff and from platform ads.

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.

conclusion

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.

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Ippei Kanehara
Founder/CEO

$52K per month providing lead generation services to small businesses

Ippei.com is for digital hustlers, industry leaders and online business owners.

His #1 online business recommendation in 2024, is to build your own lead generation business.

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