The 7 Key Benefits of Selling Digital Products

Sometimes you reach a point in a service business where you start to wonder if there’s something else you can be doing to draw in revenue.

We meet a lot of Squarespace business owners and something that often works well for them are digital products. They’re often a natural fit for those who already have a digital-based business (hey, we sell digital products ourselves!). 

Are digital products on your radar? If not, maybe consider whether they might be a good move for you. Here are some of the key benefits:

Free download: How do physical and digital products compare?

#1. Low barrier to entry

If you’ve ever been in the physical products business, you’ll understand the many challenges that can go with it. One of those is an often higher barrier to entry. You might have to find the right suppliers, buy a certain amount of stock, devise a system for selling and shipping, and figure out how to manage inventory. You might need to import stock, deal with customs and find the right insurance.

In contrast, digital products don’t usually require a huge investment to get started (depending on what you choose to sell). For example, if you’re selling something like digital products that have already been created by someone else, all you need is the sales and delivery mechanism via your website.

If you choose to create your own digital product, the barrier to entry really depends on what you choose. If it’s something like a course or an ebook, then the investment is your time to get the product created. Once it’s done, it’s easy to get your product set up for sale.

#2. Low overhead 

Overall, selling digital products involves much lower overhead than physical products. There are many costs that you simply don’t have to deal with: running a physical storefront, warehousing your products, dealing with broken or faulty products and managing the costs of packing, shipping and handling products.

Digital products also rarely require paid staff, no matter how many customers you might have. If 1,000 people download your ebook in one day, it can happen with no additional commitment of resources. On the other hand, if you suddenly had 1,000 physical orders in one day, you’d probably need additional staff helping to pick and pack orders.

#3. You won’t run out of stock!

One of the big challenges of selling physical products is stock outs. They can hit you in two ways: first, you’re not making any money while you’re out of stock and second, you might lose the customer because they look elsewhere when they can’t get what they need.

Digital products don’t have that problem because they’re not limited in terms of stock. They’re delivered via a download and the original file doesn’t “run out.” You can sell as many copies (or licenses) as you like and choose to impose your own limitations if they make sense to you.

This also means you don’t need any expensive inventory management systems. These are an essential tool for ecommerce businesses as they help owners track, monitor and make stock decisions. Digital products don’t have the same high stakes in terms of inventory management.

#4. Profit margins are awesome

Profitability is a huge advantage that digital products have over physical ones. A digital product can be sold repeatedly, with no need to buy extra stock or manage any other costs such as those warehousing and shipping costs. On the other hand, every single physical product has an associated cost.

Profit margins tend to vary greatly between different types of businesses and physical products, but somewhere between 20 and 30% is quite common. Physical products can often run very high costs for stock that are difficult to make up for with the selling price. Every physical product will have its limit in terms of what people are willing to pay, which means margins can naturally be held lower. A key point here is that each individual item has an associated cost that often can’t be reduced.

On the other hand, a digital product might cost you something to create and set up (especially if it’s not just your own labor), but from there after, you can sell that product as often as you like. The more you sell it, the bigger your gross margins will be. Even if you paid a developer $5k to create a simple plugin, if that tool serves a clear need that people have, you might make thousands of sales for something you charge $9.99 for. This is one example where the barrier to entry is obviously higher - you’d have to field those development costs upfront, unless you struck a deal (i.e., a partnership where you share profits). 

#5. You can easily pivot

When a physical product isn’t selling well, you can choose to discontinue it, but that still leaves you to deal with the remaining inventory. You might have to sell at a loss or destroy if it’s expired. You could choose to bring in different products, but you have to go through the process of sourcing and any initial order requirements all over again. It’s not typically straightforward if you decide to make changes.

Digital products make it easy to pivot when you decide it’s time for a change. You can simply take down the digital file and switch to something else. Setup is simple via a content delivery system and it doesn’t involve having to sell out inventory or pay for storage of something that isn’t selling.

#6. Digital products are easy to manage

Depending on the type of digital product/s you sell, you can create and manage them completely independently of anyone else. You’re not waiting on shipping delays, manufacturing times or anything else that might create a bottleneck.

You can also have free reign on the creative side of the digital product if you’re making it yourself. Sometimes with products that involve others (such as manufactured products), you find limitations in terms of what can be done. Doing it yourself means you have flexibility to manage it how you like.

In terms of stock management, you don’t have to worry about “shelf life” like you do with physical products. While you might have to make and deploy updates, these are easily delivered digitally, too. In terms of things like ebooks, authors tend to just release a new edition and announce that it is “updated for 2020” (or whatever the case may be).

Another stock management issue you won’t have is damaged products that need to be returned. This can create all sorts of headaches in the world of physical products, but with digital products, warranties can be more easily executed. (You can see our return policy here as an example of what you can do with digital products).

#7. You get a large potential market

You can sell digital products easily and quite literally to the entire world. Anyone with an internet connection could purchase your products and have them available immediately. That’s a pretty big market!

With physical products, the realities of shipping worldwide are complex and often just not possible, especially for smaller companies. Shipping costs can be too high and delivery might not be reliable everywhere, potentially putting you on the hook for missing packages. For this reason, most physical sellers limit their market size geographically. 

Download here: Comparison of physical products, digital products, and services

Final thoughts

We’re obviously believers in digital products, which is one reason why we sell and promote them. However, we really do think that digital products can work for most of the Squarespace service businesses that we know. 

In most cases, you already have the platform through which you can sell and getting started with digital products is just a matter of a simple setup. 

Finally, one of the things we really love is that digital products allow you to make additional revenue for almost no extra work (after that initial creation and setup, of course!). After a while, every download you sell is just profit for you. It’s a low-barrier way to branch out with your revenue streams...