Digital Products vs. Physical Products in eCommerce

If you want to get into eCommerce, setting up your store is the biggest initial hurdle to overcome. However, this is not the only consideration. Knowing what to sell is just as important if you wish to make serious profits and grow your business over the long run.

When you run an eCommerce store, you have two options. First, you can sell physical products. These are tangible and will be shipped to the customer; examples include books and clothing. On the other hand, you can sell digital products. These do not require physical shipping; examples include eBooks and checklists.

At some point, you may wish to offer both. But in the beginning, you should choose one or the other and go from there. Before doing so, it’s wise to understand what the best option will be for your unique needs.

To help you make the right choice, we’ll compare selling digital and physical products in eCommerce today. You’ll learn about how they differ in multiple categories, along with the prerequisites for selling either.

TL;DR:
Digital products are quicker to launch, easier to scale, and offer higher margins, while physical products bring extra logistics, costs, and post-purchase work.

What Are the Necessities for Both Digital and Physical Products in eCommerce?

Before we outline how digital and physical products differ in various categories, it’s worth looking at the absolute necessities for running a successful store in the first place.

A Strong Website Infrastructure

Before anything else, you need to have a strong eCommerce website infrastructure. By this, we mean that you must have a well-designed and responsive site, along with high levels of security and a good customer experience.

Hosting will be the biggest part of your eCommerce store; it’s a foundation for everything else. If you don’t have good website hosting, scaling will be very difficult. Moreover, you will leave your website open for vulnerabilities – such as various types of cyberattacks.

When looking for the right hosting provider, you need to consider numerous eCommerce-specific aspects. For example, it’s vital that you have an SSL certificate; hosting providers like Verpex can offer this for free.

You should also look for free backups and round-the-clock support. Private servers are necessary, too; these ensure that you have enough capacity to handle high traffic loads.

The Ability to Meet Market Demand

When boiled down to its simplest forms, eCommerce – and any form of business, for that matter – is quite simple. You need to meet some kind of need in the market, whether that’s pre-existing or you create the demand.

You can do this with digital and physical products; they’re just two different ways to do so. The most important thing is that you know how to sell to customers, and knowing their needs will be crucial in doing this.

One way you can meet market demands is by studying what other high-performing eCommerce companies do. For example, Amazon not only offers products but also suggests similar ones that may be useful. You can also carry out eCommerce market analysis.

Discoverability

Even if you have the best products in the world, it means nothing if people don’t know that you exist. As a result, you must invest a lot of time in becoming more discoverable.

You can improve product discoverability in multiple ways. Search engine optimization (SEO) is a great way to make others discover you via Google and other search engines. It’s a long-term game with huge payoffs if you focus on continuous improvement, and implementing the best SEO tips for small businesses is very wise.

While SEO is important, it’s something that will drive revenue over the long term rather than straight away. So, you should mix this up with shorter-term discoverability tactics. For example, you should consider using paid advertising for your eCommerce store.

Which Is Better: Selling Digital Products or Physical Products?

With the most essential prerequisites covered, let’s now look at whether you should sell digital or physical products. The idea is that you can use these tips to decide what does and does not work for you.

Selling to Multiple Destinations

You absolutely can build a successful eCommerce store by selling to just a handful of markets, and in some cases, one is more than enough. But if you want to scale in the long run, you should consider how you can sell to the entire world.

When selling physical products, it is possible to sell to multiple destinations. However, you’ll need to think about logistics. It’s important that you consider shipping costs and also the duration of time it will take for a product to reach its desired audience. Depending on your setup, some locations might be off-limits or complicated to sell to.

Digital products, on the other hand, are more frictionless. You don’t need to physically ship your items, meaning you can sell virtually anywhere. In essence, you are only limited by factors like potential sanctions that your local government has placed on other countries.

When selling digital products, your audience will immediately receive what they purchase. They also don’t need to pay import taxes and the like. For these reasons, digital products are the clear winner in this category.

Winner: Digital products

Ease of Getting Started

As the owner of a new business, you will want to get started as soon as possible. The sooner you go live, the faster you can start generating revenue and iterating on your offerings. As a result, you’re more likely to become profitable faster. For this reason, ease of getting started is key when choosing the types of products you’ll sell.

Digital products offer a very simple way to get started. Listing them on your site is straightforward, and you don’t need to worry about finding a dropshipping partner, manufacturers, or shipping companies. Once your products are live (and you’ve tested payments), you can start selling immediately.

On the other hand, physical products have a lot more initial friction. First and foremost, you must try the products you sell. This can require multiple iterations. Moreover, you need to find manufacturing and shipping partners. It can be months before your products are actually ready to sell.

Winner: Digital products

Profit Margins

When eCommerce store owners give their revenue figures, you need to take these earnings with a pinch of salt. They don’t tell the full picture; profits and revenue are two very different categories.

In some cases, you could earn less overall revenue but make higher profits. And for the most part, your profit margins will be higher with digital products. You do not need to charge for manufacturing each time you sell, and you only have the initial time investment.

Physical products, meanwhile, have multiple associated costs. Manufacturing and shipping both consume a large portion of your overall earnings. You therefore need to price your products much higher to generate a significant profit on them.

Winner: Digital products

Competition

Nothing worth having in life comes easy, and this is especially true with online businesses. You will deal with competition regardless. At the same time, though, it’s a nice bonus if the competition is lower in your category.

eCommerce in general is a hypercompetitive business model, regardless of the products you sell. You need to focus on becoming the best in your space and standing above the competition. Rather than worrying about this, it’s a better idea to choose a niche you like and constantly iterate on what you sell. Over time, you will stand out.

Winner: Tie

Time Investment

Building a successful eCommerce business takes years, and if you can get started with selling your products faster, this can help you enter the “profit” phase more quickly. Considering the time investment in what you sell is therefore crucial.

Regardless of the product types you sell, you’ll need to invest significant time into developing them. When you create a digital product, you will have to create the initial version and then iterate to ensure it’s fit for consumption. The good news is that once you’ve done this, you only need to make iterative changes over time.

The amount of time investment you put into physical products depends on whether you make them yourself or partner with a manufacturer. You will need to consider aspects like design, and it will take time to determine the right products to sell.

All things considered, you’ll spend roughly the same amount of time with both. The main difference is that you will spend your time differently.

Winner: Tie

Post-Purchase Overhead

Besides thinking about how you sell your products, you also need to consider the post-purchase experience. Customer support is essential in both circumstances, but this will differ depending on your choice.

When you sell physical products, you will need to consider multiple aspects like returns. Moreover, you may need to deal with items getting lost or shipping delays. Because of this, you must be prepared for them.

On the other hand, digital products don’t have a huge amount of post-purchase overhead. You may need to show users how to install or use them, but you won’t need to deal with logistical issues. Therefore, we’re giving digital products the win here.

Winner: Digital products

Summary

For the most part, digital products are much easier to get started with as an eCommerce store owner. You can ship instantly, and you’re less confined to international borders than you would be with a physical product. Moreover, you don’t need to worry about partnering with multiple suppliers.

At the same time, physical products do have their merits. You need to accept the extra overhead that comes with them, though.

Frequently Asked Questions