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“Digital good” seems like an oxymoron. Digital is obviously of the new world; it’s modern. “Good” makes you think of old-fashioned trade.
Goods have always been something physical, something tangible. They’ve been fabric and furniture sailed in on a ship, imported from a faraway country. They’ve been books, pottery, or appliances rolled across borders, packed in trucks. The whole manufacturing line comes to mind, from raw materials to retail sales.
But how does our idea of a good change when placed in the virtual world created by computers?
The digital market is full of virtual products that you can’t feel, carry, or package in a box. These are digital goods. You’ve probably also heard them referred to as:
- Digital products
- Digital service
- Electronic good or electronic service
- E-good or e-service
They’re essentially all the same thing. For the sake of this article, we’re going to stick with the term “digital product” — and explore how the definition of a product changes in the digital setting.
Definition of a digital product
Why does it matter? Because the definitions of “digital products” determine what taxes you have to pay. If you’re unaware of which countries consider your product a digital product, you risk breaking the law.
Oh yeah, that’s right: definitions. Plural.
The definition of a “digital product” is elastic. Any place you go in the world, and within the 50 states of the US, will have its own version of the definition, making small additions or omissions in what’s considered a digital good. For example, some jurisdictions consider online newspaper subscriptions to be electronic goods, and other places don’t.
But the basic fact remains the same: whatever you are paying for, you receive it via the internet. It arrives in an email, or you download it from a website, or you access it by logging into an online portal. This product originates from and lives in the digital space.
But don’t just take our word for it. Here are some definitions pulled directly from different tax authorities:
Digital products in the EU
“Services which are delivered over the Internet or an electronic network and the nature of which renders their supply essentially automated and involving minimal human intervention, and impossible to ensure in the absence of information technology.” – The European Commission Taxation and Customs Union in their policy on telecommunications, broadcasting, and electronic services.
Digital products in Australia
“Intangible supplies such as supplies of digital content, games and software.” – The Australian Parliament, but this definition may exclude digital supplies of education or health services.
Digital products in many states in the US
“Any product that is transferred electronically to the customer.” – Streamlined Sales and Use Tax Agreement (SSUTA). The Streamlined Sales Tax Governing Board is an association of 23 states who all align on the same regulations, in an effort to simplify and standardize how sales tax is handled across multiple states. But even this standardization is complicated!
10 popular digital products to sell
Sometimes the easiest way to understand a concept is to just look at actual real world examples. So let’s do that with digital products. Chances are that you pay for many digital products already. And in fact, just by reading this article right now, you’re using at least one!
Here’s a list of popular digital products to sell. BUT – since the definitions can be quite detailed and various, please do not assume that everything on this list is considered a taxable “digital good or product” everywhere.
- Online courses
- Software-as-a-Service (SaaS)
- Digital art and graphics
- Webinars and virtual events
- Subscription boxes
- Mobile apps
- Digital templates and worksheets
- Podcasts and audiobooks
- Digital consulting and coaching services
Ebooks are digital books that can be downloaded and read on various devices such as e-readers, tablets, and smartphones. An ebook is a common way that independent writers and coaches self-publish their work, and then sell it through an online marketplace such as Amazon.
2. Online Courses
Online courses are educational programs delivered over the internet, covering pretty much any topic under the sun – from photography to coding! If you have expertise on a subject, you could probably create an online course about it! Courses often include video lectures, quizzes, and downloadable resources to help the learning process.
3. Software-as-a-Service (SaaS)
SaaS products are software applications accessed and used via the internet, with data saved in the cloud. Examples include project management tools like Trello, customer relationship management (CRM) software like Salesforce, or graphic design platforms like Canva.
4. Digital Artwork and Graphics
Digital artwork and graphics include illustrations, icons, logos, and other visual assets that can be purchased and downloaded for personal or commercial use. Websites like Shutterstock and Adobe Stock offer a range of digital artworks for sale. Like ebooks for writers, digital art/graphics is a common way for independent artists to sell their work.
5. Webinars and Virtual Events
Webinars and virtual events are live or pre-recorded presentations, workshops, or seminars conducted online. They cover diverse topics such as business strategies, personal development, or industry insights and often feature expert speakers and interactive Q&A sessions. Many online course creators or consultants might also include webinars in their business model.
6. Subscription Boxes
Yes, they still exist! Subscription boxes basically an online membership program, where physical products are delivered on a regular basis. The boxes themselves are full of curated products, such as beauty product samples, gourmet food items, or books-of-the-month. Customers pay a subscription fee on a recurring basis, such as once a month, and the collection of products is delivered to their doorsteps.
7. Mobile Apps
Mobile apps are software applications designed to run on smartphones and tablets. They serve various purposes, including gaming, productivity, fitness tracking, or social networking. Examples include gaming apps like Candy Crush, productivity apps like Evernote, or fitness apps like MyFitnessPal.
8. Digital Templates and Worksheets
Digital templates and worksheets are pre-designed documents that users can customize to their needs. Examples include resume templates, budgeting spreadsheets, or meal planning worksheets. Many online coaches or courses include such digital templates and worksheets as an add-on purchase.
9. Podcasts and Audiobooks
Podcasts and audiobooks are digital audio recordings available for streaming or download. Podcasts can cover any topic be that storytelling, educational content, news, or comedy. Platforms like Audible and Spotify offer a wide selection of podcasts and audiobooks for purchase or subscription.
10. Online Consulting and Coaching Services
Online consultations and coaching services provide expert advice, guidance, and support to clients over the internet. Examples include life coaching sessions, career counseling, nutritional consultations, or legal advice, conducted through video calls, emails, or messaging platforms.
The benefits of selling digital vs. physical products
There are some major benefits to selling digital products over physical ones:
- Lower production and distribution costs. Once a digital product is created, it usually just needs to be maintained and iterated upon in order to stay relevant and marketable. Digital products don't need physical production or shipping, either. So, businesses selling digital products tend to have a higher profit margin and save a lot of time – which they can reinvest in product development or marketing!
- Reach everyone, everywhere. Digital products can be sent over the internet to anyone, anywhere. No need to worry about where they live or how to ship stuff, which means businesses can sell to people all over the world without breaking a sweat.
- Instant delivery. Digital products are super fast to deliver. Customers can usually access the product right after they buy it, no waiting for restocking or shipping. It's all about instant satisfaction and ease of use.
- Creative deals and pricing structures. Businesses can get creative with pricing and packaging for digital products. They can do one-time buys, subscriptions, or mix and match to fit what customers want.
- Easy to scale the business. Digital products can be copied and sent out endlessly, so businesses can handle as many customers as they want without running out of stock or space.
Where to sell digital products
If you are starting an online business, it’s important to consider how or where you will reach your customers. Here are five places where an online business could sell digital products:
- Your own website or e-commerce store
- Online marketplaces
- Digital product platforms that offer e-commerce stores
- Online learning platforms
- Social media
Your own website or e-commerce store
Setting up an e-commerce website allows businesses to directly sell digital products to customers. They can integrate secure payment gateways and customize the shopping experience to suit their brand.
Platforms like Amazon, Shopify, and Etsy allow businesses to list and sell digital products alongside physical goods. These marketplaces provide access to a large customer base and offer tools for managing sales and customer interactions.
Digital product platforms
Dedicated digital product platforms such as SendOwl, Easy Digital Downloads, and Sellfy cater specifically to creators and businesses selling digital goods. These platforms often offer features like customizable storefronts, secure payment processing, and automated product delivery.
Online learning platforms
For online courses, platforms like Teachable, LearnWorlds, Thinkific, and Skillshare provide a marketplace for course creators to publish and sell their educational content. These platforms offer tools for course creation, marketing, and student engagement, making it easier for businesses to reach a global audience of learners.
Social media platforms like Facebook, Instagram, and even TikTok provide opportunities for businesses to showcase and sell digital products directly to their followers. Businesses can use features like shoppable posts, stories, sponsored posts, and advertisements to drive sales and engagement.
5 tips to start selling your digital product
Once you’ve determined what products you’ll sell and where you’ll sell them, you can start to focus on strategies to streamline your business and keep your customers happy. Here are just a few to consider:
- Offer a fast, mobile-ready checkout. Make sure you have a payment page that is optimized to increase conversion rates at checkout. The web or mobile site should be fast and smooth. Online shoppers can bounce to a competitor too easily if they get frustrated with the checkout experience.
- Invest in customer loyalty. Learn about how to create loyal customers, since repeat business is much easier (and cheaper!) than brand new business. Whether that’s adding nice touches to the customer experience (like a “thank you” note) or rolling out a rewards program, find a strategy that fits your business.
- Cater your product and marketing for international expansion. If you are thinking of selling outside your home country or region, then look into the best practices for selling to customers in international markets. There are great tips for adapting your marketing and customer experience to help you succeed.
- Improve customer service with a chatbot. These days it’s more common to use chatbots, or conversational AI tools, that help answer customer questions or attend to their service issues right away. Learn about how you can use chatbots in your online business, in ways that are easy to implement!
- Automate other business processes to save yourself time! Running an online business requires so much time, and entrepreneurs often have to fill many different roles themselves. Whether it’s invoices, emails, or other routine stuff, check out these tasks that e-commerce businesses should automate.
Once you’re selling and your business is taking off, then it’s important you also pay attention to sales tax rules in the places where you’re selling. You might have some tax liabilities!
Sales tax on digital products
If the definitions are any indication, the bureaucratic side of the digital market can be confusing! This is definitely the case when it comes to digital taxes. There are complex, shifting, inconsistent laws about how and when to tax electronic products. The tax isn’t even called the same thing in every country.
What’s the proper name of the tax?
Different countries have different tax systems, which they apply to digital products.
- Sales tax in the United States
- Value-Added Tax (VAT) in the EU, South Africa, the Philippines and others
- Goods and Services Tax (GST) in Australia, New Zealand, India, and others
When should you charge tax on digital goods?
As tax compliance experts, we get this question A LOT, and from our experience, answering this could take all day. Or all week. Just like there is no single definition of a digital product, there is no standard model for when (or how much) tax needs to be added to the sale. This is confusing and overwhelming, but we’ll explain how to track digital taxes automatically later on.
In some places, like the EU, it depends on where your customer is located. In other places, like some states in the US, it depends on where your business operates. Sometimes it’s a combination of those two factors. And even once you’ve figured it out for the regions where you do business, there’s a good chance the tax regulations will change and then you’re back to square one.
We’ve only given you a brief overview here, but if you’re curious to learn in more detail, please have a look at our guide for Digital Taxes Around The World.
We also have guides to sales tax compliance depending on what type of product you sell:
- Sales Tax Guide for Online Courses
- Sales Tax Guide for SaaS Products
- Digital Consultant’s Guide to Sales Tax, VAT, and GST
Is this stressing you out?
If you’re a little frazzled after just reading this article, don’t worry! Digital products might give you a tax headache, but digital goods can also relieve it. That’s a beautiful thing about technology.
There are software solutions out there to help your business comply with sales tax around the world automatically. You actually don’t even need to think about it day-to-day.
Quaderno will automate all of your sales tax compliance, all of the tedious tasks and tricky numbers.
What if I want to sell on multiple platforms?
You can connect all the platforms and sales channels you use, and Quaderno will cover it. We support the following platforms with automatic sales tax compliance integrations:
- Amazon FBA
- Easy Digital Downloads
- S2 Member
- Click Funnels
From automatically sending tax receipts anywhere in the world (and in multiple languages and currencies!) to producing full, easy-to-read tax reports for filing season (just takes a click of a button) — Quaderno helps your business run smoothly and error-free. So you have peace of mind. Can you imagine?
Well, you don’t have to. Just sign up for our free trial and see how simple it can be.
Note: At Quaderno we love providing helpful information and best practices about taxes, but we are not certified tax advisors. For further help, or if you are ever in doubt, please consult a professional tax advisor or the Tax Agency.