Comprehensive eCommerce Business Models

 

Although there are plenty of nuances to ecommerce, this there are some ecommerce business models that any prospective ecommerce business owner needs to be familiar with. The business of ecommerce – selling goods and services online – has revolutionized the global economy. Every decade, sales from online stores and markets grow substantially and plenty of people are quitting their day jobs to pursue ecommerce full time. Some are even getting rich from the endeavor. Nobody better encapsulates the success of ecommerce than the richest man in the world, Jeff Bezos. But how do these businesses work? What similarities do they borrow from the physical marketplace? Which is most profitable?

 

eCommerce Beginnings

If there’s one thing to know about the world of ecommerce, it’s that there’s a lot to learn. The days of stumbling your way into a successful online business are long gone. There isn’t anything accidental about becoming a thriving ecommerce company anymore. That time passed back in the early 2000s, just before the internet ballooned into the monster it is today. That’s why we’re diving into the fundamental of ecommerce business models in this article.

 

Business Basics

First, let’s head back to some beginner business lessons. You need to know what kind of business transaction you’d like your business to carry out. Who do you want to sell to? The four common business big-picture models are B2B (business to business), B2C (business to consumers), C2C (consumer to consumer), or C2B (consumer to business).

 

The B2B model only involves companies. There aren’t any day-to-day consumers involved in this model. In this system, businesses provide other businesses with products and services. Examples include software companies like Microsoft, document hosting companies like Dropbox, and office supply companies like Xerox.

 

The B2C model Is what most people likely think of when they imagine any business. It’s what makes the most sense for someone without any experience in the business world. A successful company has a product or service that it sells to individual consumers. This kind of model has an endless market with an infinite ceiling. The B2B model doesn’t change much from the traditional, physical stores. The only difference is that the transactions are done online, and the products are shipped to a customer. Examples are all around us, and nearly all successful physical stores have an online component including giants like Target and Walmart.

 

While the previous two models are fairly easy to understand and easy to perceive, the C2C model might not be so intuitive. The C2C model is made possible by certain websites that allow consumers to interact with one another. The websites are sustainable via commission paid to the site. However, only a handful of these websites have survived the test of time. These include eBay, Craigslist, and other classified sites.

 

The consumer-to-business model also isn’t as intuitive as the B2C and B2B models but has steadily grown. In the world of ecommerce, the easiest example is bloggers. For example, a food blogger might be a great source of advertising for a kitchenware company. The company would pay the blogger to host ads on their website or even write about the company’s products.

 

The last, least discussed and less popular business model is the business to government model. In this model, companies fulfill government contracts to manufacture products and provide services. Common examples include technologies and military manufacturing.

 

eCommerce Business Models

Now that you have a basic understanding of business models, we can get into the specifics of ecommerce revenue models. Once you know what kind of business you’d like to have and who you’d like to sell to, you can begin to think about how you’ll get those products and services into the hands of your consumers. Deciding this process is more tedious as you’ll need to get into the specifications of inventory management and product sourcing. Are you going to make your own products? Are you going to outsource production completely? How do you feel about stuffing your garage full of boxes? It might sound silly, but those are the things you need to take into consideration initially.

 

Drop Shipping

The easiest and most hands-off method of making money with an online business is drop shipping. All you do is set up a storefront on a website like Amazon, or even on your own website if you can generate traffic, and let your supplier handle the rest. You don’t have to handle inventory, keep stock, package products, or ship anything. With all of that freedom, however, comes major risk.

 

When you place all of that trust in another company, you relinquish a lot of control. Your supplier might not always have adequate stock. They may let an order slip through the cracks. Or the product itself might be damaged upon arrival. That’s all out of your control, but you’ll be the one taking the heat when your customer learns of the problem. So, while drop shipping is simple and easy, it comes with a great deal of risk.

 

Wholesaling

Drop shipping requires little startup cost, but it isn’t always reliable. On the flip side, we have wholesaling and warehousing. This requires a great deal of investment from the jump. You’ll be in complete control as you manage inventory, keep stock, manage orders, handle shipping, and invest in the warehouse/storage itself. The trick to success in the wholesale area of ecommerce is volume. If you’re capable of starting and managing a large inventory, this might be the model you can tailor for your success.

 

Private Labeling

If you don’t want to sell other people’s products and you don’t have the capital to build your own factory or support a large warehouse space, private labeling might be the model best suited to your capabilities. This is for the entrepreneurs with an idea for a great product but aren’t entirely sure how to make it a reality. In this model, consumers order a product from a store and the store sends the product order to a manufacturer. That manufacturer builds the product to meet certain specifications. Then the manufacturer sends the product directly to the customer, a third party that makes the final shipment, or to the company that made the initial sale.

 

No matter how you go about it, this model is created to outsource the labor of building and stocking the product. This is a good way to test new products and is relatively cheap to set up. Another bonus to this ecommerce model is that you can quickly switch manufacturers if you or your customers are unhappy with the final product.

 

White Labeling

Another ecommerce revenue model is white labeling. White labeling is similar to private labeling, except you’re selling a base product that’s already been proven to sell well. With white labeling, you’re able to make it your “own” product by redesigning the packaging and label. You aren’t changing anything about the product; you’re only changing its final appearance. This model is fairly common in the beauty industry.

 

The caveat with this model is that you typically can’t order a small amount of product. It’s like buying wholesale. So, for example, if you have an order to fulfill of five, you’ll have to purchase fifty because that’s the minimum quantity the company will produce for a single order. And if you don’t have any more orders, you’ll be stuck with the remainder of your product. If there’s a niche product that you find is in incredibly high demand, this model can lead to success.

 

Subscriptions

The last model we’d like to briefly discuss is the subscription model. It’s a popular model that has the potential to be incredibly successful if the products are right and the marketing hits the mark. Some examples include Blue Apron and Nature Box. The most successful subscription boxes usually fall into the categories of health, beauty, food, and fashion. Locally, food boxes supporting agriculture in the community can be very popular with proper marketing. If you’d like to explore this ecommerce business model, you’ll need to spend a lot of time researching and deciding on the right products.

 

Which eCommerce Model Best Fits Your Busines?

There you have it. That’s a comprehensive look at the most common ecommerce business models. With the intense growth of ecommerce in the last two decades, it’s no wonder why so many people want a piece of the pie. It’ll be a lucrative industry for the foreseeable future.

 

The first decision you need to make is who your customers will be. Do you want to sell to other businesses or individual consumers? What is it that your selling and how do you plan to market your products or services? Once you’ve got an idea, how will you make those plans a reality? Do you plan to outsource production? Are you going to create a new product altogether? Have you found an untapped niche in your city? Whatever the case, these are big-idea questions that you’ll need to do plenty more research on before making any initial investments. But this comprehensive ecommerce business guide should give you a broad beginning.