You establish an online store and consider which business model you want to choose. There are many types, but not every eCommerce business model is equally suitable for your company. In this article, we’ll share a high-level breakdown of choices to consider when starting your business.
What is an eCommerce business model?
Electronic commerce or eCommerce is a business model that lets businesses and consumers make purchases or sell things online. It refers to a company’s core framework for operating profitably and providing value for customers.
Choosing and applying the right business model to your online store might help you gain the greatest chance of success. The features of a good eCommerce business model explain the customer value proposition and pricing strategy.
Different types of eCommerce business model
Let’s take a look at 5 common eCommerce business model types.
Business to Business (B2B)
The first model we want to share is B2B. A website following the B2B business model sells its products to an intermediate buyer who then sells the product to the final customer. As an example, a wholesaler places an order from a company’s website and after receiving the consignment, sells the end product to the final customer who comes to buy the product at one of its retail outlets.
Business to Consumer (B2C)
The business-to-consumer (B2C) business model refers to commerce between a business and an individual consumer. For example, when you buy a shirt from a retailer online. While this includes brick-and-mortar business, it’s also become associated with eCommerce or detailing.
Consumer to Business (C2B)
In contrast with B2C, C2B is less well-known and intuitive than B2B and B2C. In the C2B model, individuals (consumers) sell products or services to a business. Most typical C2B businesses are freelancer platforms like Upwork and Fiverr. In this digital and social age, influencer-matching marketplaces like Influenza are on the rise as new, innovative forms of C2B.
Consumer to Consumer (C2C)
The rise in the creator economy led to a spike in consumer-to-business (C2B) companies. This business model refers to when a consumer sells their products or services to a business or organization. If you want to become an influencer or a photographer selling photos online, this is the type of business model you’d use.
Business to Business to Consumer (B2B2C)
The last of the eCommerce business models is known as business to business to consumer (B2B2C). This model is a combination of both the B2B and B2C models. This business model can be referred to as Business-to-x (B2X), Business-to-everyone (B2E), Business-to-many (B2M). In the B2B2C model, the wholesalers or manufacturers can reach the end consumer through another B2B business or directly selling to customers.
How to choose the right business model?
As you can see, when you’re launching your new startup, you’re going to have a lot of different choices regarding your business model. Finding the right model that can make a profit deserves careful attention and is a key component to launching a successful startup. So, how do you choose your business model that approaches generating revenue from your business idea? Keep watching…
The first factor that should decide the way the business model will take shape is the customer. The business model should not be solely targeted at how the start-up can create profit. Rather, it should provide a solution to the problems faced by the customer. The business model should detail how your product or service can add value to the customer.
Ask these questions before selecting the business model for your start-up:
- Who is your customer?
- What is the consumer behavior or buying pattern displayed by the customer?
- What are your customer needs or problems?
- How can you design your revenue model which causes the least inconvenience to the customer?
Considering these questions helps in defining the characteristics and qualities of the customer you intend to serve. Ensure that your business model puts the customer’s needs first, and the revenue system is based on their needs.
The value proposition
One of the most important elements in marketing your business – the value proposition. It is the promise of tangible benefits which a customer will receive from consuming or experiencing the offering. That means it will help your customer and clients understand why they should do business with you and sets you apart from the competitors. The value proposition is usually a block of text that consists of a headline, a subhead or a paragraph, and a shortlist of key benefits along with an accompanying visual.
The issue also plays an important role in the way you choose a business model that you should spend time analyzing the market potential and the competitive landscape. It’s probably a good idea to determine how big the market could be for your idea. There’s nothing wrong with going into a very narrow niche, but you might build a different business than if there is greater potential.
Keep in mind that you also have to be familiar with your competition and what they offer. Knowing this allows you to fill the gap in the market by identifying what they offer is missing and to understand how you can make your product different from theirs.
The revenue streams
Most successful businesses will rely on multiple revenue streams. This can be through the sale of related products, it can also come from the convergence of several assets. You also need to know:
- The price of your product or service (your pricing strategy)
- Cost of selling these products or services (material, payment fees, etc)
- The price of marketing your products (marketing campaigns, advertising, etc)
- Cost of employing your staff (salaries, contractors, employee benefits, etc)
- The initial setup costs of your business (equipment purchases, website setup, etc)
The business model you choose will influence all of these points and you’ll need to ensure the numbers work in your financial plan. When you have some numbers on your estimated monthly costs and perhaps a basic estimate of the revenue you must make each month.
Many business models hinge on developing partnerships with companies that have products or services that are central to the model; a software company may need relationships with key software makers to build a business. This might also include key competencies; an electrical contractor may find that they must find technicians or partners with low voltage expertise to service the growing demand for data and entertainment-related installations. The decision should be based on your needs, budgets, and how the partnership can help you grow in the future.
Another factor as well as significant successful growth for a business that I have to mention in this article is scalability. It refers to the ability of businesses to handle the increasing demands of the market in a way that improves profit margin and wholesale volume increases.
A stagnant business can never be successful
It needs to keep growing to meet the requirements of the customers while staying ahead of its competitors. The business model should provide enough space for improvisation to ensure that the business is always relevant to the current demand of the market.
Examples of the most popular business models
Dropshipping is the simplest type of eCommerce. It frees the seller from managing inventory, warehousing stock, and dealing with packaging. These tasks are up to the supplier. It allows businesses to market and sell products online without stocking inventory. As orders are placed, dropshippers purchase items from suppliers who then ship products directly to customers.
Shopify Dropshipping is highly recommended for your eCommerce business because it has a little trip and trick to attract more customers. Building the dropshipping store in the right way with a nice dropshipping theme, choosing the right products, and finding a qualified dropshipping supplier will contribute to your success.
You have skills and available resources to make unique products or limited things such as jewelry, fashion, or natural beauty products, you can earn revenue in this way. The primary costs include the purchasing of raw materials, the storage of inventory, and labor. Making your products is also for people that want to maintain full control over the product quality and their brand and who have the desire to keep startup inventory costs low.
On the other hand, if you have got an idea for the perfect product, but do not have the cash or desire to build your factory, this might be the right business model for you. Companies that build products offsite send the prototypes to a contracted manufacturer who fabricates the product.
You can look at manufacturing through two lenses: private label and white label
- Private label
Many new eCommerce entrepreneurs have great product ideas but no internal resources or capacity to manufacture products themselves. So they order from manufacturers and then label, market, and sell products under a private label.
In the next 5 years, this model can meet growing demands because the private label products are developed, branded, and sold by one company, separating them from competitors. Another, it typically enjoys very high profit margins.
Nevertheless, it has some roadblocks and risks to consider for this model. For instance, finding the right private label manufacturers to collaborate with is a challenge. Manufacturers can’t guarantee defect-free batches as well, even when a prototype is perfect.
- White label
Like the private label model, the white-label model is similar. The retailers apply their brand names and resell generic products purchased from a supplier. This is common in the beauty and wellness industries, but more difficult to encounter in other niches.
One problem with white labeling is demand. You’re stuck with whatever you order, and most of these companies set a minimum production quantity. If you can’t sell it, you’ll have to live with it. Consider this option when you’re willing to work full time on your business and know your product is in demand.
As the name suggests, wholesaling is a business model where an eCommerce store offers products in large quantities at discount rates. Wholesaling used to be mostly a B2B business practice. But thanks to the internet, anyone can offer wholesale as a C2B or B2C practice.
The margins for wholesale are typically good compared to dropshipping, which we’ll cover later on, but not as profitable as manufacturing. Buying in this way still carries risk because you can not see the guarantee of the purchase requirement
A similar model to Dropshipping that we want to share with you is Print-on-demand. You sell custom designs on a variety of products like t-shirts, hoodies, leggings, mugs, phone cases, and canvases without paying for a product until you make the sale. When a customer orders a product with the design, a third-party printing service creates, packs, and ships the order.
This business model has a lot of benefits. Print-on-demand businesses only pay fees to third-party suppliers as orders are shipped. Another advantage, Inventory management is taken care of and orders are automated by professional third-party printing suppliers like Printify and Printful.
To earn an edge in this increasingly competitive market, you will need strong graphic design skills, excellent marketing strategies, and top-notch customer support.
- Digital products
The next business model that you should consider is Digital products. This is a nonphysical asset or media type that can be sold and distributed online, repeatedly, without restocking inventory. These products often come in the form of downloadable, streamable, or transferrable digital files, such as MP3s, PDFs, NFTs, videos, plug-ins, and templates.
The upfront costs of creating a digital product can be high, but the variable costs of selling them are comparatively low. Once an asset is made, it’s incredibly cheap to deliver to customers.
- Direct to consumer
Direct-to-consumer is a new business model that might fit your business that we want to notice in this article. This business model means you sell products directly to consumers, without wholesale, middlemen, or third-party retailers like Amazon.
By interacting with your customers directly, you retain control of your products and their performance. While it may take time and money to establish reliable distribution channels, selling direct is a smart business model for building a loyal customer base and improving profitability over time.
- Subscription service
A subscription service is a business offering to sell products or services on a set timeline, such as monthly or weekly. Subscription models help businesses capitalize on ongoing customer relationships. If they continue to see the value in your offer, they’ll continue to pay your fee.
However, there are some drawbacks to this eCommerce revenue type. It can be difficult to pick a prosperous ideal position. Your choices can be quite narrow since most subscription-based eCommerce businesses are from the beauty and fashion industries.
Now, you know what eCommerce business, product options, platforms, and business classifications exist, you’re ready to get started. However, the model you end up selling under will partially define and shape your entire business plan going forward. Planning is important, but innovation doesn’t happen in a vacuum. Choosing the right eCommerce business model will give you a distinct advantage over your competitors.