Business Models in eCommerce: What You Should Know as a Beginner.

Business Models In eCommerce

Since the onset of the digital era, eCommerce has taken the world by storm and transformed how people do business. According to World eCommerce Forecast, global retail eCommerce sales hit 5.7 Trillion in 2022, making 19.7% of all purchases. This figure is expected to rise to 21.9% of all purchases by 2024.

These figures show that eCommerce is snowballing, and more people are embracing online selling and buying.

If you’re an aspiring online entrepreneur, there are different business models in eCommerce you can adopt to start a successful online business. eCommerce business models are models that allow businesses and consumers to sell and buy goods online, respectively.

In this blog post, we explain the various models of eCommerce so you can choose the best fit for your business.

 

Key Highlights

  • eCommerce business models are classified into six main categories: Business-to-Business (B2B), Business-to-Consumer (B2C), Consumer-to-Consumer (C2C), Consumer-to-Business (C2B), Business-to-Government (B2G), and Business-to-Business-to-Consumer B2B2C.
  • Some of the best eCommerce platforms for beginners include: Shopify, Wix, WooCommerce, BigCommerce, and Adobe Commerce.
  • To find a suitable eCommerce model for your business, define your products and target audience, evaluate your options, and find your competitive edge
  • The six main business models for eCommerce include White Label, Private Label, Dropshipping, Subscription Service, Affiliate Sales, and Wholesaling and Warehousing
  • Every online business should implement inventory management strategies to facilitate smooth operations and order fulfillment.
  • eCommerce promotion strategies include social media, content marketing, email campaigns, influencer marketing, and SEO optimization.

 

Is eCommerce a Viable Business Strategy?

eCommerce has become a prevalent business strategy in recent years. But is it a viable option for your business? Despite statistics showing how profitable eCommerce can be, it has its fair share of disadvantages.

Let’s start by looking at the benefits and drawbacks of eCommerce as a business strategy:

Benefits of eCommerce

  • Allows you to reach a larger audience than traditional brick-and-mortar stores. This offers the potential for increased revenue.
  • You can start with less capital investment since you don’t need to worry about renting or building a physical store or employing workers.
  • There are many online tools available for setting up an online shop, making it relatively easy and inexpensive.
  • Online business is highly convenient since customers can shop anywhere, anytime.
  • eCommerce gives businesses access to powerful analytics tools to track customer behavior and preferences to target their marketing efforts.

Drawbacks of eCommerce

  • Customers may be hesitant to purchase from a new store if they are unsure about product quality.
  • Online businesses are affected by downtime or any technical issues on digital platforms.
  • Lack of personal interaction with customers – building customer relationships may be more challenging.
  • There’s the risk of cybercrime, like credit card fraud and data breaches, which could lead to significant losses.
  • Requires some technical knowledge for regular maintenance to keep it running smoothly.

Examples of successful online businesses include Amazon, Alibaba Group Holding Ltd, Shopify, eBay Inc, Intercom, and Walmart.

 

What Are the Best eCommerce Platforms for Beginners?

Final: Business models in ecommerce

If you’re new to eCommerce and wondering how to launch your online store, there are various eCommerce platforms on which you can build and manage your store.

Some of the most popular eCommerce platforms include:

  • Wix
  • Shopify
  • BigCommerce
  • WooCommerce
  • Adobe Commerce

The table below shows the features and prices of each platform.

PlatformKey FeaturesPrices
Shopify
  • Easy-to-use interface
  • Powerful analytical features
  • Several customizable templates
  • Create product collections
  • Supports popular payment processors (e.g., PayPal and Stripe)
From $24/month (billed yearly)
BigCommerce
  • Easy to list products and accept payment
  • Manages large product catalogs
  • Automated marketing campaign tools
  • Supports abandoned cart recovery and coupon management tools
  • 24/7 customer support
From $29.95/month
Wix Website Builder
  • Drag-and-drop store builder
  • Quick and simple to set up
  • Several integrated payment options (e.g., PayPal, Apple Pay, and Google Pay)
  • Several customizable templates
  • Available customer support
From $25/month
Woocommerce
  • Free and open source
  • Easily create product pages
  • Track sales activities in real-time
  • Integrated with email marketing tools, accounting tools, and shipping carriers
  • Allow you to add features like Checkout forms and product review systems.
Free
Adobe Commerce
  • Advanced AI-powered analytics tools
  • Manage complex product catalogs
  • Has a predictive insights engine
  • Supports integration with popular tools like the Salesforce CRM.
 Based on customer’s needs

 

E-commerce Business Classifications

eCommerce business models are classified into six main categories: B2B, B2C, C2C, C2B, B2G, and B2B2C.

  1. Business-to-Business (B2B) E-commerce: Involves two or more businesses buying and selling products or services with each other online. For instance, wholesalers sell products in bulk directly to retailers.
    B2B businesses are highly profitable due to economies of scale. However, they can involve complex contracts, payment terms, and delivery requirements.
  2. Business-to-Consumer (B2C) E-commerce: Involves companies selling products or services directly to consumers online. For instance, On Amazon, where customers can purchase various products at competitive prices.
    Thanks to its convenience and accessibility, B2C e-commerce has become increasingly popular.
  3. Consumer-to-Consumer (C2C) E-commerce: Where individuals buy and sell goods or services directly over the internet. eBay is one of the most popular examples, where users can buy various secondhand items from other consumers worldwide.
    With its low barriers to entry, C2C has become an attractive option for entrepreneurs looking for an easy way into online retailing.
  4. Consumer-to-Business (C2B) E-commerce: Consumers provide goods or services through online platforms or marketplaces directly to companies.
    Examples of C2B platforms are freelance websites like Upwork and Fiverr. Freelancers directly offer their services—such as web design or content writing—to businesses that need them.
  5. Business-to-Government (B2G): Involves businesses selling products and services directly to government agencies online.
    For instance, the US General Services Administration’s GSA Advantage program allows the federal government to purchase commercial items from approved vendors online. These platforms make it easier for private companies to do business with the government efficiently.
  6. Business-to-Business-to-Consumer (B2B2C) eCommerce: In this model, businesses sell products or services to businesses and consumers online through a single platform.
    For instance, a company can use a platform to sell its products to other businesses at wholesale prices while also allowing consumers on that site to buy those products at retail prices.

 

How to Find the Right Business Model and Start Making Money Online

When starting an online business, it’s essential to choose a suitable right eCommerce business model. With so many options available today, it can be overwhelming to figure out which works best for your needs and goals.

Here is a step-by-step guide to help you choose the right eCommerce model that fits your business.

Step 1: Determine your products and services

The first step is to determine the type of products or services you want to sell online.

Do you want to sell physical products like clothing or electronics? Or do you want to provide online services like web design or copywriting?

Some online business models work better with physical products than digital products, and vice versa, that’s why this step is necessary.

Step 2: Define your target audience

Once you know the products and services you want to sell, define who your ideal buyers are. Know the type of people you’ll sell your products to and their needs and preferences. Will you sell to other businesses (e.g., wholesalers and retailers), direct consumers, or the government?

Knowing your target audience will help you choose the model that suits them most to your advantage.

Step 3: Evaluate your options

Next is to evaluate the eCommerce model options for your particular products and services. Research and understand the advantages and disadvantages of every model before deciding which one is best for your business. It should also align with your target audience’s purchase intent.

Evaluate how every model will generate income by looking at their:

  • Pricing strategies
  • Advertising methods
  • Product offering
  • Shipping costs

Step 4: Know your competitive advantage

The online space is quite competitive. Chances are that there are already several online businesses using whichever model you’ll choose.

What will set your business apart from the competition? Maybe your friendly prices, affordable shipping cost, quality, excellent service, or variety will make customers choose you over other businesses.

It’s essential to define your competitive advantage before deciding on the right model for your online business. Otherwise, you’ll just be another small fish in the large ocean trying to survive!

 

Business Models in eCommerce: An Overview

There are several business models in the eCommerce space when starting an online venture.

As mentioned, the model you choose should largely depend on the type of products or services you sell, your target audience, your budget, and your competitive advantage.

The six main business models for eCommerce include:

  1. White Label
  2. Private Label
  3. Dropshipping
  4. Subscription Service
  5. Affiliate Sales
  6. Wholesaling and Warehousing

1. White Label

Final: Business models in ecommerce

The white label model is where a company manufactures products for other businesses to rebrand and resell as their own.

The manufacturer sells the product without a brand label so that the buying company will label it with its brand.

This is a great business model if you want to outsource certain aspects of your business, like marketing and product distribution—you manufacture products and give them to other people to sell.

Pros of White Label

  • Saves the buyer time spent on product development
  • Reduced cost of production
  • Improved customer access to products
  • Easy to expand product portfolio

Cons of White Label

  • Can be expensive depending on the manufacturing partner
  • You don’t have control over production process
  • There’s the risk of inconsistent product quality
  • High competition

Example: The Dollar Shave Club sources white label razor blades that are available for any retailer, labels them with their brand and sells them as their own. In 2016, they sold razor blades worth $240 million.

2. Private Label

Final: Business models in ecommerce

Like in the white label model, private label involves buying products from a manufacturer and reselling them as your brand.

The key difference here is that with private labels, you do have some control over design, packaging, and branding. Private label products are typically customized according to the customer’s specific requirements, such as material quality and design specifications.

Private label models can be a great way to build trust with customers since they will recognize your brand when they buy a product.

Pros of Private Label

  • Comes with more control over branding
  • Product branding is customizable
  • Customers can recognize your brand
  • Allow companies to maximize their profits by focusing on marketing
  • Saves on time and production cost

Cons of Private Label

  • May need additional customization costs
  • You have no control over product quality
  • You don’t own the product formula
  • You have no control over pricing

Example: Happy Belly is a private label brand that rebrands and sells packed foods like dairy products, smoothies, and nuts, which they don’t originally manufacture.

3. Dropshipping

Final: Business models in ecommerce

Dropshipping model of eCommerce involves partnering with other companies and handling warehousing and shipping activities on their behalf.

The product owner simply lists the products on your website, and when a customer places an order, you, as the dropshipping partner, fulfill the order for the customer.

This can be the best model if you want to start an online store without purchasing any inventory (e.g., raw materials and packaging materials).

Pros of Dropshipping

  • No production or branding costs incurred
  • No upfront investment on inventory
  • Low entry barriers
  • Low-risk since you don’t own the products
  • Easy to scale up

Cons of Dropshipping

  • Requires constant communication with the supplier about stock levels
  • May result is long shipping times
  • Possible quality control issues
  • The shipping company bears damage costs

Example: AliExpress is an international dropshipping company that’s based in China and fulfills orders to 254 countries around the world. They ship over 100 million products in various categories like fashion, electronics, furniture, skincare, and even motorcycles.

4. Subscription Service

Final: Business models in ecommerce

This is an eCommerce business model where you charge customers a regular fee in exchange for access to certain exclusive content or products. Such products could be eBooks, online courses, newsletters, design work, consulting, audio, and video content.

Customer subscriptions could be monthly, bimonthly, quarterly, or annual.

Most audio and video streaming platforms use the subscription model, which offers a monthly income stream with minimal overhead costs.

Pros of Subscription Service

  • Can be a great source of recurring revenue
  • Highly profitable once you build customer loyalty
  • Revenue can be predictable
  • You can build a community around your brand
  • Low churn rates

Cons of Subscription Service

  • Customers may unsubscribe if they don’t find value during their subscription period
  • Requires a lot of effort to keep customers engaged
  • Require an initial investment to create content and set up payment systems

Example: Netflix offers a platform for customers to live-stream movies and TV shows in exchange for monthly subscription fees.

5. Affiliate Sales

Final: Business models in ecommerce

Affiliate sales involve promoting other companies’ products on your website in exchange for a commission when customers buy through links on your site.

This model also allows you to leverage your existing customer bases without having to develop or manage any inventory.

Affiliate sales can be a great way for entrepreneurs to generate passive income without investing too much time or effort into marketing.

Pros of Affiliate Sales

  • Stable source of passive income
  • Minimal initial capital required
  • It’s a low-cost business model
  • No special marketing expertise required to sell products
  • Flexible and convenient

Cons of Affiliate Sales

  • You have no full control over your business
  • Requires a lot of marketing to earn a good profit margin
  • You can set up affiliate relationships with multiple brands/companies
  • There’s high and uncontrolled competition
  • Takes time to establish loyal customers

Example: Amazon Associates is the largest and most popular affiliate marketing program with millions of products and services being sold. Close to a million bloggers, publishers, and content creators market these products through special affiliate links and earn a good commission out of them.

6. Wholesaling and Warehousing

Final: Business models in ecommerce

Finally, wholesaling and warehousing is an eCommerce business model that involves buying large quantities of products from a manufacturer at discounted prices, then reselling them at retail prices through your website.

Warehousing involves storing goods until they are ready for sale—this could mean either storing goods at home (if space permits) or renting storage space from outside sources such as warehouses.

Unlike dropshipping, this model requires an upfront investment in inventory. However, it can provide higher margins than dropshipping if done correctly.

Pros of Wholesaling and Warehousing

  • Has greater potential profits than other eCommerce business models
  • You have control over sales
  • You spend little on marketing– retailers sell products for you
  • Easy to grow revenue faster and more conveniently.

Cons of Wholesaling and Warehousing

  • Requires more initial capital to start
  • Requires more logistical considerations like storage capacity and return policies
  • Requires more time and resources to manage inventory

Example: General Mills is a manufacturer and wholesaler of various food products including cereals. They sell the products in large quantities to retailers, who sell them in smaller quantities to the final consumers.

 

Can I Start an Online Business Without a Budget?

While starting an online business can be a great way to generate income, the initial cost can sometimes be overwhelming.

What do you do if you have no money set apart for it? You can still start an online business with little to no budget. Here are some tips on how to do so effectively:

1. Create your own website

Many entrepreneurs assume they need to hire someone to build their website, but this isn’t always necessary.

There are plenty of free tools, like WordPress, that allow you to create a free website quickly and easily without coding knowledge.

All you need to do is find the right web hosting provider and an appropriate website builder, and you’re good to go.

2. Focus on free or low-cost marketing strategies

Once your website is up and running, you’ll need to start marketing your business, so people will know it exists. Fortunately, plenty of low-cost marketing strategies are available for online businesses with little budget.

They include:

  • Content marketing
  • Email marketing
  • Social media marketing
  • SEO optimization

Marketing tools like Facebook Ads and Mailchimp, which cost less than $20 per month, can also help you market your business without breaking the bank.

3. Utilize your network

Leveraging your existing network to market your business further. Reach out to colleagues, friends, classmates, and mentors to help spread the word about your business, both online and offline.

They can also help you find resources available for free or at a discounted rate to help get your business off the ground.

4. Develop partnerships

Consider partnering with other related businesses (but not competing) with yours.

This will help you expand your reach without spending too much on advertising or marketing campaigns. You can also share resources and costs associated with running an online venture.

5. Focus on content creation

Content creation is one of the most critical elements of a successful online business.

By creating valuable content related to your niche, you can showcase your expertise while driving traffic to your website or blog. This increases visibility and engagement with potential customers and covers your marketing costs.

 

Inventory Management Techniques Every Online Business Needs to Know

Final: Business models in ecommerce

For any online business to run smoothly, inventory management must be an essential part of it.

Inventory management helps you keep track of your stock and help you meet sudden changes in demand without compromising customer experience. It also ensures timely and accurate fulfillment of orders, improved efficiency, and saves you time and money in the long run.

Here are some essential inventory management techniques every online business needs to know:

  • Automate your inventory management system

Every online business should take advantage of automation tools like automated data entry software to streamline inventory management.

Automating certain aspects of the process can save a lot of time and resources spent on daily inventory management. Also, when the system is automated, multiple people within an organization can access the same data, which enhances collaboration and teamwork.

  • Order fulfillment automation

Order fulfillment is another critical aspect of inventory management. As an online business owner, it’s beneficial to have an automated system in place that ensures orders are shipped on time and accurately every time.

This will help to eliminate human error, reduce costs associated with manual oversight, and give you more time to focus on customer service.

  • Inventory tracking software

An inventory tracking software is also essential for any online business. These tools give you a real-time view of what’s in stock and what’s out of stock, what’s coming in and what’s going out.

They also enable you to identify gaps in inventory before they evolve into bigger problems. Additionally, if you have an inventory tracking system, you can save some time and resources by automating processes like reordering when stocks run low.

There are several software solutions that can help you track your inventory effectively, so ensure you have one in place when you start your online business.

  • Forecasting demand

As an eCommerce owner, you should also know how to forecast demand. Knowing when demand will spike or fall is critical for maintaining healthy inventories.

This will help you plan ahead and adequately prepare for peak-demand seasons by stocking up in advance. You can also cut back stock during slower seasons or times of year when there’s less demand for certain products.

Additionally, forecasting demand can enable you to change stock levels based on predictive customer behavior. There are many online tools available that can help with predictive analytics and trend analysis.

 

E-commerce Promotion Options

Final: Business models in ecommerce

Like any other business, a successful eCommerce business requires the right mix of promotion strategies to reach its target audience and increase sales.

Let’s look at some of the best eCommerce promotion strategies that can help you achieve success.

1. Social media

The easiest way to promote your online business is through social media. You can use platforms like Facebook, Twitter, and Instagram to create valuable content and engage with your target customers. You can also get customer feedback through these platforms to help improve your business.

Make sure to post regularly and focus on providing useful information that people are interested in.

2. Content marketing

Content marketing is also essential in promoting your eCommerce business. Once you build your website, you can add useful content like blog posts, videos, and infographics. Content helps to build trust with potential customers and establish you as an expert in your field.

3. Email marketing

Email marketing campaigns allow you to build relationships with your customers and keep them updated on the latest news from your business.

You can also send out newsletters about special offers, discounts, or product updates or give away freebies for subscribing.

4. Influencer marketing

Influencers are people who have built up large followings on social media platforms through their influence in a particular niche or industry.

As a business owner, you can offer them discount codes or exclusive access to products in exchange for sharing content about your store with their followers.

5. SEO Optimization

Finally, SEO optimization is another valuable tool for promoting your store. This involves optimizing your website content so that it ranks higher on search engine results pages (SERPs).

Some good SEO practices include:

  • Using keywords in your content
  • Optimizing page titles and meta descriptions
  • Creating quality backlinks from other websites
  • Improving page loading speed

These efforts will help ensure that more people find your site when they search for relevant terms related to what you offer.

 

Conclusion

eCommerce is one of the most viable business models in this digital era. Whether you run a B2B, B2C, C2B, C2C, B2G, or B2B2C business, there’s a model that can work best for you and help you yield maximum returns.

All you need to do before starting is to define your products and your target audience, evaluate your options and find your competitive edge. You may decide to go with White Label, Private Label, Dropshipping, Subscription Service, Affiliate Sales, or Wholesaling and Warehousing, depending on your specific goals and objectives.

If you’re ready to start making money online, choose the right business model and start your own eCommerce business today!

Next Steps: What now?

Now that you’ve understood various eCommerce business models, are you ready to start your online business? If so, here are some practical steps to take from this guide:

Further Reading – Useful Resources

Here are some useful resources you can read to learn more about eCommerce and making money online:

  1. What is e-commerce? An Introductory Guide
  2. How to Make Money from Your WordPress Website
  3. Best Ecommerce WordPress Themes in 2022
  4. The Challenges of eCommerce and How to Overcome Them
  5. 6 Types of eCommerce Business Models
  6. E-Commerce Business Models and How to Take Your Business Online
  7. 10+ Best E-Commerce Platforms for Your Business
  8. How To Make A Profitable Affiliate Marketing Website

Frequently Asked Questions

Which business model is best for eCommerce?

The best model for your e-commerce business will depend on your goals and objectives. If you want to maximize profits while minimizing risk, a subscription-based model would be the best for you. However, you may want to use an affiliate marketing model if you want to monetize your website by promoting other people’s products in exchange for a commission.

What are the five revenue models used by eCommerce firms?

The five common eCommerce revenue models are advertising (selling ad space on your website), subscription fees, transaction fees, affiliate marketing, and lead generation.

What are the critical elements of eCommerce business models?

E-commerce business models include elements like pricing strategies, customer acquisition strategies, customer retention strategies, payment methods, processing systems, fulfillment systems, customer service systems, marketing strategies, and analytics tools.

What are the top three eCommerce strategies that are most effective?

The top three most effective e-commerce strategies are personalization (tailoring product offerings based on consumer preferences), omnichannel marketing (using multiple channels to reach more potential customers), and data-driven decision-making (utilizing real-time data insights to make informed business decisions.

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