Accessibility is one of the main benefits of the internet. This feature gives everyone an equal opportunity, including a chance to start an eCommerce business in a few clicks.
Setting up an eCommerce business is easy, but guiding it to success is difficult. You must understand and choose the right eCommerce business model to succeed.
This guide takes a deep dive into eCommerce business models. It highlights the available options and how to select the right one. You’ll also learn about revenue generation and why having a model is crucial for success.
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What is an eCommerce business model?
The eCommerce business model is a framework that highlights everything about your operations. It outlines the revenue generation process, target market, and the products your business will focus on.
Although the business model gives you a starting point, it is not fixed. As your business grows, you’ll need to change your business model to remain competitive. You may also need to adjust your model to align with emerging technology and market changes.
Many of the most successful eCommerce businesses often change models to drive revenue. For some companies, this means choosing a subscription model to secure recurring revenue.
5 Types of eCommerce business models
As an eCommerce startup, there are several business models you can pick from.
The model you select usually depends on the capital, sales path, and the product or service you offer. Based on these factors, these are some of the top eCommerce business models you can select:
1. Business-to-Business (B2B)
The Business-to-Business model allows you to offer services and products to other businesses. Businesses that follow this model are typically companies that handle large orders. Some examples of B2B operators include:
- Large manufacturing companies that act as suppliers to wholesalers (Samsung, Boeing)
- Software companies that allow other companies to use their service (Slack, Microsoft)
The B2B model involves a large capital investment. Nonetheless, the business benefits from repeat business and long-term supply contracts.
2. Business-to-Customer (B2C)
An eCommerce platform operating on the B2C model sells products or services to end users. Most eCommerce websites operate on a B2C model. It allows consumers to buy items without relying on wholesalers or other middlemen.
The Business-to-Consumer model helps you build a massive customer base. The only issue is the competition in this space. Massive companies like Alibaba, eBay, and Amazon are players in this space.
You don’t need a lot of capital to launch a B2C eCommerce store. This makes it a great option for individuals looking to sell niche products to a large audience.
3. Business-to-Government (B2G) or Business-to-Administration (B2A)
This business model focuses on providing services and products to various government agencies. To generate revenue, companies usually have to bid on government contracts.
If they win, they form long-term partnerships with the agency or public administration.
This is a top pick if your business focuses on specialized products or services. You don’t have to rely on regular individuals for sales. However, you’ll have to comply with regulations and deal with approval delays.
4. Consumer-to-Business (C2B)
This is a business model that depends on customers for services. Your eCommerce website will connect skilled customers with bigger businesses. Customers here are UI/UX experts, content writers, and software developers.
Upwork and Fiverr are popular platforms that operate a C2B model. These sites allow freelancers to advertise their services and set prices, but for a fee.
5. Consumer-to-Consumer (C2C)
These are eCommerce platforms that allow consumers to sell directly to other consumers. One customer can post an ad to sell items on the online marketplace. The other consumer functions as the buyer who purchases the product.
C2C marketplaces have a very low barrier to entry, which is great for individuals. However, this means there is intense competition. So, while there are lower prices for common products, profit margins are also low.
Popular C2C marketplaces available include Etsy, Facebook Marketplace, and Craigslist.
How to pick an eCommerce business model?
With so many eCommerce business models to pick from, you need to have ways to narrow down your selection. For every business, there are questions to be answered.
These answers determine which model would work best.
Here, we provide some of these important questions. Still, it doesn’t hurt to come up with other questions that you think matter to your operations:
1. Who is your target customer?
Identifying customers who need your product or service is crucial. This plays a huge role when deciding on the eCommerce business model to adopt. If your products offer instant gratification, then set up a B2C business.
For other products that may be required as parts for building another product, then a B2B model is what you need.
A B2A model will be smart for products like office furniture and IT services.
2. How much capital do you have?
The type of business you launch depends on the amount of capital you have. With a small capital, you might only have access to B2C businesses. These allow you to start with a small inventory and then expand your reach.
With limited capital, you can consider options like affiliate marketing or dropshipping. These are two options that let you sell products without tying up your capital in inventory. Nonetheless, gaining traction might be a bit difficult.
3. Do you have any skills businesses will pay for?
Nowadays, companies pay for specialized services.
This makes freelancing and remote work a great option. These services are often cheaper for the business, since they’re contract-based.
Top skills include software development, content writing, social media management, and data analytics. With any of these skills, you can visit a C2B platform to connect with potential clients.
4. What is your unique value?
This is what gives you a competitive edge over similar businesses.
Knowing this unique value can help determine the model to adopt. If your goal is to offer the lowest prices on products, the only way to achieve this is to adopt the C2C model.
How different eCommerce business models help generate revenue
Some eCommerce business models also help determine how your company generates its revenue. Remember, the model you select at this point affects your profitability, so be careful.
Some options may offer great revenue potential but thrive under well-established companies. Among the revenue generation models, here are the top options for various businesses:
1. Wholesale channels
This allows you to connect with businesses that buy products in large quantities. You set up an online ordering system that simplifies operations and reduces costs. By eliminating physical documents, you can save a lot.
For a wholesale business, you need a lot of capital. So, this revenue generation option is best suited to B2B businesses.
2. Subscriptions
Many businesses now opt for a subscription model to generate revenue, and it works. You can find this on popular platforms like Apple Music and Amazon Prime.
A subscription-based business allows customers to make recurring payments on a monthly or yearly basis. This means a steady revenue stream that you can easily monitor.
3. Private labeling
Here, you partner with a manufacturing company that handles all aspects of production. Your company still holds power. So, you still provide the product design and specifications.
While the private labeling option is great, your business cannot stand alone.
You become overly reliant on other businesses that manufacture your base product. This means that you have no power to rectify a situation if there is a problem with your manufacturer. However, you can switch to another manufacturer.
Private labeling also requires a sizable capital investment to form a partnership. This investment can be high if you’re targeting top manufacturers with a track record.
4. White labeling
This option lets your business rebrand products with your logo and name. You don’t produce the product, which helps lower manufacturing costs. It also means less time and investment in research and development, and faster market entry.
Despite the benefits of white labeling, it has several drawbacks.
These include the inability to perform quality control procedures. You also have to face legal repercussions if issues arise.
It’s commonplace for your products to be similar to those from other businesses. However, this only happens if both businesses rebrand products from the same manufacturer.
5. Dropshipping
Dropshipping allows you to sell products without holding an actual inventory. You act as the middleman, connecting buyers with the sellers who hold the inventory.
All you have to do is build your eCommerce website to show the various products. Products come from various manufacturers, and all you need to do is set a price that allows you to make a profit.
When an order is placed, a request is made to the manufacturer or the business offering the product. This is what your eCommerce website is designed to do. The manufacturer then handles everything from packing to delivery.
6. On-demand manufacturing
This is another cost-saving model. Here, you only have to make product purchases after a customer completes checkout.
On-demand manufacturing is like dropshipping, but it offers more customization options. However, you do have to deal with slower speeds and limited product selection.
Why it’s important to pick the correct model for your business
Having an eCommerce business model has many benefits for your business. Many of these keep it grounded and provide directions for the next step. Among the several benefits you’ll find, these are the most important:
1. To drive growth
When you pick a business model, it gives you a clear direction for how the eCommerce business can grow. The growth path for the B2B model is quite different from a subscription model.
This understanding makes it easier to develop growth strategies to scale your business.
2. To Control Your Costs
One thing that matters when identifying the right business model is the cost impact. Picking a business model allows you to operate an eCommerce website that you can afford. This means a lower chance of running into debt or incurring losses.
3. For Better Marketing Strategies
Not all marketing strategies work for all business models.
So, you must select the right business model to choose the best marketing strategies. With the right strategies, growing the online store is much easier.
Strategies for a younger audience aren’t the same for the older generation. To resonate with the younger audience, you may need to run social media campaigns. You can do this on platforms like TikTok and Instagram, where your target audience is most active.
4. Improved Business Management
When managing an online business, you must be able to separate your needs from the trash. Without a defined business model, you have no idea of what your eCommerce business needs to grow. Most business services and tools have specific use cases.
So, applying them in the wrong situation won’t yield the expected results.
Choosing a model helps outline the right tools or services for your business. You can shed the dead weight, which also helps cut costs while running the business.
Tools to help you build an eCommerce platform
eCommerce platforms are online applications that allow your website to run safely. These platforms are available in various forms, and these are the most common:
1. Open source options
These eCommerce platforms let you build your online business using free source code.
The source code is usually customizable. So, you can create interfaces and functions to suit your eCommerce business needs. This flexibility makes open-source platforms great for large companies and small business owners.
2. Proprietary software
These are custom-made software that are usually available for a fee.
They are closed-source, which limits flexibility and customization. However, they offer excellent security and ease of use.
Proprietary software will have built-in tools that let you build your eCommerce websites much faster. The only drawback is that the platform provider maintains full control.
3. Licensed software
This is a license to a self-hosted platform. It gives you a lot of control over security, server management, and software installation. Despite more control, customization can be difficult, and there is a high initial cost.
4. Software as a Service platforms
These are platforms that allow you to quickly deploy an eCommerce website without having to write code from scratch. To use these platforms, you have to pay a subscription fee that covers hosting, security, and access to various tools.
Understanding eCommerce laws and regulations
All businesses are subject to laws and regulations within a location, and this applies to eCommerce platforms. Some of these laws are directly tied to the business model you select, so it’s crucial you stay up to date with everything that matters.
Ignorance isn’t an excuse when dealing with the legal aspects of a business, so be sure to do your research. If you feel the process is overwhelming, consider hiring a legal expert to work out the details.
Staying compliant is crucial for every eCommerce business model. This can often directly impact the venture’s success.
Conclusion
eCommerce stores are now a core part of business, with most physical stores opting to create one. As a marketer, you must have the knowledge to pick the right business model.
A thorough assessment of your business needs and goals is necessary to select the right eCommerce model. This is necessary to ensure you make selections that align for a smooth operation in the future.
The right business model also ensures a structured growth path and increased revenue. However, the model you select must align with your business’s capital or resources. This should also provide room for growth over time.