eCommerce has reached new heights in recent years. Many technological advances added to the growth of eCommerce businesses which resulting some types of eCommerce business model in broad sense. All types of eCommerce business models are thriving under all kinds of conditions.
Selecting the right eCommerce business model for your eCommerce business is essential for keeping the store afloat and bringing in sustainable profits. However, when planning the eCommerce business, many people make the mistake of jumping straight to the fine details and forget that all this depends upon what you plan to sell and what business model you adopt for selling your inventory. If successfully executed, an eCommerce business can become a significant source of income.
If you’re someone who’s wondering how to start an eCommerce business but don’t know where to begin, congratulations, you’re on the right place!
In this article, we’ll break down each eCommerce business model, their pros and cons, the best examples and more.
What is eCommerce?
If you are the beginner, this is the first question that might arise in your mind. If you already have the answer of this question you can skip this part and move forward. For those who don’t know the answer. For them:
eCommerce is used to refer to all commercial transactions conducted electronically via the internet. If you’ve bought or sold anything online, you already been involved in eCommerce.
According to eMarketer, the growth of eCommerce predicted is huge and and will likely continue long beyond the years as per the above graph.
That means plenty of potential revenue and plenty of potential customers. Of course, there will be a great competition.
To do the best, you need to be aware of all the potential business models that are available, which suits your current situation best, and how to succeed at it.
What is e-business?
Electronic business also known as e-business refers to the use of the Web, Internet, intranets, extranets or some combination to conduct business. E-business is same to e-commerce, but it goes beyond the simple buying and selling of products and services online. E-business includes a wider range of businesses processes, such as supply chain management, electronic order processing and customer relationship management.
What is a Business Model?
A business model is a plan for how a business should operate and grow. It’s a description of how your business makes money and an explanation of how you deliver value to your customers at an appropriate cost.
The term business model came into the wide screen with the advent of the personal computer and the spreadsheet.
Spreadsheets let entrepreneurs make quick, hypothetical changes to their eCommerce business model and immediately see how the change might impact their business now and in the future.
eCommerce business models can be broken into three parts:
- Everything it takes to make something new: design, raw materials, manufacturing, labor, and so on.
- Everything it takes to sell thing: marketing, distribution, delivering a service, and processing the sale.
- What and how the customer pays: pricing strategy, payment methods, payment timing, and so on.
What do You Want to Sell?
The beauty of online business is that you can sell pretty much anything. However, it is always a good idea to start with a small range of products that remains within your range. Your online store can sell physical products (clothing or shoes), digital products (eBooks or software are a good place to start), or services such as babysitting or house hold work.
Let’s see what type of products are currently being sold online and how you can enter into the market.
This is the most commonly sold products on eCommerce stores. Physical products are those that requires packing, shipping and delivery. This products often achieve the highest sales.
Discover your passionate. eCommerce gives you the perfect opportunity for converting your passion into a viable business.
Analyze your chosen niche and find out the opportunity gaps. This covers all the aspects of the business industry that are under-served. Also try to analyze the pain points of the target customers.
Next, conduct keyword research on the product you decided to sell. This way, you can pinpoint the demand of customers for your product that will help you to plan your inventory and order placements.
There are many products that can be delivered to a customer through online. If you are a web designer or content writer or drawing artist, you can create an eCommerce store to sell digital products. Piracy and Copyrights violation is a serious challenge for such stores. Another important requirement is the FAQ and Legal sections that cover the tool of product delivery and the copyright status of your offerings.
If you have a crew of skilled carpenters, or house cleaners, or you are an expert hair stylist who offers to visit the customer’s residence, you can create a website to sell these services online. You can create a comprehensive FAQ section to increase the demand for your services. You can also create a Legal section detailing exactly what you are offering and what the customers can expect.
Types of eCommerce Business Models with Diagram
Another effective way to categorize eCommerce business and understand how they work is to understand who are the main parties in the transactions.
This can help you to decide which of these categories, or even which hybrid of more than one, is best for you.
Typically, eCommerce business can be divided into six major types, such as:
- Business-to-Business (B2B)
- Business-to-Consumer (B2C)
- Consumer-to-Consumer (C2C)
- Consumer-to-Business (C2B)
- Business-to-Administration (B2A)
- Consumer-to-Administration (C2A)
A B2B eCommerce business model focuses on providing products from one business to another. While many eCommerce businesses in this niche are service providers, you’ll find software companies, office furniture and supply companies, document hosting companies, and numerous other eCommerce business models under this category.
Examples of B2B eCommerce business model are: ExxonMobil Corporation, Chevron Corporation, Boeing, and Archer Daniel Midlands.
The advantage of this type of business model is that order sizes are usually large, and repeat orders are very common, if you maintain the quality of your products and services.
The B2C model is what most people think of when they imagine an eCommerce business. This is the deepest eCommerce market, and many of the names you’ll see here are known quantities, too. B2C sales are the traditional retail business model, where a business sells to individuals, but business is conducted online as opposed to in a physical store.
Examples of B2C businesses are Newegg.com, Overstock.com, Wish, ModCloth, Staples, Wal-Mart, Target, REI, and Gap.
B2B and B2C are fairly intuitive concepts for most of us, but the idea of C2C eCommerce business is different.
Created by the rise of the eCommerce business and growing consumer confidence in online sales, these sites allow customers to trade, buy, and sell items in exchange for a small commission paid to the site.
These model allow their users to trade, buy, sell, and rent products and services. In all transactions, the model receives a small commission. This type of business model is complex and requires careful planning to operate. Many platforms have failed, generally due to legal issues.
Examples of C2C businesses are eBay and Craigslist.
C2B is another business model most people don’t immediately think of, but that is growing in prevalence. This type of online eCommerce business is when the consumer sells goods or services to businesses, and is roughly equivalent to a sole proprietorship serving a larger business.
Business to Administration (B2A)
Business to Administration (B2A) also called B2G, for businesses whose sole clients are governments or type of public administration. Example of B2A eCommerce is Synergetics Inc. in Ft. Collins, Colorado, which provides contractors and services for government agencies.
Consumer to Administration (C2A)
Consumer to Administration (C2A) or Consumer to Government (C2G) eCommerce model helps consumers to request information or post various feedback regarding public sectors directly to the government authorities or administration.
Types Of eCommerce Business Revenue Models
Once you have chosen the eCommerce business model, the next step is the selection of the appropriate business plans or business revenue models.
Here are the most popular options available to the eCommerce ventures.
Just-in-time purchasing is a popular business revenue model or plan in which an eCommerce store put up products on the store. Whenever a customer orders an item, the store gets the item from the supplier and ships it to customer. This plan is ideal for people having low budget or no warehousing space.
The simplest form of eCommerce is drop shipping. It lets you set up a storefront and take the customers’ money. The rest job is up to your supplier. This relief you from managing inventory, warehousing stock, or dealing with packaging, but there’s a major caution.
If your sellers are slow, product quality is low than expectation, or there are problems with the order, it’s on your head. For example, Wacky Hippo using drop shipping.
Drop shipping became very popular when eCommerce drop shipping platforms like WooCommerce, Dokan, PrestaShop, and Shopify went mainstream.
Wholesaling and Warehousing
Wholesaling is a business revenue model where an eCommerce store sells products in bulk and at a lower price than the general market prices. The perfect example of this model is Alibaba, a very popular platform for small and large wholesalers that trade with the businesses all over the globe.
Many eCommerce stores have warehouses where they store products. These are then put as listings on the eCommerce sites and when a person buys them, they are shipped directly from the warehouse.
Private Labeling And Manufacturing
If you’ve got an idea for the perfect product, but don’t have the cash to build your own factory, this might be the right eCommerce business plan for you. Companies that manufacture products offsite for sale, send the plans to a contracted manufacturer who produces the product to meet customer specifications and can either ship directly to the third party consumer such as Amazon, or to the company selling the final product.
On-demand manufacturing allows you to quickly change suppliers if you face any problems with product quality. The startup costs are minimal, and if you’re interested to open your own production facilities later, this is a good way to test a new product or concept.
White-label branding is a business model in which one company produces the product, and another company re-brands and distributes it. An example of this model is of influencers that sell white-label products through their social media accounts.
The main problem with white labeling is demand. You’re stuck with whatever you order, and most of these types of companies set a minimum production quantity. If you can’t sell it, you’ll have to stock it. Consider this model when you’re willing to work full time on your business and know your product is in demand.
Outsource fulfillment is a business revenue model in which the shipping is outsourced to a third party. This model is mostly used by eCommerce stores that are too busy running the operations or too less manpower to ship the products themselves. Fulfillment by Amazon (FBA) for eCommerce sites falls under this category.
A subscription based eCommerce business model allows users to purchase and then subscribe to a service for a set of period (usually monthly or annually). Once the product subscription validity expires, the users could either terminate the contract or renew it. eCommerce stores such as Stitch Fix, Blue Apron, and Nature Box work on this subscription-based business model.
Rent and Loan Model
With better digital payment models, it is now possible to set up rent and loan business revenue models. Under this model, customers or companies can rent out physical or digital products to others for a monthly cost. In several cases, this business model also include lending money for earning interest.
Websites such as Loan Now and Lending Club work on this business model.
Freemium is a pricing business model in which some features of a product are provided to the customers for free, with the rest behind a paywall. Hootsuite uses this technique of its social media scheduling service. It provides a limited number of post scheduling for free. Customers have to pay to get the unlimited scheduling.
eCommerce Product Revenue Models
Once you’ve identified who you are selling to and where, you have to think about what products you want to sell. Some businesses sell a single white-label product, while others offer a niche-specific products. Yet another model depends on affiliate programs across a wide range of categories. Before opening your store, you have to decide the type and number of products. Depending on your niche, you may also have to evaluate production practices and regulations.
Single Product Model
Single-product eCommerce businesses model focus on a single product, in different levels, offered to businesses or consumers. For example, QSR international only make Nvivo, a software package. Although the company also offers training and supplemental materials for purchase by users but Nvivo is their only main product.
This is a good business model if you know you have a solid product with high demand and limited competition. Otherwise, think and start carefully.
When you want to take the flavor of an eCommerce niche, a single category site can be a smart choice. By offering a small selection of carefully chosen niche products, you can build your reputation and credibility without spending too much time and money. Several retailers started their business with this model, and many continue to use it today.
Keep in mind that you can always make subcategories of your main category. For example, if you open a bookstore, your main category is books. But what types of books? Textbooks, Novels or History? Defining single category in eCommerce business is challenging when you really start to think about it. The key to success with a single category site is to focus on a specific customer avatar and their interests, then pull a subset of those interests that seems most likely you will get a profit.
This is a smart business model for new business owners, and requires minimal effort and investment to manage. The main drawback is that you’re only likely to catch the interest of a very small portion of eCommerce customers.
Multiple category eCommerce sites are a good choice to establish brick and mortar stores. Retailers who have tried a single category site successfully and are ready to expand their business might be ready for multiple category sites, too.
Product selection is one of the most difficult parts of managing this type of eCommerce site. One bad product can spoil your reputation, and if you are sourcing from multiple suppliers, the larger your store is, the more difficult logistics support become. Examples of multiple category eCommerce sites are Target, Cultures for Health, and REI.
Amazon.com, DoTerra Essential Oils, and dozens of other giant companies are boosting their sales with the help of affiliates. Often through blogs and dedicated eCommerce stores. Affiliate sales benefit the original seller by providing additional visibility and the affiliate by providing an opportunity to legalize product reviews, a personal blog, or other site.
Most affiliate sites aren’t big money makers, but they can provide an additional income source for sites that mainly rely on other income source. If you’re interested in affiliate sales, JVZoo is a good place to connect with vendors and other affiliates.
Hybrid [Single Category + Affiliate Sales]
For businesses that have outgrown the income source or the product enclose of a single category store, hybrid product revenue model is the best for them. You can test related product categories in your niche, risk-free, to check what your customers like. This gives you the advantage of an additional product category without requiring you to commit to marketing and managing additional products.
There are many ways to make this type of business model of eCommerce stores work, from listing affiliate links on your store’s blog to using widgets that allow affiliate products to look like the products sold on your eCommerce site, with a seamless checkout process that won’t damage the buyer’s journey.
eCommerce Product Promotion Options
Once you have the business model and the revenue plan, the next step is choosing the right product promotion options.
Here are the popular product promotion options.
Affiliate marketing is when you promote a product by another supplier on your website or blog. Top eCommerce websites provide affiliate programs where content writer can sign up to become an affiliate.
Pay Per Click (PPC)
Pay Per Click (PPC) is a popular eCommerce business model in which the advertisers will pay for each click that leads to their products page. The business model is offered by affiliate marketing programs.
Pay Per Sale (PPS)
Similar to the PPC promotion option, Pay Per Sale (PPS) lets publishers or promoters earn commission whenever they sale a product for the advertiser. This business model is practiced by affiliate marketers.
Pay per Lead (PPL)
Pay per Lead (PPL) works in the same way as affiliate marketing, PPC and PPS. The only difference is that in a PPL promotion plan, promoters receive commission for the leads. Some examples of lead generation programs are Facebook Ads, Google Adwords, and Maxbounty.
Pay Per Action (PPA)
Pay Per Action (PPA) is a generic term in product marketing. The business model applies to all types of affiliate marketing tactics in which any type of action is expected of the customers. Usually, clicks, sales and leads all are considered valid outcomes for PPA programs. Most affiliate marketing programs use these actions as the performance measurement unit for their campaigns. Maxbounty uses PPA or (CPA Marketing) promotion plans for all types of lead generation methods.
Pay Per View (PPV)
Pay Per View (PPV) options is used for video marketing. Youtube, Dailymotion, and Facebook videos use this method as a unit of measurement for paying to their content producers. A ‘view’ is usually ten seconds long because after this duration Google shows an ad.
Pay Per Mile (PPM)
Pay Per Mile (PPM) is a measurement unit used for display advertisements. Google Ads use it for paying the users for every 1000 views. Every 1000 views are considered as a ‘mile’ in the marketing terminology. Per miles marketing rates varies from country to country. In the USA, the PPM cost would be higher than in any other countries.
Native advertisements is a recent addition to eCommerce online marketing. It came to light when Buzzfeed started adding promotional content in regular articles. Native advertising costs vary according to various factors such as the content websites rankings. While going this plan, make sure what is the regulation of Federal Trade Commission (FTC).
Sponsored posts is a promoting option in which one brand buys an article of a third-party website. In sponsored posts, the terms ‘Sponsored,’ ‘Paid,’ or ‘Promoted’ is mentioned at the top, so readers know that this is not a regular post of the website.
Which eCommerce Business Model Fits Your Idea Best?
Now, you know what types of eCommerce businesses, product options, and business classifications exist, you’re ready to get started. The right thing to do is to analyze your eCommerce business model and then pick the right model.