Ecommerce is an ever-growing industry and is fast becoming a major part of the consumer experience all over the world. This growth provides massive opportunities for ecommerce business owners. To expand your business and increase company revenue predictably, you will need to select an effective ecommerce business model.
Business models are not one size fits all. The best ecommerce model for your business is one that best serves value to your target audience, minimizes risks, and creates ways to increase revenue in business.
In this article, we will run through the best ecommerce models of 2021. Additionally, you will find out how to increase company sales by learning some useful tips to consider before choosing a business model.
To know the best ecommerce business model that suits your business, it is first important to establish what type of ecommerce business you are running. The key question here is - who are you selling to?
Let's dive into the 4 major ecommerce businesses for ecommerce transactions.
B2B ecommerce involves transactions between two businesses. For example, if you are a business that makes coffee beans, your primary customer could be coffee shops. With this structure, sales of products are typically in bulk. Examples of B2B ecommerce include Salesforce, Hootsuite, etc.
With this ecommerce business, you are selling your products to individual customers online. B2C is also one of the most common business structures in ecommerce. Examples of B2C ecommerce include Amazon, eBay, etc.
The C2B ecommerce involves consumers or customers providing goods and services to businesses. While C2B may sound counterintuitive, it is not a very traditional business model, it is fast growing in the online commerce world. Affiliate marketing, sales of stock photos, and blogging fall under this type of business structure.
While this also may sound a bit counterintuitive as a business structure, it has become popular and profitable in today's digital world. When we think of a C2C, a perfect example is eBay. Consumers sell products to other consumers and get paid. With this model, a consumer can put up a listing on a third-party platform that other consumers can bid on. For example, a consumer can put up a couch for sale and get other consumers to buy them.
With the right ecommerce business model, you can figure out how to increase company sales and increase online business revenue. Now that we have examined the 4 major categories of ecommerce businesses, we can look into five of the best ecommerce business models that have provided repeated success for many ecommerce businesses today.
Here are the five best ecommerce models of 2021:
Dropshipping is an innovative ecommerce business model that simply involves setting up an online store to sell products to customers. This type of model eliminates the need for merchants or the logistical issues that arise with keeping inventory. You don't need to buy your products in bulk or store them in a storage facility. You also don’t need to worry about shipping your products. All you need to do is set up an online store.
You can do this via platforms like Amazon or any other online marketplace. So how does the dropshipping business model work?
As we already established, you need to first set up an online store with your product listings. Next, you will need to find a supplier who will get notified when you make a sale. The supplier is paid and items are shipped directly to customers in your brand name. Of course, there are a number of complexities that you’ll need to address, such as what product(s) to sell, who to select as a supplier, and how to address other logistics such as returns, and quality issues.
If you want to start an ecommerce business and you have limited capital, dropshipping can be an effective business model. Research reveals that 30% of online retailers use dropshipping as their primary method for order fulfillment. As with any business, however, your success will depend on a number of details, some of which we’ve mentioned above. It is crucial that you carefully research this type of business before hanging out your shingle.
The wholesaling ecommerce model involves selling products in bulk to other businesses. Typically, wholesaling is a B2B ecommerce model where one business sells the bulk of goods to other businesses who in turn sell to customers downstream. These downstream customers may be individual consumers or businesses. On a B2B ecommerce platform, the wholesaler displays inventory that other businesses can buy.
The private label model involves a retailer contracting with a manufacturer (or distributor in some circumstances) in order to sell their products under the retailer’s label or brand name. As the retailer, you can work with the manufacturer to determine the specifications and packaging of the product. Keep in mind that manufacturers will typically have conditions of their own in order to allow you to sell the product under your own label. You then pay to have it produced and shipped to your store.
With this model, you don’t need to worry about the manufacturing costs. Those are built into the price at which you purchase the goods. You should, however, be very careful about who and what you choose to private label as the consumer views the product to be your brand, and issues with the product will inevitably reflect negatively on you. Many grocery stores, salons, and restaurants sell a variety of private label products.
The subscription business model has become popular in online commerce. With this model, consumers pay a periodic fee to gain access to a product or service. This could be weekly, bi-weekly, monthly, or annually. The main point to note with this business model is that your product or service must be exhaustible or in certain circumstances, subject to continuous use. It should have a lifespan that lets customers renew to keep enjoying the service. This model can work for both B2B and B2C.
Companies with this model can boast of a relatively stable, and perhaps more importantly, predictable income stream. With the right product, you can incentivize customers to renew their subscriptions and ultimately increase online business revenue.
Examples of businesses that run the subscription model include Dollar shave club, HubSpot, Netflix, etc.
This type of ecommerce business model is hinged on technology. SaaS involves creating software that is accessed through the internet by users. These programs are hosted in a cloud-based infrastructure. There are a number of characteristics that are specific to SaaS businesses, among them is that they are subscription-based, customers can access them without the need to install any additional hardware, and updates are applied to the software without any intervention from the customer. These features are part of an evolution that has occurred in delivering software to end users, which used to include installing software on individual computers or servers, and complicated models of delivering updates.
There are literally thousands of examples of SaaS companies. They include many of the applications that businesses and consumers use today. Some prominent examples with this business model include Salesforce, Slack, Shopify, Hubspot, and Microsoft 365.
With many ecommerce businesses, particularly ones that sell products, logistics is an often underestimated and many times completely overlooked factor. What happens after a customer clicks the buy button until the time they receive what they bought is a key factor to consider when making the decision to enter an industry and oftentimes the difference between thriving and crashing for businesses. One of the more seamless and reliable ways of addressing this is through a third party logistics partner, such as Fulfillment by Amazon (FBA).
The FBA program started in 2006, paving a way for online retailers to increase company sales and grow revenue with Amazon. FBA is a program where third-party sellers can automate their order fulfillment and shipping. By enrolling in this program, all your shipping (including returns), warehousing, packaging, etc. are handled by Amazon.
With FBA, you don’t need to worry about packaging, shipping, and logistics no matter the type of business model you adopt. You can have fewer responsibilities and more time to focus on other areas of your business. You can also keep track of your inventory, sales, and delivery, using the Amazon Inventory Management System.
Starting your ecommerce business is an exciting journey. Ecommerce provides massive opportunities to increase online business revenue. However, choosing the right business model is an important aspect you must figure out to ensure predictability in operation, sales, and revenue, and ultimate success.
Here are few things to consider when choosing the best ecommerce model for your business:
An effective ecommerce business model can help you serve your customers better, boost sales and increase company revenue. Our list of ecommerce models is not exhaustive. However, you can analyze your business and choose any of the ecommerce business models listed above. You can also get in touch with eplaybooks to help you identify the best business model tailor-made for your business.