April 13, 2023

Ecommerce Business Models: What Are They And Which Is Best For You? 

Explore the various ecommerce business models and discover which one is best suited for your needs. From dropshipping to subscription services, we'll guide you through the pros and cons of each model to help you make an informed decision for your online business. Read on to learn more.
Ecommerce Business Models: What Are They And Which Is Best For You? 
Ecommerce Business Models: What Are They And Which Is Best For You? 

Ecommerce Business Models: What Are They And Which Is Best For You? 

Over the past few years, ecommerce has risen fiercely with many businesses selling ecommerce products online. 

Today, there are over 12 million ecommerce sites all over the globe. It is also expected that ecommerce sales are to make up 20.8% of retail sales globally in 2023. 

With massive growth in the ecommerce space, one of the most impotent decisions you will need to make apart from the type of product you want to sell is the type of business model to pursue. 

There are different ecommerce business models you can choose from. 

In this article, we will go through various e-business models and how you can choose which one is right for your business.

What is an ecommerce business model? 

An ecommerce business model is a framework that allows a company to provide value to customers while operating profitably. 

Business models are essential for business growth - both new and established businesses. Ecommerce business models help to keep employees motivated, attract investors, and understand customers.  

As an ecommerce business owner, it is important to update your business model to keep up with the latest business trends. 

Different types of ecommerce business models 

Here are five major types of business models for ecommerce: 

  1. Business to Consumer (B2C)
  2. Business to Business (B2B)
  3. Business to Business to Consumer (B2B2C)
  4. Consumer to Consumer (C2C)
  5. Consumer to Business (C2B)

Business to Consumer (B2C)

B2C ecommerce also known as Business to Consumer is a type of model where businesses market their products directly to the end users. 

In ecommerce, this is the most widely used ecommerce business model, and for good reasons. 

This business model is a short and straightforward process. When you buy clothing from an ecommerce store or pay for a meal at a fast food restaurant, it is done as a B2C transaction. 

As an ecommerce business owner, to successfully implement this model, you need to ensure your ecommerce platform provides a seamless shopping experience for the end user. The platform should also be able to adapt quickly to the ever-changing customer needs without any hitches. 

You can also implement the B2C ecommerce business model for both products and services. 

Business to Business (B2B)

When a company sells its products or services directly to other businesses, it is called the B2B ecommerce model. 

B2B business models can operate in two forms: the vertical approach or the horizontal approach. 

The vertical B2B approach involves companies selling to other businesses within a specific industry. 

On the other hand, the horizontal B2B approach involves companies selling to businesses in various industries.

The B2B business model has a longer and more complex process. However, if gotten right, this business model could lead to a high-order value and repeat purchases. 

Business to Business to Consumer (B2B2C)

The B2B2C business model is a mixture of the B2B and B2C ecommerce models. With B2B2C, businesses sell products to other businesses which are then sold to consumers. In this case, the consumer understands that the product or service is from the source company. 

In the ecommerce world, the B2B2C ecommerce model could involve a company partnering with another company to sell its product for a commission. 

Consumer to Consumer (C2C)

With the rise of ecommerce, the Consumer to Consumer (C2C) business model has become common with companies like Craigslist and eBay leading the way.

With this ecommerce business model, consumers sell products to other consumers on a marketplace or third-party website. 

On these sites, sellers can sell at their own price. However, these sites charge a fee for each transaction. 

Consumer to Business (C2B)

With the C2B ecommerce business model, consumers can sell their products or services to businesses. This type of model is common on sites that allow people (e.g freelancers), to render certain services based on their skills. One of the most popular companies operating the C2B model is Upwork

On Upwork, companies can request the services of a freelancer and pay them for their services.  

With the C2B ecommerce model, individuals can set their own prices and companies can access a pool of talent. 

Value delivery methods for your ecommerce business 

While the ecommerce business model serves as the outer framework, the delivery method is the inner framework that works to deliver value to the customer. If a business model is a vehicle, the delivery method is the power engine. 

Let's look at four of the most popular delivery methods for ecommerce businesses: 

  1. Dropshipping

Dropshipping is one of the most popular and fastest-growing methods of ecommerce. It involves the stocking, packaging, and shipping of a business's product by a third-party supplier. 

In other words, you sell a business's product through your ecommerce store and have it fulfilled by third-party suppliers like Alibaba and Aliexpress. 

With this model, you don't have to worry about storing products, managing inventory, or shipping. You only have to act as a middleman and focus on your interaction with customers. 

With no inventory or startup costs involved, dropshipping is one of the most affordable methods of ecommerce. 

On the other hand, dropshipping is highly competitive and also comes with low-profit margins. While third-party suppliers handle the tasks of packing and shipping your products, you don't have control of your supply chain. If there are any hitches, it can reflect poorly on your brand. 

  1. Private labeling 

With Private labeling, businesses work with suppliers or manufacturers to create a product that is then sold under their business name. With this ecommerce method, you don't have to manufacture a product or own a factory. However, you get exclusive rights to your product. You control everything about the product including the product specifications, designs, etc. 

Once the product is created, you can then ship them directly to the customer. 

The private labeling ecommerce method is great for brands who want to create or test new product ideas. 

  1. White labeling 

White labeling involves selling a product purchased from a third-party distributor under your name and logo. This is common in the cosmetics and fashion industry. With White labeling, you can reduce the cost of manufacturing your own product, take advantage of the reputation of the distributor and boost your brand visibility. 

  1. Wholesaling 

Wholesaling involves selling products to individuals or businesses in bulk. With the wholesaling ecommerce method, you will need to manage everything apart from manufacturing the product. You will be responsible for tracking orders, shipping, and managing inventory. 

Since products are sold in bulk, retailers typically sell them at a discounted price. 

  1. Subscription services 

The Subscription service method involves sending products or services to consumers consistently over a period of time. Consumers are charged a recurring fee - usually monthly or yearly to access the product or service. 

With this method, you can have predictable revenue which can help with business planning and growth. 

However, the key to succeeding with the subscription ecommerce method is to maintain good customer relationships and consistently offer value to them. If customers consistently derive value from your product or service, the longer they will use it. 

How to choose the right ecommerce business model

We've looked at some of the best business models and delivery methods. How do you choose which is best for your business? Some businesses may choose to use a specific business model while others may combine various business models. Here are a few things to consider before choosing an ecommerce business model: 

Understand your customer 

Deeply understanding who your customers are is an important first step to choosing the right ecommerce model. Understanding your customers will help you validate market demand. However, knowing your customer goes beyond knowing how large or small they are. What are their purchasing habits? What motivates them and what are their pain points? 

Understanding your customers will help you create a valuable product, save money, and also improve customer satisfaction. 

Choose your product 

After finding out who you're selling to, and identifying their pain points, you want to choose a product that meets their needs. When choosing a product, identify what problem you are solving. This will help you pick the best product to solve that specific problem(s). Also, this will help you identify your unique value proposition. 

You can choose to sell physical products which are the most common ecommerce products, or digital goods like an eBook or design templates. 

You can also offer services on various online marketplaces or your ecommerce site. 

Choose your delivery method 

You want to choose a delivery method that offers value to your customers while bringing you profit. 

If you're selling someone's product, you may want to consider dropshipping and focus more on marketing and building your brand. On the other hand, if you're creating your own product, you may want to sell them in bulk to various businesses (wholesale) or use a subscription service. 

Final thoughts 

Understanding what business model works best for your business can be the key to making a difference in the ecommerce space. 

Once you identify the right business model for your ecommerce business, you also want to focus on creating and optimizing your marketing strategy to increase sales and grow revenue. 

You can go through all the business models mentioned above to create and innovate your ecommerce business. 

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