So you have this brilliant idea but you are yet to determine what type of eCommerce business model will best deliver value to your customers. The eCommerce industry has garnered attention over the past few decades. What was once a niche market has now evolved into a trillion-dollar industry estimated at a massive $25.052 trillion in 2021.
Let's not forget that consumer behavior has also changed significantly. People now prefer to shop online as opposed to visiting a brick-and-mortar store. Many consider online shopping to be quick, convenient, and relatively safe.
Building an eCommerce business model that appeals to modern consumers is fundamental to success. However, this can be tricky especially if you are new to the eCommerce industry.
But not to worry, with this article, you will get a step-by-step guide that will help you turn your business idea into a profit-making business.
With this guide, you will be able to identify the various types of eCommerce business models, the various eCommerce model options that deliver value to your customers, and most importantly generate income for your business.
To build the right eCommerce business model you will need to answer the following questions as a checklist:
A brilliant business idea is only the first step to building a successful eCommerce business. Understanding clearly what problems you intend to solve in the market will help you fine-tune your ideas and create a product or a service that adds value to your customers. Carry out market research and pay attention to gaps in the market that you can take advantage of. Will you be solving a problem of inefficiency or inconvenience? Define and redefine the problems your product or service intends to solve.
Tip: Try to outline the problems you intend to solve simply. We suggest outlining the problem in about three clear sentences.
The next step is to answer the question - who are you selling to and what type of e-commerce business will you build?
Here are a few types of eCommerce businesses:
Next, we will explain the various models of eCommerce to help you choose who your target market will be.
With the B2B eCommerce business model, you are selling your products or services to other businesses. Typically the B2B eCommerce involves selling products in bulk. The types of companies that employ this model include wholesalers, manufacturers, distributors, and B2B2C intermediaries.
One of the advantages of this model is bulk orders which can translate into higher revenues. Though you tend to sell at a lower per-unit price, the bulk orders can easily make up the difference. You also tend to have a higher percentage of recurring customers, giving your business some level of stability.
At the same time, this business model might be a bit complex to manage, especially since you tend to deal with a more sophisticated or business-savvy customer base. Additionally, it can be challenging to differentiate yourself amidst the high competition of wholesalers and retailers.
If you are considering a B2B model in eCommerce, you might want to ask yourself: What are the pain points addressed by your product? Do you have a customer base that would support bulk purchases, and if not, how would your initial acquisition model look? What is your sales process? Also, how do you intend to differentiate your business? What are your marketing goals and how will you achieve them?
With the B2C eCommerce model, you sell your products or services to end consumers. This is one of the most traditional types of eCommerce business models. This model can be less complex and serves a wide range of audiences. However, the competition is fierce and customer expectations are high. Online buyers have increasingly high expectations, especially when it comes to quality, customization, convenience, and delivery. This not only adds to complexities but also increases competition as businesses continuously are trying to innovate to deliver more value in all of these areas.
But with the right online marketing strategies, you can carve a niche for yourself and increase online business revenue.
The C2B eCommerce business model involves consumers/individuals selling to businesses. Popular C2B eCommerce examples include freelance sites like Upwork and Fiverr. On these sites, businesses reach out to individuals with specific skills to take up certain projects. The C2B model gives power to consumers, allowing them to determine prices for their product or service.
The C2C business model typically involves eCommerce transactions from consumer to consumer. Most times consumers rely on third-party platforms like eBay to sell their products to other consumers. With this model, you have the advantage of low cost, direct contact with your customers, and a wide audience. The only major downside to this model is that you depend on third-party platforms which may demand unfavorable fees that could affect your profit margin.
After choosing who you will be selling to, you will want to answer the questions about what you are selling. There are three major categories of eCommerce products:
While there are products out there that may not squarely fit into these categories, these categories cover the vast majority of products.
Will you be selling digital products? These products include everything from software to online courses, ebooks, and multimedia content. Digital products have become popular in today's fast-paced world, where most individuals are equipped with modern cellphones and a desire to have everything at their fingertips 24/7. This model eliminates the challenge of storing and shipping inventory. These products are also easily accessible by customers and can be sold multiple times and can easily be made subscription-based, yielding access to higher revenues and profit margins.
This is the most common type of eCommerce product. These include tangible items that consumers or businesses can shop and then have delivered. While the internet age has significantly removed various barriers to entry, bringing more small operators into the fold, it also has introduced intense competition.
Additionally, a commonly overlooked issue with selling physical products is logistics, which include things like keeping inventory, packaging and shipping orders, as well as product returns, etc. Not accounting for logistics can easily be the difference between success and failure when it comes to selling products online.
Many eCommerce businesses sell their services to consumers or businesses. Some of these services go from content creation to animation and web design. They may also include professional services. Selling your services can increase brand awareness and build trust and credibility. You want to make sure you choose the right niche or target audience that requires your services. You may also use freelance platforms like Upwork to sell your services.
Now that we've answered the question of who we are selling to and what we are selling, let's take a look at the how. How do you intend to create and deliver value to your customers consistently? In other words, how do you fill up your inventory?
Wholesaling involves purchasing products from a manufacturer in bulk and selling them to businesses at a higher price. Typically, you will want to purchase products from well-established brands that consumers are familiar with. This way you can significantly increase the chances of acquiring customers and selling your products.
Wholesaling is capital intensive and also presents logistical challenges in managing, tracking and shipping inventory, among other things.
Dropshipping is a common ecommerce business model that involves connecting your buyers with manufacturers. Essentially, you set up your online store, take customer orders, and have your orders fulfilled by your supplier or manufacturer. The advantage of dropshipping is that you don't have to worry about product acquisition and order fulfillment. This model also successfully solves the challenge of managing inventory. However, this model has fierce competition, which could reduce profit margin levels. Ensure you carry out a deep competitive analysis to spot any gaps you could take advantage of and carve a niche for your business. It is crucial to conduct careful research to pick the right product, one that you can market and sell. Additionally, it’s very important to assure that you pick the right suppliers. This is more than just doing a background search. Everything from supply chains to a political tug of wars can substantially impact your business. You also might want to consider platforms like Amazon, one of the largest eCommerce platforms in the world, to set up your online store, boost sales and grow revenue with Amazon.
This model can involve actually building out your product, the same way a car company builds a car. Or, it can involve creating a prototype of your product, and putting the pieces together through local or overseas manufacturers, contracting with them to create it on your behalf. Manufacturing gives you control over your product and also saves cost. If you are considering this type of eCommerce model, consider getting well-established manufacturers committed to making quality products.
Private labeling involves selling manufactured products under your label or brand name. The advantage of this model is that you are selling products already in demand. If you are considering using this model, ensure you study your target market and make sure your product is one that has a sufficient market. It’s also important that you conduct some of the same due diligence that you would do for a drop shipping business such as picking the right supplier. Dollar shave club is a great example of a private label business model. They purchase razors in bulk and sell them to consumers under their label. Amazon Essentials is another example of private labeling.
The last stage of building your eCommerce business model is to answer the question of your competitive advantage. Why will customers purchase your products? What makes you attractive to customers?
Well, there are a number of competitive advantages you can rely on. First, offering quality products is often one of the best ways to compete. Quality products invite new customers and create a memorable experience in the minds of customers. Second, offering excellent customer service is one of the best ways to build trust with customers. Develop a relationship with your customers, pay attention to their complaints and feedback, treat them right, and adjust your marketing strategy to address them.
Finally, you want to make sure your prices are competitive relative to who you are selling to and the type of market. You might consider discount selling. However, you want to make sure it represents the best competitive advantage for your business.
Before building an eCommerce model that most suitably brings life to your business idea, you must also consider your strengths, weaknesses as well as available resources. Conduct thorough research on your market, assessing the opportunities and strengths. Thoroughly gather your facts, think things through, adjust and readjust accordingly. The most important step to building the right business model is asking and answering the right questions.
With the questions above, you can determine who you are selling to, what type of product you intend to sell, how you want to deliver value consistently and your competitive advantage.
You can also contact the help of seasoned eCommerce experts at ePlaybooks to walk you through the process of creating a profitable ecommerce business model.