Here’s Your Guide to an Ecommerce Business Model
Do you remember how things were in the nineties and earlier? When you needed to buy clothes or groceries, you had to visit a physical retail store because you had no other option.
How things have changed! Ecommerce has completely transformed the way we all shop. It has introduced a quicker and easier way to purchase and compare prices from various brands and retailers. Businesses can sell their products and services via online marketplaces or standalone websites, essentially serving a global audience through an ecommerce business model.
Ecommerce is growing rapidly and has a massive appeal, as sales have increased by 300 percent in the last 10 years. In 2020 alone, ecommerce jumped 44 percent and represented 21.3 percent of total retail sales during the year. That was a big increase from just 15.8 percent in 2019.
If you’re thinking about starting an LLC and creating an ecommerce business, you’ll need to know which business model to use. This article will lay a solid foundation and help you wrap your arms around exactly what you need to know so you can put yourself in a position to hit the ground running and take action.
Which Type of Ecommerce Business Model Is Right for You?
Choosing an ecommerce business model typically comes down to who your audience is and what you are selling. An ecommerce business model can be classified into four major categories:
1. Business-to-Business (B2B)
B2B is a business model where the business sells its product or services to another business. These are mostly wholesalers, distributors or manufacturers. A large amount of B2B buyers research online at least half of the purchases they make. Meeting them in the online ecommerce space to make sales makes sense.
Before you launch your B2B ecommerce business model, analyze the audience and understand if they are interested in bulk buying, what the competitive advantages are, if you will control manufacturing, etc. This will help in establishing your business and generating high profits.
2. Business-to-Consumers (B2C)
B2C is the most popular and traditional model. It is when a business sells its products or services directly to the customer. It is the simplest model and serves a broader audience. Online B2C sales are trending upwards due to digitalization.
The most common strategies used by the B2C business model are influencer marketing, social media campaigns, etc. Here, the sale takes place quickly because of comfort and personal touch.
3. Consumer-to-Business (C2B)
C2B is not so well-known as compared to the other business models. In this model, the customer provides goods or services to the business. The best part of this type of model is that there is no investment and no customer service.
An example of C2B is affiliate marketing services. An influencer can connect with a business to promote and market the business’s products and services to their online audience. The influencer, or consumer, receives payment from the business for the promotion. Another example is consumers participating in customer reviews or focus groups that in turn lead to increased sales for the business. Because of digitalization and social age, the C2B ecommerce business model is growing at an incredibly fast pace.
4. Customer-to-Customer (C2C)
C2C is where individuals directly sell goods or services to each other. There are various marketplaces that help in streamlining the process and facilitate the transaction between customers by charging a fee. These types of marketplaces only work well if both parties are equally motivated. Some of the largest C2C marketplaces are Amazon, Craigslist and eBay.
Ecommerce Business Fulfillment Models to Explore
Once you know your ecommerce business model, how will you fulfill your ecommerce orders? Here are four ways to explore to see which fits your model the best.
In this setup, the ecommerce store sells products in large quantities and at a discounted rate. So, if you want to adopt this model, you need to purchase the products in bulk from the manufacturer and then sell it to the retailers at a slightly higher price where you make the difference (also called “margin”).
This is one of the fastest-growing and simplest forms of ecommerce fulfillment. With this model, you act as a middleman between the buyer and seller. You don’t have to worry about the inventory, warehouse, location, etc. But here, the profit margins are comparatively low compared to some of the other ecommerce business models.
With dropshipping, whenever someone places an order, you purchase the product from the supplier, who then directly ships it to the customers.
Print-on-demand is quite similar to dropshipping. Here you sell custom designs on various products like T-shirts, mugs, bags, etc. Whenever an order is placed, the manufacturer prints and packs the design, and delivers it directly to the customer.
This type of fulfillment model is where you sell a generic product under your business name or with your own packaging. With white label, you don’t have to manage the quality control, but you need to deal with huge competition. Also, you don’t have an edge with differentiation, as any reseller can sell that exact same product.
Time to Take Action
Setting up an ecommerce business model takes a lot of time and effort. You need to understand the basics to set up and do proper planning and execution to further scale your business. Next, you need to do timely innovations and adapt yourself according to the changes (if you want to stay ahead of the competitors).
Choosing an ecommerce business model is the most crucial decision you’ll have to make, as it affects the business’s overall flow and structure. Understand all the business models properly and then choose the best one according to your needs.