eCommerce Business Models that Work in 2019: A Brief Guide
eCommerce business models are going through a continuous change. The situation is not the same as it was a few years ago. You can expect the sales to increase by a whopping 78% by the end of 2020.
Businesses can take any shape, and it’s easy to get caught up and excited in the latest eCommerce trends. But unless you know the basics, you’ll hit a wall pretty soon if you’re not careful enough.
In order choose the right eCommerce business models for yourself, you need to first familiarize yourself with each type. You’ll also need to identify an eCommerce platform that suits your preferred business model’s needs.
Classifications of eCommerce Business
As you might already know, eCommerce comprises of all online marketplaces that connect customers and store owners. And the internet is primarily used in the process to control and keep everything going.
So obviously the first thing to think about is the type of business marketplace you’re going for. No matter if you’re a newbie or have been running a business for a while, you should know the kind of eCommerce business model.
Your business model should fall in any one of the following category — B2B, B2C, C2C, or C2B. And don’t worry if you’re not able to identify which one is for you. We’ll go through each one of them.
This type of business model mainly focuses on providing products or services from one business to another similar or different business.
You’ll find various categories of companies falling right under this business model. For instance, you have software companies, tools and supply companies, document hosting companies, office supply companies, and numerous others. Also a vast majority of companies that fall under this category are service providers.
B2B eCommerce examples you may be familiar with include the ExxonMobil Corporation and the Chevron Corporation, Boeing, and Archer Daniel Midlands. These businesses have custom, enterprise eCommerce platforms that work directly with other businesses in a closed environment. A B2B eCommerce business typically requires more startup cash.
The B2C sector 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 offline, too. B2C sales are the traditional retail model, where a business sells to individuals, but business is conducted online as opposed to in a physical store.
Examples of B2C businesses are everywhere. Exclusively online retailers include Newegg.com, Overstock.com, Wish, and ModCloth, but other major B2C brick-and-mortar businesses like Staples, Target, REI, and Gap.
B2B and B2C are fairly intuitive concepts for most of us, but the idea of C2C is different. Created by the rise of the eCommerce sector 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. Opening a C2C site takes careful planning.
Despite the obvious success of platforms like eBay and Craigslist, numerous other auction and classified sites (the main arenas for C2C) have opened and quickly closed due to unsustainable models.
C2B is another model most people don’t immediately think of, but that is growing in prevalence. This type of online commerce business is when the consumer sells goods or services to businesses, and is roughly equivalent to a sole proprietorship serving a larger business.
Reverse auctions, service provision sites like UpWork, and several common blog monetization strategies like affiliate marketing or Google AdSense also fall under this heading.
Government / Public Administration eCommerce
The models listed above are the primary eCommerce retail structures, but they aren’t the only ones. Other types of eCommerce involve public administration conducting eCommerce transactions with businesses or consumers.
- B2G (also called B2A), for businesses whose sole clients are governments or type of public administration. One example is Synergetics Inc. in Ft. Collins, Colorado, which provides contractors and services for government agencies.
- C2G (also called C2A) is a type of business model where typically individuals paying the government for taxes or tuition to universities.
Two sectors that are closed for entrepreneur owners but are growing include G2B for government sales to private businesses, and G2C, for government sales to the general public.
Various eCommerce platforms
Before we jump into next section and discuss the various business revenue models, it’s important to familiarize yourself with the various eCommerce platforms available. So let’s begin with the platform that is used by more than 42% of the current eCommerce websites, WooCommerce.
If you haven’t heard of it then, it’s a free WordPress plugin that comes along with a secure payment gateway, shopping cart, checkout process, order management, and other necessary features to support almost any online store.
There are others as well, and I recommend you to compare the best eCommerce platforms here before you choose one.
Types Of eCommerce Business Revenue Models
Now that you have your eCommerce platform all set, the next most important thing to think about is how you want to handle inventory management, shipping, deliveries, and sourcing products.
Some business owners like the idea of making their own products, packing the boxes and using drop shipping for the final process. While some depend upon shipping carriers and let them manage everything. So in order to understand each and every part, we should be able to figure out the eCommerce.
So now let’s explore each and every one the models.
Shipping Carriers and Services
This is probably the simplest and easiest form of eCommerce. You just need to receive the order on your online store, assign and pack the products into the boxes, and handover them to the shipping couriers like FedEx, UPS and Canada Post.
Have you ever seen shipping services like FedEx Ground on your checkout page when shopping online? These shipping services and their corresponding shipping rates are displayed using some form of online integration.
In the world of WooCommerce, plugins/extensions like WooCommerce FedEx Shipping plugin and WooCommerce UPS Shipping plugin provide real-time shipping rates along with shipping label printing and shipment tracking options. PluginHive, for example, is one of the major plugin authors that offers these amazing solutions.
Another example is StorePep, which is a SaaS-based eCommerce solution that manages shipping, end-to-end. Businesses that deal with hundreds and thousands of orders, can simplify their entry and exist with this solution. But that doesn’t mean small or mid-sized businesses should not go for it. You can check out here to know more.
Drop shipping lets you set up an online store and channel your customers’ money. But the rest is up to your supplier who will be responsible for managing inventory, warehousing stock, or dealing with packaging. However, there’s a catch!
If your sellers are slow, product quality is lower than expected, or there are problems with the order, it’s on your head and you have to take the blame. Wacky Hippo is an example of an eCommerce site using drop shipping. I wouldn’t base my business on dropshipping. So if you are dead set on dropshipping then print on demand is the way to go.
Wholesaling and Warehousing
Wholesaling and warehousing eCommerce businesses require a lot of investment at the start. Which is why you need to manage inventory and stock, keep track of customer orders and shipping information, and invest in the warehouse space itself.
DollarDays is an online wholesaler with a massive product catalog that includes more than 260,000 products. They employ a key strategy for retailers in this space — by offering case prices AND piece prices, they can sell to the general public and to retailers. This gives them a higher profit margin than a strictly wholesale model.
Private Labeling and Manufacturing
If you’ve got an idea for the perfect product, but don’t have the cash or desire to build your own factory, this might be the right eCommerce business model for you. Companies that manufacture products offsite for sale send the plans or prototypes to a contracted manufacturer who produces the product to meet customer specifications and can either ship directly to the consumer, to a third party such as Amazon, or to the company selling the final product.
On-demand manufacturing allows you to quickly change suppliers if you encounter problems with product quality. The startup costs are minimal, and if you’re interested in potentially opening your own production facilities later, this is a good way to test a new product or concept.
White labeling is similar. You choose a product that is already successfully sold by another company, but offers white label options, design your package and label, and sell the product. This is common in the beauty and wellness industries, but more difficult to encounter in other niches.
One problem with white labeling is demand. You’re stuck with whatever you order, and most of these companies set a minimum production quantity. If you can’t sell it, you’ll have to live with it. Consider this option when you’re willing to work full time on your business and know your product is in demand.
One of the most popular and successful pure eCommerce brands is the Dollar Shave Club. Other examples of subscription services include Stitch Fix, Blue Apron, and Nature Box. On the local level, community-supported agriculture boxes are popular.
These eCommerce companies rely on a subscription model that delivers customers a box of products at regular, scheduled intervals. Subscription companies have relatively reliable income streams and can easily incentivize customers to purchase additional subscriptions or encourage their contacts to subscribe.
Picking the right products and niches can be difficult. Successful subscription boxes tend to fall into a small handful of product categories: health and grooming, beauty, fashion, and food. Outside of these areas, few subscription companies thrive.
Product Revenue Models
Once you’ve identified who you are selling to and where, you need to think about what you want to sell. Some businesses sell a single white-label product, while others offer a full selection of niche-specific products. Yet another model depends on affiliate programs across a wide swath of categories.
Before opening your store, you need to decide the type and number of products. Depending on your niche, you may also need to evaluate production practices and regulations regarding what you can and can’t say (organic, for instance).
What Model Fits Your Idea Best?
Now that you know what types of eCommerce businesses, product options, platforms, and business classifications exist, you’re ready to get started. Take a look at your business plan.
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