The act of conducting business through the internet is known as e-commerce. Business-to-business and business-to-consumer sales models are examples.
An e-commerce business model describes to whom your internet firm sells items or services, whether to other businesses, individual customers, or government organisations. Most e-commerce enterprises, including dropshippers, subscription services, wholesalers, and others, fit into one of these categories.
Here’s an explanation of e-commerce business models and how to choose which one is best for you.
What are some examples of e-commerce business models?
A business model specifies who you will sell your products or services to. There are various business models that may be used for an e-commerce company, a brick-and-mortar operation, or both. Choosing one can assist your e-commerce firm in effectively positioning itself in the market and reaching clients.
Here are six popular alternatives:
1. B2C (business-to-consumer)
The most popular sort of business model and what most people think of when they think of e-commerce is business-to-consumer, or B2C. A B2C company offers products or services to end users rather than other companies or manufacturers. The majority of retailers are B2C.
Because your potential client base is so big, it may be easier to get started with a B2C business than with other business types. However, dealing with a high number of clients means dealing with a huge number of complaints and returns. And it may be difficult to persuade shoppers to return for more purchases when there are so many other merchants available.
2. Business-to-business (B2B) transactions
B2B, or business-to-business, is a sales paradigm in which one company sells to another. For example, you may offer raw materials or parts used by manufacturers to create B2C goods (this is known as a B2B2C model). Alternatively, you may provide a service, such as bookkeeping, to businesses rather than people.
One of the benefits of a B2B company strategy is that you frequently obtain repeat orders or recurring income from a client. However, because you’re selling a more niche product, you may have a smaller consumer base. Prices and payment methods may also be negotiated with your business clientele.
3. Consumer-to-consumer (C2C) or peer-to-peer (P2P) transactions
E-commerce platforms are frequently used to support peer-to-peer sales. These might be websites like Poshmark, Facebook Marketplace, or eBay, where sellers offer items they own or have obtained from specialist stores. As in the case of rideshare drivers, P2P enterprises may also sell services.
In general, peer-to-peer e-commerce business models involve a site or platform that assists sellers in finding consumers while simultaneously taking a share of their sales. These business models may be less solid than more traditional ones, such as B2B or B2C sales.
4. Business-to-government (B2G) transactions
Business-to-government e-commerce is uncommon. This approach is intended for merchants that sell directly to the government. To compete for government contracts, you should ideally be a well-established company. However, if individuals of colour or persons matching other demographic requirements hold a majority of your firm, you may be qualified for the SBA 8a programme, which can offer you a leg up.
5. Direct-to-consumer (D2C) marketing
A typical intermediary is eliminated in a direct-to-consumer business strategy. Mattresses, for example, have traditionally been sold from manufacturers to department, furniture, and mattress stores, who then sell the mattresses to the individuals who would sleep on them. However, in the recent decade, direct-to-consumer mattress firms have begun selling these items directly to individual customers via e-commerce platforms.
Because your clients will need to learn about your items in a new way, a direct-to-consumer business model relies on small-business marketing. You’ll also most likely need to collaborate with a fulfilment centre to store goods and delivery orders to purchasers on time.
6. C2B (consumer-to-business)
Businesses rely on individual customers to develop value rather than merely use their products in a C2B business model. As an example, consider a social video firm that does not create its own content. Instead, when digital creators post movies for free to the site, the firm adds advertisements on them, making cash for itself and maybe sharing some with the creators.
Your company plan may include components of a C2B business model if it includes affiliate marketing or user-generated content.
What sorts of e-commerce income models are there?
Who your consumers are is defined by your company concept. You’ll also need a revenue model, which is a strategy for how your company will generate more money from those consumers than it spends on inventory, storage, shipping, and other expenses.
Here are some examples of standard income models for e-commerce enterprises.
Subscriptions
Customers sign up for a subscription e-commerce firm to get things at regular intervals. Subscriptions can help organisations create recurring revenue streams and establish longer client connections than one-time purchases.
Subscriptions have proven effective for a wide range of enterprises, from toothbrushes and razors to cleaning supplies, meal packages, and clothes. A subscription e-commerce business model might work for you if your product is one that customers will use regularly and will need to replace, reuse, or run out of.
White-labelling
White-labelling involves purchasing wholesale items and branding them with a different logo, label, and packaging. This might be a profitable B2B venture; for example, you could incorporate another company’s logo into your items to produce staff presents or trade fair handouts. If your items can be customised for special festivities, such as bridal parties or baby showers, or with meaningful colours, such as school colours, it may also be a B2C business.
When you white-label items, you may need to buy in big numbers and keep inventory. This can raise your initial expenses and offer new difficulties, such as the need to maintain warehouse space.
On-demand printing or manufacturing
In an on-demand e-commerce firm, you manufacture a product only when a consumer requests it. This way, you’re not trapped with inventory that you’re not sure you can sell. You may also possibly provide a lot of customisation for your consumers.
On-demand manufacturing, also known as print-on-demand, can sometimes result in orders taking longer to reach customers since they must wait for their goods to be manufactured rather than being transported from your warehouse. It’s critical to be honest about your timeframe, even if you may charge clients more for urgent orders.
Dropshipping
Dropshipping is an e-commerce business concept in which no inventory is kept on hand. Instead, you put items for sale, then collaborate with warehouse partners to maintain your items in stock and handle all operations after orders are placed.
Dropshipping allows you to experiment with what you sell without having to pay for stock that may or may not be popular with your consumers. Quality control can be difficult to achieve when you don’t produce items or manage shipping yourself – dropshippers may sell things they haven’t even seen. Make a plan to handle consumer complaints, refunds, and exchanges.
Wholesaling and warehousing
Wholesaling and warehousing are primarily business-to-business or business-to-government transactions. When you sell wholesale, you frequently have a large amount of goods on hand and demand clients to buy in bulk from you. You can make these things yourself or operate as a middleman between producers and specialised purchasers.
Designing an E-Commerce Business Model
A business plan will assist you in defining your e-commerce company and revenue models — in other words, who you’re selling to and how your firm will generate money.
- Who are your clients? You should be aware of your target audience, but it does not have to be limited. Creating numerous income sources might help your company weather industry downturns or changes in customer behaviour – just don’t try to sell to everyone.
- How frequently will they purchase your goods and services? Are you offering something that buyers will require on a regular basis, or will the majority of your sales be one-time purchases? If you want to start a subscription business, make sure you have enough inventory and the ability to prepare shipments on a regular basis.
- Will you keep stock? Print-on-demand and dropshipping may appeal to you if you want to sell large quantities of items without maintaining inventory on hand.
- How much power do you desire? Dropshipping may not be for you if you wish to be extensively involved in quality control and product creation.
- How many things will you be selling? Do you want to give your consumers a variety of colour, size, and packaging options? The more alternatives you provide, the more control you’ll have over your providers.
- What is your bandwidth capacity? If your e-commerce venture is a side hustle, you may not be able to accept government contracts or substantial B2B purchases.
