eCommerce is attractive to many aspiring entrepreneurs because operating an online business generally requires less overhead than running brick and mortar stores.
Luckily, there are plenty of different eCommerce business models that can be applied across most industries. This means that there are tons of opportunities for new entrepreneurs to get started. If you are looking to start an eCommerce business of your own, it is a good idea to identify which model will work best to serve your target audience.
In this post, we are going to discuss different types of eCommerce business models and business model classifications that are effective in 2021. The goal of this post is to help you select an eCommerce business model for your business.
5 major eCommerce business classifications
Before we get into the different eCommerce business models, it is important to understand the different business model classifications based on the target audience. For example, your business will be structured differently if you are targeting other businesses as opposed to targeting consumers.
Let’s break down the four most popular business classifications.
Business to business (B2B) is a business model that involves transactions between two businesses. The transaction could involve a product or service.
Wholesaling is a great example of a B2B business. However, suppliers are not the only kind of B2B business. Businesses that sell office supplies, office furniture, equipment, and other things used to run a business are also using the B2B model.
Business-to-consumer (B2C) is when businesses sell to consumers. The B2C model is what is used in traditional retail stores, and it is used by many online retailers as well.
Pretty much any store that you shop at, as a consumer, is a B2C business. Think online grocery stores, shoe stores, clothing stores, drug stores, and the other sites you shop at on a regular basis. These are all B2C businesses.
Consumer-to-consumer (C2C) is an eCommerce model that involves consumers buying and selling goods from one another. Buyers and sellers can switch roles at any time in C2C eCommerce since it is simply multiple consumers buying off of one another.
In the past, C2C transactions often took place at garage sales or flea markets. However, there has been a push towards digitalization in C2C transactions over the past couple of years. Some popular C2C online marketplaces include eBay, Craigslist, Etsy, OfferUp, Poshmark, and Facebook Marketplace.
Consumer-to-business (C2B) is a model that is a little different from the other ones we’ve discussed. C2B transactions occur when the consumer has something of value to offer to businesses.
An example of this would be a business offering a kickback to consumers that review their products. Another example of a C2B transaction would be when businesses pay consumers to participate in focus groups or trials.
Influencers use a C2B business model. Businesses pay individuals to promote their brand to their audience.
5. Government-related business model classifications
There are some other types of business classifications that are less relevant to eCommerce, but they are worth mentioning in case you see the acronyms pop up. These include:
- B2A: Business-to-administration (also known as business-to-government or B2G)
- C2A: Consumer-to-administration (also known as consumer-to-government or C2G)
- G2B: Government-to-business
- G2C: Government-to-consumer
B2A and C2A refer to either businesses or consumers that offer something of value to public administration or government organizations. G2B and G2C refer to a government organization offering something of value to businesses or consumers.
6 types of eCommerce business models that work in 2021
When you create a plan for your business, it is important to hash out what sort of model you should use.
Here is a breakdown of a few of the most common eCommerce business models.
1. White-label manufacturing
When you go to the store, there are often several brands of the same product. Oftentimes, there is a generic version that has the store’s branding rather than the other name brands that are on the shelves. These products are all typically very similar, and sometimes they are even identical. The only difference is the branding.
One major business model is white-label manufacturing. You can produce and sell white-label products that can be customized to match your buyers’ branding. You can sell the same product to different retailers and offer packaging customization.
Wholesaling is a business model that involves selling products in bulk. Typically, the buyers in a wholesale transaction are another business, making this a B2B business model.
Some wholesalers produce their own products, and others source them from another manufacturer.
The push towards eCommerce in wholesaling is relatively recent. It has been possible to operate a wholesaling business on the internet for a while, but it wasn’t until COVID-related lockdowns that the industry saw a major push towards digitalization.
Dropshipping is an innovative business model that involves outsourcing order fulfillment and inventory management. Dropshippers sell products on their digital storefront, but they have a third-party hold inventory and fulfill and ship each order. Typically, dropshippers are selling to consumers, making it a B2C business model.
Since it doesn’t require holding any inventory, you can start a dropshipping business with very little capital. It is quite easy to scale a dropshipping business for the same reason.
However, the benefits of dropshipping come at a cost. Profit margins are significantly lower for this B2C eCommerce business model than for other models since outsourcing fulfillment can get costly.
The subscription model has a buyer pays for an ongoing fee for a service or for a product order that comes on a regular basis.
This type of business uses automated online billing to charge the buyers’ payment methods. Typically, buyers pay a weekly, monthly, quarterly, or annual fee for access to this subscription.
While many subscription services allow buyers to cancel at any time, what makes many subscription businesses work is that people don’t cancel even if they don’t want the products or service anymore. This could be because they forget or because it’s easier to keep paying the fee.
Some examples of subscription businesses include:
- Meal kits: HelloFresh, Blue Apron, Dinnerly, Mindful Chef, Hungry Root
- Products: Dollar Shave Club, The Sill, The Grove Collaborative, Chewy
- Themed boxes: FabFitFun, Ipsy, Allure Beauty Box, KiwiCo, Stitch Fix
It is possible to use subscriptions in both B2B and B2C businesses, but subscriptions have become very popular in the B2C space.
5. Software as a service
Software as a service, or SaaS, is an eCommerce business model that is based on technology. Rather than selling a physical product or conducting a manual service, SaaS involves selling a program that replaces the need for manual service.
Take online bookkeeping, for example. Companies like QuickBooks and FreshBooks have developed a program that users can buy to automate their bookkeeping. This replaces the need to hire an accountant. These programs are often cloud-based.
There are B2B and B2C SaaS companies. Some involve one-time purchases and others are subscription-based.
The beauty of SaaS is that it is easily scalable since there are no physical products involved. As you take on more customers, you’ll likely need more account managers and support staff. However, you don’t need to worry about investing in additional warehouse space or anything like that, which is a plus.
Platform as a service, or PaaS, is a very similar model.
6. Product Design and Private Labeling
Product design is another type of business that you can operate in the eCommerce space. This involves developing product ideas and selling them to manufacturing companies.
Sometimes, this involves creating and selling a prototype, and other times, it is as simple as selling rights to a pattern or design. It is up to you to determine how involved your services and offerings will be.
How to choose an eCommerce model for your business
Starting an eCommerce business is an exciting process. You likely have tons of ideas that you are eager to execute, but before you dive in, it’s important to get clear on how you want to…
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