A business model explains the ways a business can earn revenues. If you’re planning to establish a company, decide what business model best suits your needs and incorporate it into your business plan and market research.
Here’s a look at the different business models, with examples of each, and how to choose the best one for your needs.
Table of Contents
- 1 What is a Business Model?
- 2 The Most Common Types of Ecommerce Business Models
- 3 Benefits of Business Models of eCommerce
- 4 Innovative eCommerce Business Models
- 5 How to select your eCommerce business model
What is a Business Model?
The term “business model” refers to a business’s strategy to make revenue. It defines the products or services the company will sell, the determined potential market, and any planned costs. Business models are essential for both established and newly-established firms. In addition, they can help emerging businesses attract capital, hire talents, and encourage employees and management.
Established businesses must regularly revise their business models, or else they’ll be unable to recognize changes and threats ahead. In addition, business models can help investors determine which companies are appealing to them, and employees know the future of the company they could aspire to join.
The Most Common Types of Ecommerce Business Models
If you’re considering starting an ecommerce business, you’ll belong to at least any of the four broad categories. Each has advantages and drawbacks, and many companies operate simultaneously in many.
Understanding the category in which your idea is placed will assist you in thinking creatively about your potential opportunities or threats.
BigCommerce can position your company to maximize its potential, no matter what growth stage or the nature of your business. If you’re interested to learn more, get in touch with sales to inquire about a demonstration.
B2C companies offer direct sales to their users. So everything you purchase from an online shop as consumer goods, from household and clothing to entertainment, is part of a B2C transaction.
The decision-making process involved in the decision-making process for a B2C purchase is much less than that of a business-to-business (B2B) acquisition, particularly for items with a lower value. Due to this shorter sales cycle, B2C companies typically use fewer marketing dollars to achieve sales but have smaller average order values and fewer repeat orders than their B2B counterparts.
B2C encompasses both services and products in addition. B2C pioneers have used technologies such as native apps for mobile devices, mobile applications, and remarketing to direct the market to their clients and ease their lives.
In the B2B business model, a company offers the product/service to a different business. Sometimes, the buyer is the final user, but usually, the seller resells the product to consumers. B2B transactions typically have a longer sales period, but the value of orders is higher, and there are more repeat purchases.
Modern B2B pioneers have created a space for their own by changing catalogs and order sheets with online storefronts and enhanced marketing in specific markets.
In 2021 60 percent of B2B buyers were younger people, almost twice as much as in 2012. As the younger generation comes into the age of business transactions, B2B selling within the digital space is becoming more crucial.
B2B2C stands for Business-to-Business-to-Consumer. It is a type of business in which a company sells the product/service through partnerships with a different organization to a customer who is the final buyer.
In contrast to white labeling the product — in which case an organization rebrands an item to make it appear as its own, the consumer is aware that they’re purchasing an item or utilizing a service provided by the company that created it.
C2B companies allow people to sell their goods and services to businesses. In this model of e-commerce, websites could allow customers to submit the work they wish to complete and then have businesses compete to purchase the project. In addition, affiliates’ marketing services could be considered C2B.
The C2B E-commerce model’s competitive advantage is in the price of items and services. This method allows consumers to determine their prices or to let businesses compete directly to meet their requirements.
Recently, innovators have utilized this method to connect businesses with influencers on social media to promote their products.
A direct-to-consumer company offers its products directly to the end-users without the assistance of third-party wholesalers or retailers.
Contrary to the other business models, such as B2B2C, there is no middleman between the customer and a business.
C2C online businesses, sometimes called marketplaces on the internet — connect consumers to purchase items and services. They usually earn their revenue by charging listing or transaction fees.
C2C companies benefit through self-driven growth driven by motivated sellers and buyers; however, they have a major hurdle to overcome in quality control and maintenance.
Businesses on the internet such as Craigslist, Walmart, Alibaba, and eBay were the first to adopt this model at the beginning Internet’s early days.
Government / Public Administration Ecommerce
The ones listed above are the most common e-commerce retail frameworks; however, they’re not the only models. Others involve public administration or government making transactions with companies or customers.
- B2G (also known as B2A) for businesses that solely serve governments or a type of public service. One illustration could be Synergetics Inc. in Ft. Collins, Colorado, which offers contractors and services to government agencies.
- C2G (also known as C2A): typically, individuals pay the tax or tuition to schools.
However, two areas that are closed to entrepreneurs are growing: G2B, a government sales channel to private firms, and G2C, which is for sales by the government to the general public.
Benefits of Business Models of eCommerce
Ecommerce allows the owners of online stores to grow their business while also maximizing profits. It is possible to increase your company’s profit margins by adopting an online-based business model that aligns with your brand.
Here we look at the advantages of the business models that e-commerce offers.
Lower operating costs and higher profit
Many business owners spend an enormous amount of money establishing their shops. It is necessary to pay your employees, pay the electric bill and rent, purchase stocks, and handle the delivery of your products.
E-commerce allows you to cut down on operating costs. Establish an online shop and promote your product and profit at a low cost.
Fast selling process
eCommerce allows customers to spend less time shopping. Buyers can browse an online store to make purchases. The orders are processed, and then you ship the items quickly and easily.
Cost-effective advertising and marketing
Marketing your product has never been simpler. Hiring sales managers to promote your company’s image is not needed. Instead, you can use paid advertisements to drive traffic and quickly connect to buyers.
eCommerce platforms increase the reach of your brand. Millions of users around the world can visit your site. The greater reach of your website leads to greater sales.
Because you can reach many people all over the globe via the internet, it allows you to market your goods globally.
Amazon, for instance, provides products to more than 100 countries worldwide.
Innovative eCommerce Business Models
Dropshipping is a method of retail in that stores don’t keep the items in stock. As a result, there isn’t a stock to pull products from. So instead, once you receive an order from your client or an eCommerce company using dropshipping, you will buy the item from a third party or the supplier who will manage the delivery. Dropshipping, as the term suggests, is an inventory-free retail method that lets your suppliers handle much of the manual labor for you, including administration of inventory and delivery.
Dropshipping is the fastest-growing type in the eCommerce model. Many entrepreneurs are turning to this route due to its many advantages. There is less capital required to begin a dropshipping company and lower overhead costs, and you’ll have a broad selection of items to sell which is simpler to test and scale.
2. Private label or White label
The two terms are interchangeable. White labeling is when the supplier/manufacturer removes the brand or logo from their end products and instead uses the branding requested by the purchaser. The supplier in this scenario is usually a third party.
Private labeling is an exclusive variant of white labeling. It’s when the retailer contracts with the services of a manufacturer to develop an exclusive product to market. Private and white label products are not required to be tangible products; they could also be services, such as those typically found in banks.
The most obvious examples of white labeling are firms such as Whole Foods and Walmart, which profit from selling their own products made by other producers.
This business model offers discounts on sales and high quality, which results in greater profits for companies, but it could also result in copycatting and monopsony. This can be a problem occasionally.
Print-on-demand is a fulfillment technique that is similar to drop shipping. In essence, a consumer purchases the product from a store website (like Shopify). The purchase is instantly sent to a print service provider who stocks the physical item, prints the design, and then ships the item to the purchaser.
There’s no longer a need to store spaces, costly locally-based printers, or massive shipping. Instead, the store owner eliminates the requirement for bulk stock and concentrates on the item’s branding and design. Items can range from personalized T-shirts to bags and even books.
The business model of eCommerce is, in a way, a variation of dropshipping since your provider does printing and shipping. However, it is an effective model that has many advantages. For example, suppose you already have a social media following. In that case, i.e., you’re a Youtuber, cartoonist, or even an influencer, it’s simple to earn money from the followers you’ve already built up because PoD does not require much capital to begin. It also allows you to develop original products that appeal to specific niches of users and then easily test your concepts.
A few notable mentions of this business model are Printful. Print is a platform for POD that lets you create and sell your custom-designed product online, either on a marketplace such as Etsy or Amazon or through your store integrated with Printful.
4. Subscription business model
This business model has been used since at least the 1600s in the publishing and printing market. Since the rise of eCommerce, we’ve seen numerous services come up through this model. Most streaming services like Netflix, Hulu, HBO Go, etc., are included in this category.
Businesses don’t only offer monthly subscriptions like old newspapers. They went several steps further to provide monthly, semi-annual and annual subscriptions, which you can change at any time.
A few examples of the most popular subscription-based business products are:
- Protein powder
- Baby products
- Pet food
- Organic food
The list is endless, but beauty and food items are the most popular as plants, books, and other collectibles provide a viable option.
The best way to make your head around subscription box companies is to examine profitable stores that utilize the business model. One of our favorite examples is SnackNation.
SnackNation sells healthy and delicious snack boxes that are healthy and delicious. Each month, you’ll receive eight snacks from their designed selection of delicious snacks, including nuts and seeds, Chips, jerky, and sweets.
The simplest way to describe this kind of model for eCommerce involves selling goods in bulk to retailers, who then can sell the products to consumers. Wholesaling has been around longer than anyone remembers, and eCommerce has just re-invented it. Traditionally, the wholesaling process is a B2B process. However, some retailers have changed the practice to a B2C one.
eCommerce wholesalers allow you to boost sales without increasing your marketing budget because the sellers will take care of most of the work for you. It can also make market opportunities more accessible by lowering the risk of expanding. Additionally, eCommerce wholesale can reduce your storage requirements since either the retailer or the wholesaler will agree to store the items inside their warehouses.
How to select your eCommerce business model
After you’ve learned about the different kinds of e-commerce strategies, models, and revenue models, you can now understand websites and a platform. Before starting, it is important to know other crucial sectors of the e-commerce industry.
Here are a few questions you have to find out the answers to.
Who is your customer
The heart of any online business is the ability to provide responsive customers.
Before you can begin your e-commerce business, you must identify your ideal customer. Are they individuals from the private sector as well as government organizations? Public administrations? or other companies? You will need to address these questions before you embark on online sales.
What do you think you are capable of
Another important aspect to consider is your budget and the kind of products or services you can provide.
You can offer high-end items or stick with low-cost ones based on your ability to pay. What kinds of products and services do you have the capability of offering? Are they pet-related items? Clothing for private people or government agencies?
You must also decide how to sell your products to cut expenses and increase profits.
What is the best option for your product
When starting your business, finding out the best method to enhance your product to provide better service to customers is important.
You can choose what’s most suitable for your product by asking which market your product would be most beneficial. Where exactly would your products need to be a hit? Who would need your product most?
Examining the market and the needs of businesses and individuals is crucial in deciding on the most effective model.
What’s your strategy
Finally, you must be aware of your position in the online marketplace to be able to grow quickly.
Do you know your position in the e-commerce market? First, you must know your competition and figure out ways to get ahead. Knowing your market position will allow you to prepare to gain an advantage over your competitors.