Every online store has a business model of its own. Many earn by attracting visitors to the website. Selecting ecommerce business model is a challenge, especially for beginners who have little to no experience in the industry.
Selecting the right model for your ecommerce venture is essential for keeping the store afloat and bringing in sustainable profits. However, when planning the ecommerce venture, many people make the mistake of jumping straight to the fine details and forget that all this depends upon what you plan to sell and what model you adopt for selling your inventory. If successfully executed, an ecommerce venture can become a significant source of income.
In a hurry? Jump to the ‘Types of Ecommerce Business Models’ section.
- What is an Ecommerce Business Model?
- What do You Want to Sell?
- 6 Types of Ecommerce Business Models
- Top 9 Delivery Frameworks for Your Ecommerce Business with Examples
- Ecommerce Promotion Options
- How to Choose Your Ecommerce Business Model?
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What is an Ecommerce Business Model?
An ecommerce business model refers to how a business operates to sell goods and services online. There are 6 main types of ecommerce business models, namely Business-to-Government (B2G), Business-to-Business (B2B), Business-to-Consumer (B2C), Consumer-to-Consumer (C2C), Consumer-to-Business (C2B), and Business-to-Business-to-Consumer (B2B2C).
In order to find the right ecommerce model for your business, you need to define two things. Firstly, you will have to define who you will sell to, and then define how you will position what you have to sell. Then, figure out your ecommerce business plan. This will define how you will attract customers and how they will engage with your product. Lastly, figure out your delivery framework, by assessing what will work best for your ecommerce business.
What do You Want to Sell?
The beauty of online commerce is that you can sell pretty much anything. However, it is always a good idea to start with a small range of products. Your store can sell physical products (clothing or shoes), digital products (ebooks are a good place to start), or services such as babysitting.
Let’s see what type of products are currently being sold online and how you can tap their market.
This is the most commonly sold commodity on ecommerce stores. Physical products (pretty much anything that requires packing, shipping and delivery) often achieve the highest sales.
But, how do you decide which products to sell?
Discover what you are passionate about. Do you love cars? How about selling car parts and accessories then? Do you love books? Why not start an online book store? Online commerce gives you the perfect opportunity for converting your passion into a viable business.
Analyze your chosen niche and find the opportunity gaps. This covers all the aspects of the industry that are underserved. Similarly, try to analyze the pain points of the target customers.
Next, conduct keyword research on the product you wish to sell. This way, you can pinpoint the demand for your product that will help you plan your inventory and order placements.
There are many products that can be delivered to a customer online. Are you a web designer, content writer, or drawing artist? You can create an ecommerce store around digital products. Piracy and Copyrights infringements is a serious challenge for such stores. Another important requirement is the FAQ and Legal sections that cover the mechanism of product delivery and the copyright status of your offerings.
If you have a crew of skilled carpenters, or house cleaners, or you are an expert hair stylist who offers to visit the customer’s residence, why not create a website to sell these services online? You can significantly increase the demand for your services by creating a comprehensive FAQ section and a Legal section detailing exactly what you are offering and what the customers can expect.
6 Types of Ecommerce Business Models
Ecommerce is a global phenomenon and as such support several models. The good thing about ecommerce is that you could choose one or more models for your venture.
1. Business-to-Business (B2B)
If the nature of your products or services is geared towards meeting the needs of businesses, setting up a B2B strategy is your best bet. Networking and reaching out is a bigger part of this strategy. A big advertising budget is not of much help. The most important challenge you would face is convincing established businesses that your products/services are a great fit for their processes.
The advantage of this business model is that order sizes are usually large, and repeat orders are very common, if you maintain the quality of your products and services. An example of a great B2B model is Media Lounge.
2. Business-to-Consumer (B2C)
This is the model you should adopt if your products/services are targeted primarily towards individuals. The potential customer finds your website and determines whether your product could address their pain points.
After browsing the store, the customer may decide to place an order. An example of a successful B2C business is Portugal Footwear.
3. Consumer-to-Consumer (C2C)
While B2B and B2B business concepts are familiar, Customer-to-Customer (C2C) is a concept unique to ecommerce. This is mainly due to the sheer demand of the platforms such as Craigslist, OLX, and eBay.
These platforms allow their users to trade, buy, sell, and rent products and services. In all transactions, the platforms receives a small commission. This business model is complex and requires careful planning to operate. Many platforms have failed, generally due to legal issues.
4. Consumer-to-Business (C2B)
Customer-to-Business (C2B) business model is another great concept that is popular mainly due to platforms that cater to freelancers. In C2B, freelance workers work on tasks provided by clients. Most of these clients are commercial entities and freelancers are often individuals. In simpler terms, consider C2B is a sole proprietorship serving larger businesses.
Reverse auction websites, freelance marketplaces, affiliate marketing all form part of this business model. Again, this model requires planning due to the legal complexities involved.
5. Business to Government (B2G)
Business to Government (B2G) is an ecommerce business model where a business markets its products to government agencies. If you want to choose this ecommerce business model, you will have to bid on government contracts. Governments usually put up requests for proposals and ecommerce businesses then have to bid on government projects. In most cases, a government agency would not come to place an order on your ecommerce website. However, some local government agencies are exceptions to the rule, depending on their needs.
6. Business to Business to Consumer (B2B2C)
When a business sells products to another business, and then that business sells to the consumers online, this is what is defined as B2B2C ecommerce.
There are three parties involved in this type of ecommerce business model. For example, if you choose to go with it, you will have to partner with another business, and only then can you sell its products and offer the partner a commission for each sale.
Ecommerce store owners choose this business model mainly for new customer acquisition. This happens because even though customers are already familiar with the partner’s products, they can’t order from them online, due to obstacles such as geographical location, hefty shipping costs, and others.
Hence, this ecommerce business model is most suitable for new ecommerce store owners who want to expand their customer base.
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9 Innovative Value Delivery Frameworks for Your Ecommerce Store with Examples
Once you have chosen the ecommerce business model, the next step is the selection of an appropriate value delivery framework. Let’s discuss the most innovative and profitable value delivery frameworks for ecommerce businesses.
Ecommerce Business Plans
1. Just-in-Time Purchasing
Just-in-time purchasing is a popular business plan in which an ecommerce store put up products on the store. Whenever a user orders an item, the store gets the item from the supplier and ships it to customer. The plan is ideal for people with low budget or no warehousing space.
Just-in-Time Purchasing Example: Both Apple and McDonald’s follow the just-in-time delivery framework. A case study on Apple suggests how this value delivery framework helped it streamline the waiting time and a number of steps in the delivery of its tailor-made iPods. From 90 days the delivery time was reduced to 90 hours as the JIT framework helped Apple produce tailor-made products when customers had placed orders.
In this plan, an ecommerce store gets the products from a wholesale or manufacturer and sells to the visitors at a commission. For example, you have an ecommerce store where you add products from AliExpress and set the prices at a higher level. Once the store is up, the store targets potential customers through ads and other digital marketing channels.
Dropshipping became very popular when ecommerce dropshipping platforms like WooCommerce, PrestaShop, and Shopify went mainstream.
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Dropshipping Example: Daily Steals is a successful ecommerce business that follows the dropshipping value delivery framework. It works in the niche of technology, home, and office, with a peak traffic of 1000000.
They are a successful dropshipping store because they consistently present the best deals for the products in their niche. They also make sure they show the discount badges on all products throughout every page of their site. Daily Steals also uses PPC ads to their advantage and strategically place display ads showcasing their flashy premium deals and discounts.
Wholesaling is a business plan where an ecommerce store sells products in bulk and at a lower price than the general market prices. The biggest example of this model is Alibaba, a very popular platform for small and large wholesalers that trade with the businesses all over the world.
Many ecommerce stores have warehouses where they keep products. These are then put as listings on the ecommerce stores and when a person buys them, they are shipped directly from the warehouse.
White-label branding is a business plan in which one company produces the product, and another company rebrands and distributes it. An example of this plan is of influencers that sell white-label products through their social media accounts.
White-labeling Example: Seed Beauty, a private label company, produces Kylie Jenner’s products and white label cosmetics for ColourPop. White-label products are generic products that are mass-produced. For example, if you want to sell white label cosmetics, you can focus on one product, like lip balm.
6. Outsourced Fulfillment
Outsource fulfillment is a business model in which the shipping is outsourced to a third party. This model is mostly used by ecommerce stores that are too busy running the operations or too understaffed to ship the products themselves. Fulfillment by Amazon (FBA) and 3PL services for ecommerce stores fall under this category.
Outsourced Fulfillment Example: A hand sanitizer brand, Touch Land, was growing fast during covid, selling high-quality moisturizing hand sanitizers. But soon, they were sold out, and had almost 34000 customers on their waiting list. They even did pre-orders to meet the demand as they had up to 700 orders per day and sold 10,000 dispensers to industry-leading brands in those three months. This is when using 3PL services helped them.
A subscription based e-business model allows users to purchase and then subscribe to a service for a set period (usually monthly or annually). Once the product subscription expires, the users could either terminate the contract or renew it. Ecommerce stores such as Tie Bar and Five Four Club work on this subscription-based business model.
Subscription Model Example: An American meal kit service, Blue Apron, provides high-quality food ingredients. It allows its customers to set their food preferences and then takes care of everything after the customers have subscribed to receiving their meal kits. It’s a great example of how the subscription business model can work with an ecommerce store.
8. Rent and Loan Model
With better digital payment models, it is now possible to set up rent and loan business plans. Under this plan, users or companies can rent out physical or digital products to others for a monthly cost. In several cass, this model also include lending money for earning interest.
Websites such as Loan Now and Lending Club work on this model.
Rent and Loan Model Example: Lending Luxury is an ecommerce store that is successfully using the rent and loan ecommerce value delivery framework to make luxury apparel affordable for couture-hungry people.
9. Freemium Model
Freemium is a pricing model in which some features of a product are provided to the users for free, with the rest behind a paywall. Hootsuite uses this strategy of its social media scheduling service. It provides a limited number of posts’ scheduling for free. Users have to pay for unlimited scheduling.
Freemium Model Example: Spotify is a music streaming platform that uses this strategy. Users can access basic, limited, ad-supported service for free. However, they have to upgrade to the premium account to access unlimited service for a subscription fee.
Ecommerce Promotion Options
Once you have the model and the plan, the next step is choosing the right promotion options.
Ecommerce Promotion Options
Affiliate marketing is when you promote a product by another producer/supplier on your website or blog. Top ecommerce websites provide affiliate programs where content producers can sign up to become an affiliate. For example, you sign up for Cloudways affiliate. When you bring leads to Cloudways, you will earn a commission. Check the complete details of how an affiliate program works on the affiliate page.
Pay Per Click (PPC)
Pay Per Click (PPC) is a e-business model in which the advertisers will pay for every click that leads to their products page. The business model is offered by affiliate marketing programs such as Viral9 and Max Bounty.
Pay Per Sale (PPS)
Similar to the PPC business model, Pay Per Sale (PPS) lets publishers or promoters earn commission whenever they drive a sale for the advertiser. This model is practiced by affiliate marketers such as Shareasale, Clickbank and Commission junction.
Pay per Lead (PPL)
Pay per Lead (PPL) works in the same way as the above to work. The only difference is that in a PPL plan, promoters receive commission for the leads. Lead generation programs such as Facebook Ads, Google Adwords, and Maxbounty offer this plan.
Pay Per Action (PPA)
Pay Per Action (PPA) is a generic term in marketing. The model applies to all types of affiliate marketing tactics in which any type of action is expected of the visitors. Usually, leads, sales, and clicks all are considered valid outcomes for PPA programs. Most affiliate programs use these actions as the performance measurement unit for their campaigns. Maxbounty uses PPA or (CPA Marketing) for all types of lead generation methods.
Pay Per View (PPV)
Pay Per View (PPV) is used for video marketing. Youtube, Dailymotion, and Facebook videos use this as a unit of measurement for paying to their content producers. A ‘view’ is usually ten seconds long because that is the duration after which Google shows an ad.
Pay Per Mile (PPM) is a unit of measurement used for display advertisements. It is used by Google Ads for paying the users for every 1000 views. Every 1000 views are considered a ‘mile’ in the marketing terminology. Rates for per mile marketing varies from country to country. In the USA, the PPM cost would be higher while in India it would be a lot lower.
Native advertisements is a recent addition to online marketing. It came to light when Buzzfeed started adding promotional content in native or natural articles. These articles were about regular topics but promoted brand products by mentioning them somewhere within the article without breaking the flow. Readers would not think that these are promotional articles as nothing of the sort is mentioned in the content. Native advertising costs vary on various factors such as the content websites rankings. While going this route, make sure what Federal Trade Commission (FTC) says about them.
Sponsored posts is a practice in which one brand buys an article of a third-party website. In sponsored posts, the terms ‘Sponsored,’ ‘Paid,’ or ‘Promoted’ is mentioned at the top so readers know that this is not a regular publication of the website.
How to Choose Your Ecommerce Business Model?
It is very important to come to the right decision when choosing your ecommerce business model. Why? Because once you have selected one, your finances will be involved in your ecommerce business and so will your time and efforts. Therefore, it is important that you ask yourself some primary questions before you choose one. We have a few examples.
- What will you sell and how much will you sell it for?
- Will you sell a single product or want to sell a range of products?
- Who is your product for? Who is the audience you want to sell to?
- What would your audience/potential customers want? What will be their expectations?
- Which factors will you compete on? (price, quality, selection, service, the value you add, or something else)
Answering the above set of questions and being clear on them will give you a clear idea of what ecommerce business model would work best for your online store.
Which Type of Ecommerce Business Model should I choose?
As you must have observed by now that there are several ecommerce models available, each with its own set of benefits. The right thing to do is to analyze your business model and then pick the right model.
If you need more help on this topic, then let us know in the comments below. Also, don’t forget to subscribe to our newsletter for more in-depth articles like this one.
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