How people shop has greatly changed over the past two decades. Instead of heading to brick-and-mortar stores, many shoppers now buy many of the things that they need online.
Because of the increasing desire to purchase on the internet, the importance of ecommerce today can’t be denied!
When you hear the term “ecommerce,” you may primarily imagine shoppers purchasing services and products on the internet for their own personal use. However, there are several different kinds of ecommerce business models that exist.
Understanding these ecommerce strategies might help you to choose an appropriate option for your own online store.
Types of ecommerce business models
Ecommerce includes all of the online marketplaces on the internet that are used to process electronic transactions. These marketplaces connect sellers and buyers. If you want to start an ecommerce business, you’ll want to begin by considering what kind of dealings your store will involve.
Think about your planned ecommerce venture and who your ideal buyer is. The different business strategies represent various transaction dynamics. Each model describes the types of online activities that your website will handle.
To provide you with a better understanding of the options available to you, here are six of the most common ecommerce models found in online sales.
Business to consumer (B2C)
The B2C model is the most common one in ecommerce and is what most people imagine when they think about online sales. When you operate a B2C, you’ll be forming relationships between your business and the shoppers who are buying your merchandise.
This strategy is favored by many shoppers. They can search online to find the best prices and items that they couldn’t otherwise locate in brick-and-mortar stores. Ecommerce websites that use this option can create more interactive and personal relationships with their customers.
Businesses operating as B2Cs may sell both products and services. Consumers purchasing from these merchants can generally order the items that they need quickly and easily.
Business to business (B2B)
Online stores that operate under the B2B ecommerce model involve sales to other companies. In many cases, the B2B plan describes dealings between those who make products and wholesalers who sell the products to their customers.
A B2B operation generally experiences a longer sales cycle than a B2C. However, it also usually has orders with higher value and a larger number of recurring transactions. Launching a B2B website may require greater capital to begin.
Furthermore, operating a B2B is often more complex than operating a B2C. There can be numerous kinds of payments involved, including ACH payments, quotes, terms, checks, and purchase orders.
In addition, B2B ecommerce channels typically have extensive catalogs. They might rely on both inbound and outbound sales.
Business to administration (B2A)
While the previous categories are the primary strategies for an ecommerce website, others involve relationships with a different kind of entity. The B2A model includes transactions between businesses and the government or public administration.
A B2A might only have a government agency as its sole client. A business could supply specialized contractors to the government to complete certain kinds of work.
Ecommerce websites operating as B2As supply a range of services for public administration, including law, employment, and social security.
Consumer to consumer (C2C)
A C2C business deals with transactions involving consumers trading, buying, or selling goods and services. The business then usually makes its money by charging users transaction or listing fees.
With the growing trust in ecommerce, a handful of these online marketplaces, such as eBay and Craigslist, have become especially well known.
However, a C2C requires extensive planning, and there are plenty of other auction and classified sites that didn’t last long because of flawed business strategies.
Consumer to business (C2B)
The C2B model isn’t as common as others in ecommerce. This approach is used by those who post their work on a platform for bids.
Affiliate marketing sites and freelancer platforms are examples of C2Bs. For instance, Upwork and Textbroker allow freelancers to connect with businesses to supply content.
Similar sites exist for photographers, graphic designers, and others who want to offer their services or products to companies.
Consumer to administration (C2A)
The C2A model includes sales activities between consumers and government agencies or public administration. A company utilizing this strategy might facilitate the payment of income taxes to the IRS or tuition to a university.
Choosing an ecommerce revenue model
After you’ve chosen your business model, the next thing you should consider is the revenue strategy that you want to use. This involves thinking about how you want to manage your inventory or source items for your store to offer.
Picking your revenue strategy generally requires you to examine the business space that you have.
Direct to consumer
Ecommerce websites that operate under the direct-to-consumer revenue model sell their products directly to consumers. In the past decade, several brands have experienced rapid growth and have enjoyed loyal customer bases by using this strategy.
Casper upended the traditional retail mattress marketplace by selling its bed-in-a-box mattresses directly to customers. According to CNBC, Casper was launched in 2014 and grew into an ecommerce behemoth valued at more than $1 billion by 2019.
A drawback of operating your ecommerce website using the direct-to-consumer revenue strategy is the need for warehouse space. If you choose this approach, you need to possess space to store your merchandise.
It also requires that you have a strong inventory management system to be able to track the items that you have available at all times.
Dropshipping
Dropshipping can be a great choice for retail fulfillment. It’s especially good for newcomers to ecommerce who have limited budgets when they launch their sites. With this revenue option, you can market items on your ecommerce website without having to stock inventory.
When shoppers place orders with you, you purchase products from your suppliers. The suppliers ship the items to your customers for you.
Dropshipping offers multiple advantages. You don’t have to manage and order stock, have a warehouse, and ship items.
In addition, it allows you to begin with little capital and scale your business up when you’re ready. Dropshipping also lets you focus on customer service, marketing, and website design.
However, there are several drawbacks. Since you don’t have control over the items that customers can purchase, your business's credibility could be damaged by a bad supplier. You’ll also still need to manage problems with delivery tracking.
What’s more, competition is intense among dropshipping businesses, so might need to make more of an effort to ensure that yours stands out from the crowd.
Print-on-demand
While the print-on-demand approach is similar to dropshipping, there are some important differences. Online stores that use this strategy offer custom designs on different kinds of merchandise. For instance, your site might involve selling a design for coffee mugs, t-shirts, sweatshirts, or phone cases.
When a customer places an order with your print-on-demand business, a manufacturer prints your custom design on the ordered item. The third-party printing company then packs it in your branded packaging before delivering it to your customer.
Printing on demand offers comparable benefits to dropshipping. Both require very little money to begin. You only have to pay fees to your suppliers when the orders are shipped. Your orders are automated by third parties that also take care of inventory management.
The main drawback of printing on demand is that you need to have great graphic design skills or hire somebody to do this for you. Furthermore, you must excel in marketing and provide excellent customer service. Printing on demand is also highly competitive.
Private labeling
If you’re an entrepreneur with a fantastic idea but with no capacity to manufacture your products, private labeling might be a good option for your business!
With this method, you take your idea to manufacturers that can create your merchandise for you. You then market your products and make them available for purchase under your private label.
This strategy is growing in popularity. With this method, products are branded, developed, and sold by a single company, which helps to differentiate them from the goods of competitors.
The brand owners own the specifications, designs, and production techniques. They also hold the exclusive right to sell their merchandise under their brands.
Private-label products can bring high-profit margins. Since the brand owners can control the operation and manufacturing costs, they can also minimize the costs they pay to produce the merchandise that they offer.
However, it can be challenging to find the right manufacturer for your private-label products.
Some private-label sellers collaborate with private-label manufacturers in developing countries to reduce the cost per item. These sellers might have to pay a large amount of capital up front to place orders for large product batches.
Even if the prototype for your product is perfect, a private-label manufacturer can’t guarantee that your product batches are free from defects. This makes quality control management highly important to avoid problems.
Subscription
The subscription revenue model has also become increasingly popular. For example, busy consumers subscribe to meal delivery services when they don’t have time to cook. The demand for convenience has led to an explosion of subscription offerings among online stores.
If you operate a subscription website, customers can subscribe to your service for a set time. Subscription online stores typically offer subscriptions on a monthly or annual basis.
Your customers can either renew or cancel at the end of their subscriptions. They can also enjoy savings through ongoing orders.
Providing a subscription service offers several advantages. Selling subscriptions can help you to minimize your abandonment rates.
Subscriptions can also help you to build a high level of customer loyalty and retention. With the subscription strategy, you’ll be able to more easily plan for the inventory that you need and your deliveries.
Another advantage is that many products work with this approach, including books, meals, wine, and others!
White labeling
White labeling functions similarly to private labeling. With this method, ecommerce sites affix their brand names to generic products that are sourced from suppliers.
White-label organizations don’t have to manage quality control or manufacturing. However, they must deal with substantial competition.
You can control the design of your packaging but not the quality or specifications of your product. This means that you’ll have to differentiate your merchandise with marketing strategies.
Inventory management is another issue faced by those using this method. Since suppliers usually set a minimum quantity for orders, resellers must understand the demand for their white-label products.
If you don’t effectively manage your inventory, you could be left with a large number of unsold products.
Wholesaling
Online stores that use a wholesaling revenue method offer large quantities of merchandise at discounted rates. In the past, wholesaling was primarily used by B2Bs. Today, however, nearly anyone can offer wholesaling as a B2C or C2B.
To create an ecommerce website using this revenue approach, you might need to find business partners. This can take a significant amount of effort. In addition, you might have to explore a variety of sales channels, including trade shows, influencer marketing, and advertising.
Final thoughts
Although there are both advantages and disadvantages to ecommerce, it’s allowed many entrepreneurs to launch new businesses.
If you’re interested in creating your own online store, hopefully this article has helped you to decide which of the different ecommerce business and revenue models best fit your vision.
Launching an ecommerce website requires research and a willingness to invest time and effort, but it can be incredibly profitable. Whichever business model you go with, note that you’ll want to choose an excellent online store builder like WiziShop to create your site.
A top-notch website is key for success in online sales, and it’s essential that yours has all the functions required for electronic commerce!
