When starting an eCommerce business, many entrepreneurs jump directly into creating an online store and forget about the core of any business – creating a business plan that will keep the store floating.
Since you landed on this page, you are most likely not that kind of person and want to figure out the best type of business model for your eCommerce site, right?
Well, then, this article is for you. In this article, I will tell you about every eCommerce business model with examples and highlight their pros and cons.
Keep reading till the end and I’m sure you’ll get a complete idea about each business model and help you make an educated decision.
If you are ready, let’s get started with the most common eCommerce business models.
Traditional Ecommerce Business Models
These types of eCommerce businesses are mainly classified based on the transactional relationship between the buyer and seller. Whatever kind of eCommerce business you want to start, it is most likely to fall into one of these business models.
1. B2B Ecommerce Business Model
B2B eCommerce refers to the online order transactions between two companies. This type of business model helps increase the effectiveness of an organization’s sales efforts.
B2B eCommerce ranges in different industries and verticals, including machinery, equipment, consumer goods, etc. One crucial factor to note is that B2B eCommerce takes a longer sales cycle but helps achieve considerable profit margins.
Some of the popular examples of the C2B eCommerce business model are Qualtrics, Vitality Medical, IndiaMart, Udaan, etc.
Advantages of B2B Ecommerce –
- Considerably high-profit margin
- Increased sales
- Relying on factual data to streamline the process
Disadvantages of B2B Ecommerce –
- Tough competitive landscape
- Longer sales cycle
- Difficult to make customization or personalization
- Imposed market conditions
2. B2C Ecommerce Business Model
B2C eCommerce is a business model in which businesses sell their products or services directly to customers. Be it anything – whether you buy accessories, groceries, household essentials, shoes, apparel, gadgets, etc it comes as a part of a B2C transaction.
This model focuses on online transactions, i.e., via eCommerce website, payment links, or pages.
Also, the reason to emphasize more on the B2C business model is its high convenience. While you have your coffee, you can browse through your favorite products, add them to the cart, and checkout immediately with just a few clicks.
Some of the popular examples of the B2C eCommerce business model are Starbucks, Nike, Amazon, etc.
Advantages of B2C Ecommerce Business –
- Easy to establish a connection with your customers
- Works well for any type of product you want to sell
- Short buying journey
- Take your product virtually to any part of the world
Disadvantages of B2C Ecommerce Business –
- Requires constant engagement to drive sales
- Difficult to retain existing customers due to high competition
- Requires constant innovation of ideas
- Managing growing inventory is challenging
3. C2C Ecommerce Business Model –
Consumer-Consumer Business Model (C2C) connects private individuals to do business with one another. In this model, the exchange of products or services occurs between the consumers.
In simple terms, both sellers and buyers are consumers, not businesses. A consumer can buy or trade products/services from another individual via a 3rd party website.
A C2C business model enables comfort as both buyers and sellers don’t have to visit a physical store. They can conveniently do business at their own pace. Sellers will list the product on the site, and the buyers will get in touch with them.
Some of the popular examples of the C2c eCommerce business model are OLX, Quickr, eBay, and others.
Advantages of C2C Ecommerce Business Model –
- Higher price flexibility.
- Sellers get the potential to reach a large audience.
- Both buyers and sellers can connect quickly.
Disadvantages of C2C Ecommerce Business Model –
- Trust is a big concern as there might be scammers.
- No assurance until you receive the payment.
- Absence of standard procedure.
4. C2B ECommerce Business Model
Consumer to Business is a type of eCommerce business model in which the consumers sell products/services to the businesses. This is an inverted approach to the B2C model where companies sell products to consumers.
The ultimate responsibility of the C2B model is that more power and authority lies in the hands of the consumer to deliver high value to the businesses that rely upon them.
For instance, the businesses in this model can buy products or services from individuals directly or via an intermediary. The intermediary will act as a bridge and take care of important activities in this process.
Some of the popular examples of the C2B eCommerce business model are Upwork, Survey Junkie, Fiverr, etc.
Advantages of C2B Ecommerce Business –
- Increases market reach as individuals connect with businesses to provide value.
- Increase in brand awareness.
- Businesses can build good relationships with customers.
Disadvantages of C2B Ecommerce Business –
- Might be unstable as it is a new model
- Loss of consumers’ information if companies fail to secure their data
- Fulfillment of orders can be a problem if there’s a lack of expertise
Value-based Ecommerce Business Models
Once you have decided on the above-listed eCommerce business model, you will have to opt for at least one of these business models, which is based on how you will handle your inventory and delivery products to the end consumers.
Dropshipping is the simplest form of eCommerce business in which you just have to set up an online store, find a product supplier, and let customers place orders from your site. Afterward, the supplier has to fulfill the order – from order processing to shipping, the supplier will handle everything on your behalf.
For beginners, dropshipping might be a great idea to step into the eCommerce business as there is no high capital investment and you don’t have to worry about inventory management as well. You just need a trusted supplier with quality products and provide excellent customer support.
Advantages of Dropshipping Business –
- Low-cost investment.
- Access to sell niche-based products.
- Freedom from handling complex inventory.
- Scalability potential.
- Reduction in order fulfillment costs.
Disadvantages of Dropshipping Business –
- Quality of products is at risk as it depends upon the supplier you choose.
- Lack of control in the supply chain.
- Difficulty in building your brand.
- Customer service can be challenging.
Further reading –
Print-on-demand is another form of dropshipping business model in which the supplier creates products only after receiving the order, allowing printing of customized designs in single or bulk quantities.
It is a simple business model in which you have to set up an online store and collaborate with a supplier who specializes in printing customized designs on products and provides excellent order fulfillment services.
Just like the dropshipping business model, in this type also, you don’t need to manage inventory or make huge upfront investments – just ensure your store is running smoothly and the rest depends on your supplier.
Advantages of print-on-demand business –
- Easy to set up
- No inventory, packaging or shipping trouble
- No machinery is needed for printing
- Easy to establish your brand.
Disadvantages of print-on-demand business –
- Lower profit margins
- No control over printing and product quality
- Order fulfillment takes longer
Further reading –
This is a popular type of revenue model. In this model, customers have to pay a recurring fee for the subscribed product either monthly or annually.
It is a profitable business model as customers tend to pay consistently, increasing the overall cash flow. Also, it is possible to create long-term associations by offering the best product or service that matches the customer’s expectations.
On the other hand, it also increases convenience as customers can completely utilize the potential of a product or service for the amount they choose to pay.
Advantages of Subscriptions Business –
- Hassle-free business model.
- Improves the brand value.
- Gain customer loyalty.
- Reduces the cost of acquiring new customers.
Disadvantages of Subscriptions Business –
- Chances of high churn rate.
- Increasing competition.
- Must constantly innovate the product to retain subscribers.
Wholesaling can be defined as purchasing goods directly from manufacturers at a discount price and then selling it to retail store owners in bulk for a comparatively higher price process but less than the retail price of products. In return, they sell products to customers at retail prices.
The ultimate motive of a wholesaler is to constantly supply goods to the retailers or intermediary businesses, which helps satisfy the needs of the consumers.
One thing to remember is that wholesale and warehouse are all concerned with the product’s volume. So you need to have a regular check on inventory, shipping, and other processes.
Advantages of Wholesaling Business –
- Fast-moving of goods due to increased demands
- Higher revenue gain
- Less wastage of products/goods
- Products will be available at cheap rates
Disadvantages of Wholesaling Business –
- Additional costs are involved in maintaining the warehouse
- Some products might incur faults during the time of storage
- Finding the right wholesaler is a challenge as some might charge higher prices due to product demand
Further reading – Best eCommerce platform for wholesaling
5. White Labeling
The idea behind white labeling is simple – you like a product that another company is already selling or manufacturing; you can choose to rebrand the same product under your brand name and sell it in your store.
In simple terms, white-labeling refers to the process of selling a company’s product in your name. The company shall remove all its branding elements like logo, and color and the product will be promoted with your brand identity.
White labeling is a good option, but you must understand its scope before choosing it as your business model. If a product has lost its popularity among the customers, then it will be difficult to sustain.
Advantages of White Labeling Business –
- It saves your time and pressure in building products
- It doesn’t require any prior skillset
Disadvantages of White Labeling Business –
- High competition as the manufacturer supplies products to many sellers
- It is not preferable for smaller brands as white labeling requires the brand to be popular to attract customers quickly.
- There is no direct relationship with the end customer.
How to choose a suitable Ecommerce Business Model?
The key to selecting a suitable eCommerce business model depends on several factors. However, if we go beyond considering multiple factors, here are a few questions that you should ask yourself to determine which eCommerce business model would be the best for you –
- Who are my ideal target consumers? Create a persona, find customers that suit your persona, and research their buying behavior.
- What product type am I going to sell? Identify whether it falls under transaction or revenue-based.
- At what level does it align with your value proposition? Analyze whether the chosen eCommerce model is capable to map your unique value proposition.
- How can the business model fulfill the buyer’s demands? Research on the effectiveness of the business model and how it enhances the buyer’s journey.
- How does the business model help in making your product better? Examine positioning and scalable aspects by understanding your target market.
Once you have answers to these questions, you will know which eCommerce business model would be perfect for you.
Above all, you will know what to look for in an eCommerce platform to build your online store. So, if you have decided on your business model, you should look into our list of best eCommerce platforms to start building your business.