People had to go to physical stores or shops to buy things in the past. However, with the emergence of e-commerce, people shop from the comfort of their homes using internet-connected devices.
Getting your store online is the best way to market your products and maximize profits if you're a business owner.
Conversely, selecting the best e-commerce business model and strategy for your business isn't as easy as it seems. There are six different types of ecommerce business models, and it can be difficult to choose the one that suits your business.
In this article, we've carefully explained the differences and benefits of business models of e-commerce, making your selection very easy.
You might be wondering what are the ecommerce business models. eCommerce business models and concepts are the strategies businesses employ to sell products online. There are several ways startups operate to sell their goods and services, and it's important to adopt a model that best promotes your business.
Here are six different ecommerce business models and strategies suitable for getting your online selling started.
The Business-to-business model of e-commerce means selling goods and offering services to other businesses. In this model, your audience is usually companies who use your products or sell directly to the final consumer.
B2B requires lots of investing and huge capital as you'll be selling in large quantities. The model is commonly utilized by software e-commerce giants, including HubSpot, Salesforce, Survey Monkey, etc.
You can choose the B2B model if your business involves marketing to other businesses and you have the budget to maintain a bulk supply of goods.
If your business aims to sell directly to the end-users, then the e-commerce B2C business model is your best bet.
The business-to-consumer model is the most common e-commerce model, and it is simply selling directly to consumers online. Companies such as Alibaba, Amazon, and Walmart practice the B2C model.
You need to set up an online store and display the products you sell on the website. Then buyers browse through your site to place orders; you'll receive the orders, package the products, and deliver them.
With the B2C e-commerce business model, you can sell to people worldwide, and it doesn't require as much capital as B2B.
The consumer-to-consumer model is an emerging e-commerce business model involving buying and selling between consumers using third-party platforms.
You might want to sell a new or used product by listing it on a third-party platform, such as OLX, Craigslist, or eBay. Potential buyers will check and contact you to buy. This is simply how the C2C e-commerce model works.
The third-party platforms will only charge a little amount as commission for using their website.
Business-to-administration (B2A), also referred to as Business-to-Government (B2G), is a type of e-commerce business model involving companies and government agencies or public administrations. B2A companies are new ecommerce business models.
The B2A model enables companies or manufacturers to sell their services or products to government agencies by signing a contract, usually long-term. For example, a Saas company can sign a contract with the government to help maintain the state's military-grade web communications portal.
B2A strategies are good business models for e-commerce SaaS companies and other startups that render services to the government.
For freelancers and work-from-home individuals looking to offer their services to companies, the customer-to-business e-commerce model is a perfect choice.
C2B is a business model that helps businesses reach talents who can offer solutions or quality services. For instance, Upwork is a marketplace that connects freelancers and companies. The services offered include content writing, copywriting, graphic designing, web development, UI/UX designing, consulting, and many more.
The e-commerce model is slowly gaining popularity, and it helps individual customers set their prices and work with companies worldwide from the comfort of their homes.
Customer-to-administration, popularly known as customer-to-government, is another business model of e-commerce very similar to B2A.
In C2A, a customer conducts transactions directly with the government agencies by providing something of value via online means. This can be paying taxes, water, electrical bills, or something as simple as providing feedback on a government website.
Types Of eCommerce Business Revenue Models
Now that you know the differences between the different types of e-business models and strategies, selecting the best option for your business should be easy.
The next step is deciding which type of revenue model for e-commerce best suits your brand. Although this seems like a straightforward decision, it can also be quite challenging.
Here are the top six revenue models for e-commerce.
Selling your products to customers
Selling your products directly to customers helps you cut costs by eliminating middlemen.
The direct-to-customer model is a great way for online stores to build a loyal relationship with customers, and you can easily customize your customer experience.
Online retailers like Warby Parker, Glossier, and Casper practice this type of e-business model
Selling "White label" products
White labeling is a business model and strategy that involves branding a third-party product and selling it as your product.
White labeling is common in the health and fashion industry. An example is a cosmetic brand that buys a particular type of body cream from a third-party brand and sells it under its name. The image and design of the cosmetic brand will be presented on the product, depicting their ownership.
Wholesaling is an e-commerce model and strategy that involves selling goods in large quantities to businesses at a discounted price. This model is common to manufacturers and online retailers.
Venturing into wholesaling requires huge capital and large inventory. However, the model has high risks and thin profit margins. Many B2B brands and a few B2C companies apply this business strategy.
Want to sell products without holding inventory? Dropshipping is your answer.
Dropshipping is an e-commerce revenue model that allows you to market and sell items by acting as an intermediary between a buyer and a supplier. You eliminate the costs of holding inventory, warehousing, and shipping.
You can set up an e-commerce website and display products of different brands with your own added price. When a buyer places an order, you notify the supplier who handles the tracking and delivery of the product, then you gain a commission from the price.
You are only responsible for running ads and getting traffic to your e-commerce site.
Selling by subscriptions
A subscription-based e-commerce revenue model enables customers to buy and subscribe to a service or product for a defined period - usually lasting for a month or year.
Most software companies adopt the subscription e-business model, including Website builders, Payroll software, Accounting solutions, and many others. The model is not limited to Tech giants only, as e-commerce giants like Netflix, Blue Apron, Amazon Prime, and ButcherBox also use the model.
However, the business model doesn't apply to every business line; it works well if you're in the fashion, food, pet products, movie, or beauty industry.
Using a freemium model
Freemium is an e-commerce business marketing strategy that involves making some product or service features accessible to users for free while charging a premium price for the additional features.
The model is mostly used by Social media enterprises like Hootsuite, Music providers like Spotify, and Software companies that make games and mobile applications.
For instance, Spotify offers users a basic plan with few features and lots of restrictions. However, the premium plan allows users to enjoy all features and stream unlimitedly.
Benefits of Business Models of eCommerce
eCommerce enables online store owners to expand their business and also maximize profits. You can increase your business's profitability easily by using an e-commerce business model that aligns with your brand.
Here, we take a look at some of the benefits of business models of e-commerce.
Low operating cost and higher profits
Most business owners spend a handsome amount of money setting up their stores. You have to pay your staff, foot electricity bills, pay rent, buy stock, and manage product delivery.
With e-commerce, you can eliminate operating costs. Set up an e-commerce website, promote your products, and make profits at minimal costs.
Faster selling process
eCommerce helps customers spend less time shopping. Buyers can browse through an e-website to place orders. You receive orders and dispatch the goods, fast and easy.
Affordable advertising and marketing
Marketing your products has never been easier. You don't need the traditional hiring of sales marketers to promote your brand. You can run paid ads to generate traffic and connect with buyers faster.
eCommerce platforms help boost your brands' reach. Your website can be accessed by millions of people worldwide. A larger reach contributes to higher sales.
Given the fact that you can reach a whole lot of people around the world using e-commerce, it gives room for you to sell your products globally.
Amazon, for example, ships products to over 100 countries worldwide.
Types of eCommerce Websites
We've decimated the different types of e-commerce business models and revenue models so far. You should have an e-business model and revenue model in mind by now.
Moreover, there's one more aspect to consider before starting your electronic commerce journey. You need a website to market your products and services. There are multiple examples of e-commerce business model websites.
Here's a carefully curated list of the types of e-commerce websites and their functions.
Single brand website
A single brand website is a dedicated website that only promotes an individual brand's products and services.
When setting up your e-commerce store for the first time, a single brand website is best to start with. Your website displays only your goods and services, and you can sell directly to buyers without any intermediary.
With a single-brand website, you have more control over the pricing and branding of your business.
Online retail website
An online retail website is ideal for businesses that sell large quantities of products from multiple manufacturers. It is the most common e-commerce website.
The website is usually owned by a large entity, such as Amazon or Etsy. Multiple online vendors use online retail websites to promote their business, but they have no control over branding and pricing.
Online retail websites are good alternatives for smaller businesses or vendors who want to test customer demands for their products before starting out.
Affiliate marketing is a marketing strategy whereby businesses permit individuals to promote their products for commissions on the sale's price.
The seller is known as an affiliate marketer. For this to work, the affiliate marketer sets up an affiliate website to promote the owner's products. The affiliate marketer only gets rewarded a percentage of the product's price whenever a sale is made.
An e-commerce marketplace helps connect sellers and buyers under a single platform.
Sellers list products on e-commerce marketplaces to attract buyers. The marketplace owners are responsible for conducting customer transactions while the sellers handle the shipment.
Marketplaces impose certain rules and restrictions on what can be sold on their platform, and they take little commissions on each product sold.
Types of eCommerce Platforms
Successfully set up your website? What next?
Once you've gotten your website up and running, finding the right e-commerce platform for your business comes next.
An e-commerce platform is a software that runs your business' website. It offers tools for effectively managing and navigating your e-commerce site.
Here are five e-commerce platforms to consider.
Software as a Service, commonly known as SaaS, is a cloud-based platform with intuitive features that helps e-commerce website owners manage their online store properly.
It is easy to set up and doesn't require any technical learning curve. SaaS e-commerce solutions offer businesses responsive customer support, security and PCI compliance, integration compatibility, and lots of marketing tools.
An open-source platform is a software with free source code. Users can easily modify the free source code to suit their business needs.
Open-source software is perfect for low-budget businesses or startups since it is free. It offers high flexibility and customization, allowing users to have full control over the interface of their website.
However, the platform is vulnerable to hackers since it has free source code, making it insecure.
A licensed e-commerce platform is software you purchase for your business. It comes with a support package and gives you access to updates for up to a year.
The software is similar to an open-source platform as you need to get hosting, update it, and install the software yourself. Unlike open-sourced platforms, the software isn't free. It attracts a starting fee and doesn't provide a source code.
It is a better alternative to an open-sourced platform if you have the time and financial capability to buy a license and set up the software.
Proprietary software is software developed solely by a business. It offers full control of the data centre to users.
Business owners with coding know-how can opt for a proprietary e-commerce platform. It is tailored to meet the exact needs of a business.
However, it is quite exorbitant to create, and it requires full responsibility of users for its security and PCI compliance.
PaaS is an acronym for Platform as a Service. It is best for large companies as it helps them handle advanced and complex business aspects.
You can build your software on a PaaS platform and connect it to other business systems. The e-commerce platform is a common option in large B2B organizations.
What Are eCommerce Business Models Classifications According to What They Sell
The e-commerce market is voluminous, and we've discussed the business models in e-commerce, the revenue models, e-commerce websites, and various e-commerce platforms.
Additionally, we can classify e-commerce business models further based on the kinds of products they sell.
Below are the e-business model types according to the products sold.
Stores that sell physical goods
The key to success in your e-commerce business is selecting the best and hottest products to sell.
The most common form of e-commerce business is selling physical products. You can have a physical store and still set up a store online. Depending on the amount of stock you have, customers can place orders on your online store, and you'll deliver the products to them physically.
This can also be applied to rendering services. Customers can book a session online, and you'll fix a date to render your services to them.
At times, running an e-commerce business doesn't require holding inventory as you can simply promote services that help businesses sell their products. This form of e-business is referred to as being a service-based etailer.
A very good example is having a group of house cleaners or hairstylists who can render in-house services to customers. You can set up a website that promotes these services, and interested customers will reach out.
Stores that sell digital products
There's a growing number of businesses selling digital products. Products can range from songs, videos, pictures, ebooks, courses, and many more.
All these products are digitized and only exist on the web. Giant e-commerce platforms such as Spotify, Udemy, Amazon Prime, and GameMaker, sell digital products.
Social Media and eCommerce
The world is going more digital, and the e-commerce market is continuously evolving. Over the last decade, one significant change to the e-commerce industry is how businesses have increased their reach and online presence through social media.
Most businesses now have accounts on virtually all social media platforms. They can now easily generate traffic, leads, and profits by leveraging the vast number of social media users.
Some brands use social media to promote their products. They post products on their pages and also run Ads. Additionally, customers can easily reach out to businesses to make inquiries or lay complaints.
With the aforementioned, we can see that social media is of utmost importance to e-commerce, and it helps businesses in so many ways.
Selecting Your eCommerce Business Model
Now that you know the different types of e-commerce models, strategies, revenue models, websites, and platforms. It's pertinent you know some other key areas of the e-business sector before getting started.
Here are some questions you need to answer.
Who is your consumer?
The lifeblood of any online business is a set of responsive customers.
Prior to kick-starting your e-commerce business, you need to define your target audience. Are they private individuals or government agencies? Public administrations? Or other businesses? These are questions you need to answer before venturing into online selling.
What are you capable of?
Another vital factor to consider is your budget and the type of products or services you can offer.
You can sell high-end products or stick to low-budget ones depending on your financial capability. What kind of goods and services are you capable of providing? Are they pet products? Apparel for private individuals or Government agencies?
Also, you need to determine how well you can market your products to cut costs and maximize profits.
What is best for your product?
Determining the best way to improve your products to serve customers better is also crucial when starting your business.
You can decide what is best for your product by asking who would your product best serve? Where exactly would your product demand be high? Who needs your product the most?
Studying e-markets and analyzing the demand of individuals and organizations is important in choosing the best model.
What is your positioning?
Lastly, you need to know your standing in the e-commerce market to gain ground quickly.
Do you know what your place in the e-commerce market is? You have to know your competitors and devise means to edge over them. Knowing your market position allows you to make proper preparations to attain a competitive advantage.
Examples of eCommerce Business Models
The e-commerce market is enormous and there are so many examples of e-commerce business models.
There are popular e-stores like Amazon, Aliexpress, and Walmart. There are also streaming platforms like Netflix, Spotify, and YouTube.
Furthermore, some e-businesses serve as marketplaces for connecting freelancers and companies, such as Upwork and Fiverr. Lastly, there are tech giants like Microsoft, Apple, and Samsung.
Successful Examples of eCommerce Business Models
The e-commerce market has undergone tremendous transformations over the last couple of decades.
The industry has grown from selling physical products to digital products, software, and other human necessities. With e-commerce, people can get what they want easily without hassle.
Small-time businesses such as Amazon and Walmart have grown to become internet giants with millions of products available and millions of transactions yearly, making the e-commerce market worth trillions of dollars.
Despite the immense potential and incredible worth of the e-commerce market, it isn't so easy to thrive in the sector.
Although there are many successful e-commerce business models, it can be difficult to achieve such heights without a proper plan and strategy. Businesses face lots of competition in each niche, and according to forensics, most startups fail in their first ten years. The failure results from a lack of knowledge about the business models and inadequate capital to maintain the business.
What is e-commerce and different types of e-commerce?
eCommerce is simply the trading of goods and services online. There are different ecommerce business models, including business-to-business, business-to-consumer, business-to-administration, business-to-government, customer-to-customer, and customer-to-administration.
What type of business plan do I need for ecommerce?
To be successful in e-commerce, you need to adopt a suitable e-business model, apply a reliable revenue model, develop a responsive website, and use a dedicated e-commerce platform.
What type of license is required for ecommerce?
Most businesses don't need to have many licenses for e-commerce. You can acquire one of these licences, including a business operation license, employer identification number, seller's permit, and sales tax license.
What are the different categories of e-business?
E-business is categorized into selling physical goods, digital goods, and services.
What are the principal e-commerce revenue models?
E-commerce revenue models that are profitable include selling products directly to customers, selling white-label products, wholesaling, dropshipping, freemium, and selling by subscriptions.
Which ecommerce type is the most successful?
The most successful e-commerce type is the Business-to-consumer. This is due to its popularity, and it follows a standard retail model.
Are there specific ecommerce platforms for each ecommerce type?
Yes. The types of e-commerce platforms for running e-commerce websites are Open Source, SaaS, PaaS, Licensed, and Proprietary.
What percentage of ecommerce is mobile?
The percentage of mobile e-commerce constitutes a large volume of the market. The percentage has risen from 52% in 2016 to about 72% in 2021.
Is ecommerce business good to start?
Yes. An e-commerce business is profitable and easy to set up. However, it is important to have background knowledge and a proper plan before venturing into the business.
How to start an ecommerce business?
Starting an e-commerce business is quite simple. You can use services that can help you set up your online store, or you can decide to design your website yourself. Then you select the products you wish to sell, look for your target audience, and run a marketing campaign.
Which business is best for ecommerce?
The 5 most profitable businesses, according to marketing studies and demand, are grocery products, dropshipping, freelance writing, digital services (games, music, and videos), and SEO business.
What ecommerce business makes the most money?
The most profitable e-commerce business sells common household items such as food, tools, books, clothing, and home appliances.
How much is ecommerce worth?
With over 2 billion people buying products online, the e-commerce market is worth 4.3 trillion dollars.
Is ecommerce still growing?
Yes. eCommerce is growing at an exponential rate yearly. It has been projected to increase by 16% by the end of 2022.