Thinking about starting an online business? Or maybe you’re an entrepreneur who wants to expand your ecommerce business. Here we’ll take a look at what ecommerce is, the different types of ecommerce, and some of the popular ecommerce revenue models.
5 Main Types of Ecommerce Business Models
Ecommerce– short for electronic commerce– involves sales of products or services. It’s just that ecommerce sales take place mostly, or completely, online. Here are the four main types of ecommerce business models:
Business to Business (B2B ecommerce model): The B2B business model includes any type of business product or service sold to another business. SaaS (software as a service) is a great example, but the category as a whole is large, including product sales as well as freelancers selling services.
Business to Consumer (B2C ecommerce model): In this popular type of ecommerce, businesses sell products directly to consumers. B2C businesses can include everything from a Shopify store to selling on online marketplaces like Etsy or Amazon.
Consumer to Consumer (C2C model): Before the rise of ecommerce, if consumers wanted to sell to other consumers they’d hold a yard sale, go to local events like flea markets or crafts fairs, or use classified ads to sell their products. Today, platforms like Craigslist, eBay, or Poshmark make it very easy for consumers to sell to other consumers.
Consumer to Business (C2B model) - In this model a consumer sells a service or perhaps a product to businesses. Again, this can quickly turn into B2B as the consumer becomes a small business owner, but the point of entry is flexible.
B2G, or business-to-government is also a very robust category.
It’s worth noting that in the C2B or C2C ecommerce models, the consumer may quickly become a business owner even if they don’t think of themselves that way.
Thinking in these terms can help as you decide the best way to position and sell your products or services. It may be easier to sell a large quantity of a product to a business or a government agency, for example, than to sell individual quantities to consumers. But the sales cycle may be longer, as businesses often take a while to make a purchasing decision.
5 Types of Ecommerce Revenue and Value Models
Now that you know what ecommerce is, and some of the different types of ecommerce business models, it’s time to look at some of the popular revenue models. These are some of the ways ecommerce businesses make money.
With affiliate marketing you are essentially an intermediary between the end-user and the company that has a product or service to sell.
It is a viable revenue model and one that doesn’t require a significant investment, if you’ve built some kind of online audience. You sign up as an affiliate, then get affiliate links you can promote in email, on your website or through social media. When individuals click through and buy products using your tracking links, you get a commission.
With drop shipping, you essentially act as an intermediary between the company with a product and the purchaser. Ecommerce drop shipping businesses usually take orders and send them to a supplier who takes care of the actual fulfillment.
Drop shipping naturally attracts those that want an ecommerce business that doesn’t require them to manufacture or create products, or to deal with the physical shipping of products or the returns.
White Labeling/Private Labeling
With white labeling or private labeling, someone makes a product to be sold under another brand’s name. Whether it’s a private label or white label relationship depends on how much customization is done by the manufacturer. Either way, it’s an opportunity to sell products either without having to be a retailer or without having to be the manufacturer/product developer.
Most people know what wholesaling is. You sell large quantities of products, usually at lower rates, to big companies like Walmart who then resell to consumers. Wholesaling may require involvement in the manufacturing process, but you don’t have to deal with individual customers and you may be able to sell more products.
Subscriptions can be created for physical products, like a monthly subscription box of specialty foods or pet toys. Subscriptions for digital products are also popular. Email newsletters like Substack where a consumer pays a monthly fee, Patreon sponsors of podcasts, and apps that charge recurring fees are all examples of subscription-based digital products.
Subscription services can create fairly predictable monthly recurring revenue, which makes a business more attractive to investors or buyers if you’re building a business to sell. They can be used in both the B2B model and the B2C model.
Many businesses find success by creating their own products and selling them in a dedicated online store. This is not the easiest type of business to start. You need to create the product, a website and build an audience, often from scratch.
But it does give you more control over all aspects of your business. And though our focus here is on ecommerce businesses, you may find success combining an ecommerce store with a physical storefront. Some consumers prefer the full retail experience while others want to shop from wherever they are.
Pros and Cons of Ecommerce
A larger pool of potential customers in a large geographic area
No need to pay overhead on a physical store
Potentially lower labor costs
May reach customers through targeted advertising
Customers can purchase your products at any time
Shipping and fulfillment costs
May need to build an ecommerce website if selling directly
Need to photograph products and create descriptions
Potentially high customer dissatisfaction rates/more returns
Online advertising costs can be significant
How to Choose an Ecommerce Business Model
Choosing an ecommerce revenue and business model is going to depend on a lot of different factors. Here are some things to consider:
Target customers. Who is mostly likely to buy your product?
Your previous experience. Beginners may not want to sink a lot of money into manufacturing an untested product. Affiliate marketing might be an easier way to get started.
Location: Do you want to sell in a specific geographic market? If so, what are the barriers to entry? Monitoring shipping costs in particular can be crucial to profitability.
Your products. Do you want to create your own products or sell other people’s products? Where do customers typically buy products like the ones you want to sell? How much competition is there, and what are the margins?
Type of ecommerce platform. Do you want to build your own audience or piggyback on an online retailer like Amazon?
Social media/advertising. How will you find your target customers, and what experience do you have with these marketing platforms?
There’s no single right answer to all of these questions. If you are someone who is already an online influencer or you really enjoy social media, you may have success by first selling other people’s products and then creating your own. If you don’t enjoy social media might be more comfortable selling to businesses or even to the government.
How to Grow Your Ecommerce Business for Success
Ecommerce is competitive and often changing. What works today may not work tomorrow. Innovators in this space need to adapt and take advantage of trends in ecommerce.
"Two or three years ago you could scale a 7 or 8 figure ecommerce business with a product and Facebook ads," says Zach Johnson, founder and CEO of dash.fi. "But now you'll need to diversify your traffic sources to include other platforms or perhaps influencer marketing."
To build a solid business, you’ll likely need a blend of organic strategies, like creating articles optimized for search engines (SEO) and email marketing, along with paid advertising on social platforms or search engines like Google and Bing.
As new trends like AI for ecommerce evolve, your business strategy will evolve too. But it’s not too late to start a successful ecommerce business if you’re willing to put in the work, and to continue to learn as you grow.