Sales from online stores are expected to increase by 78{21dc2fe1b43c4cf57a2e25a56b286f09fbb32a45ddf34dcf04be366972dd7b06} by next year. However, without a foundation of understanding, many online businesses are also assured to fail. The set up of most eCommerce businesses is fairly simple, but to be profitable you must understand the different models that are available and what options are right for your business and expansion needs.
There is a wealth of information online that can help you to learn more about each type of business model before you start your eCommerce business:
| Major Business Classifications | Business Revenue Models | Product Revenue Models |
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Identifying an eCommerce platform that suits your preferred business model is the next step.
Major Business Classifications
The Internet has created an online space for buyers and sellers to meet and conduct online trade. This trade is between business, consumers and peers.
Part of realising your business aspirations is knowing your customer, be they B2B, B2C, C2C or C2B.
B2B
Business 2 Business models focus on providing products from one business to another. Many B2B operators are service providers, such as software companies, supply companies, hosting companies, and online security providers.
B2B operators tend to work in a closed-loop within their respective industries. You require good capital and reliable contacts to establish a B2B operation that has true ROI potential.
B2C
The business to consumer sector is the largest eCommerce market, with many online stores represented in brick and mortar locations as well. B2C sales are the traditional retail model, where a business sells to individuals, however, transactions take place online as opposed to in a physical store.
B2C retailers are present all over the world with many brands providing goods or services to an international audience. While this is the largest market it is also relatively easy to establish a healthy B2C business online with low investment and overheads.
C2C
A consumer to consumer model allows people to buy, sell or trade items on a platform for a small fee. Peer to Peer sales, as the C2C model is otherwise known, are common but often unsuccessful ventures.
While sites such as eBay and Craigslist offer consumers the opportunity to source rare or interesting items, the sites are often used for fallacious purposes and can easily fail on the back of claims made against the platform provider.
C2B
Consumer to business is when the consumer sells goods or services to businesses, much like a sole proprietorship serving a larger business. This includes affiliate marketing and office-sharing.
Government / Public Administration
There are other types of eCommerce that include government/public administration eCommerce transactions with businesses or consumers.
- Business to government (or B2A), are businesses whose sole clients are governments or types of public administration. Such services include providing contractors and services for government agencies.
- Consumer to government (or C2A) includes individuals paying for fees or services online, such as paying government taxes or paying university tuition fees.
- While these payment services are growing, the ability to be a provider in this field requires established business foundations, proven track records and securing of contracts ahead of competitors.
Revenue Models
Your inventory management and product sourcing is a vital component to your overall success. For those wanting to distribute physical inventory, consideration must be given to product sourcing, storage options, and delivery methods.
Drop-Shipping
Dropshipping is a way to have an eCommerce business without having the responsibility of manufacturing, sourcing or logistics.
Process
- The customer makes a purchase on your website
- Order is sent to drop shipper
- Order is dispatched by a drop-shipper
You essentially act as an order processing site. However, you are also the first contact for buyers. So if the products are not as advertised, the delivery is slow or the overall experience is poor, the reviews are placed on your site. It is difficult to control negative feedback and you might be taking the responsibility for sub-par products.
Wholesaling and Warehousing
Wholesaling and warehousing require a substantial initial investment. Management of inventory, customer orders and shipping information are vital to the success of the project, as is a site that is well-maintained and marketed.
Process
- You make an order from a supplier
- Supplier distributes the product to your warehouse
- You sell the product on your website
- You distribute the product to the customer
The advantage is that you have control over the quality of the products for distribution and you manage the logistics. The disadvantage is that overhead costs are high.
Private Labeling and Manufacturing
If you have a product idea but do not have the investment capital or desire to enter manufacturing, you can outsource the task. You can send your plans or prototypes to a contracted manufacturer who produces the product to your specifications, which can then be sent directly to you, your consumer, or to a third-party website such as Amazon.
On-demand manufacturing means that if you encounter quality control issues you can change suppliers, and you are not overproducing a product that will not be sold. While the costs are higher than long-term self-manufacturing, the benefits of flexibility and stock control mean that its a good solution for products that are new to the market.
White Labeling
White labelling means buying a product that is produced by another company but offers you purchase and sales rights of the product with your brand on the packaging and label. Many B2B operators offer white label services for banking solutions.
Process
- Order a white label product
- Your brand is placed on the product
- The customer purchases the product with your brand
Most white label product providers will have a minimum order requirement, so you need to know that your product will sell before committing. This type of solution is also used for creating promotional products, such as pens or lanyards.
Subscription
Subscription services are an eCommerce goldmine. Spotify, Netflix, iTunes, YouTube and many other services generate massive income from providing subscription services. However, you need to have a reliable API provider and understand the costs of chargebacks before launching a subscription service. There are also numerous legal obligations to understand in various regions. It is best to seek professional advice about your specific business plans to better understand how subscription services can be operated.
Process
- The customer signs up with a credit card for ongoing services
- Subsequent orders are billed to that same credit card
There are online businesses that offer physical subscription services too. These companies send regular products, such as clothing or dog toys or tea samples, to those that have signed up for the service. Some allow people to choose what they want in their box each month, while others send a regular package of items based on customer preferences stored online.
Product Revenue Models
Single Product Model
Focusing on a single product, for example, SaaS, means that you can offer that same product at different levels to either public or business clients, or even both. For example, you might offer an email service that has basic, intermediate and premium levels of access, all of which incur different fees for high-level access.
Single Category
When you decide to offer a single category product, you are limiting your sales opportunities, but you could be improving your quality. If you choose to manufacture doors, you might also choose to only manufacture doors using 4 basic materials. This would mean that while you have already narrowed your product offering you are further reducing the client pool.
However, if your product is the best on the market, offering a single category product in a limited range, or bespoke range, you could develop a reputation as being the only provider who can meet certain needs, and you corner the market.
Multiple Category
Multiple category eCommerce sites are a good choice for established brick and mortar stores, as well as single category retailers who are ready to expand.
Logistics, manufacturing, quality control, shipping, payment processing and customer service are only a few of the core business functions that require a larger workforce and high-level management skills to maintain.
Affiliate
Affiliate sites can be a good way to earn extra money. By requesting an official affiliation with a busy site, you could see traffic start to flow.
If you are a successful blogger with a large audience you might be asked to host a banner on your page by an affiliate site. If one of your site users clicks the banner then makes a purchase on the site they are sent to, you are paid a commission for advertising the site on your page. For that reason, you need to ensure that the affiliate site you host is in line with the values of your site and is one that would reasonably attract immediate sales.
There are myriad of online business opportunities, with thousands launched and failed every day. The market is still exploring new opportunities. The only thing you really need is a good idea.
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