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If you’re here, you’re probably on the fence about starting an ecommerce business.
Good call, by the way!
Why?
Well, the ecommerce market is expected to generate $5.5 trillion by 2027. If I were you, I’d want a piece of that pie.
Every online store has a business model of its own, depending on the product they sell. Selecting the right model is essential for keeping your business afloat and bringing in sustainable profits.
If you don’t choose the right ecommerce business model or delivery methods, your business will fail—it is that simple!
In this blog, we’ll look at different types of ecommerce business models, delivery methods for each model, ecommerce promotion strategies, and how to choose the right one for your business.
What Is an Ecommerce Business Model?
An ecommerce business model refers to how a business operates to sell goods and services online. There are quite a few types of ecommerce business models.
For example, we have:
- Business-to-Government (B2G)
- Business-to-Business (B2B)
- Business-to-Consumer (B2C)
- Consumer-to-Consumer (C2C)
- Consumer-to-Business (C2B)
- Business-to-Business-to-Consumer (B2B2C)
- Direct-to-Consumer (D2C)
- Hybrid
In order to find the right ecommerce model for your business, you need to define two things.
Firstly, you will have to define who you will sell to and then define how you will position what you have to sell. Then, figure out your ecommerce business plan. This will define how you will attract customers and how they will engage with your product.
Secondly, figure out your delivery framework by assessing what will work best for your ecommerce business.
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Types of Ecommerce Business Models
If you’re starting an ecommerce business, you’ll likely fit into one of these 8 main categories. Each comes with its own pros and cons, and many businesses operate in more than one.
Understanding where your idea fits can help you build a strong foundation for your ecommerce business.
1. Business-to-Business (B2B)
If your products or services are geared toward meeting the needs of businesses, setting up a B2B strategy is your best bet. In this model, a business sells its product or service to another business.
Networking and reaching out is a bigger part of this strategy. A big advertising budget is not of much help. The most important challenge you would face is convincing established businesses that your products/services fit their processes.
The advantage of this business model is that order sizes are usually large, and repeat orders are very common if you maintain the quality of your products and services. Microsoft is an example of a great B2B model.
2. Business-to-Consumer (B2C)
B2C businesses sell directly to consumers. Whether you purchase clothing, household items, or entertainment from an online store, it is part of a B2C transaction.
Choose this model if you sell to individuals. B2C purchases are faster than B2B, especially for cheaper items. So, B2C companies spend less on marketing but have lower order values and fewer repeat customers than B2B companies.
3. Consumer-to-Consumer (C2C)
B2B and B2C business concepts are well-known, but Customer-to-Customer (C2C) is unique to ecommerce. In the C2C model, consumers connect to buy and sell goods or services. Platforms like Craigslist and eBay earn money from transaction or listing fees.
These platforms allow their users to trade, buy, sell, and rent products and services. The platforms receive a small commission on every transaction. This business model is complex and requires careful planning to be successful.
4. Consumer-to-Business (C2B)
C2B businesses let individuals sell goods or services to companies, similar to freelancers working for businesses.
This model, popularized by platforms for freelancers, involves individuals providing services or tasks to commercial clients. In simple terms, it’s like a sole proprietor serving larger companies.
In this model, consumers can set their prices, and businesses compete to meet their needs directly. Reverse auction websites, freelance marketplaces, and affiliate marketing are part of this business model. Again, this model requires planning due to the legal complexities involved.
5. Business to Government (B2G)
Business to Government (B2G) is a type of online business where a company sells its products to government organizations. To participate in B2G, you need to bid on government contracts.
Governments often have requests for proposals, and ecommerce businesses can bid on government projects. Typically, government agencies won’t place orders directly on your ecommerce store.
However, some local government agencies may be an exception depending on their needs.
6. Business to Business to Consumer (B2B2C)
When a business sells products to another business, and that business then sells to consumers online, this is called B2B2C ecommerce.
There are three parties involved in this type of ecommerce business model. You will need to partner with another business and sell its products. You will offer the partner a commission for each sale.
Ecommerce store owners choose this business model to acquire new customers. Customers may be familiar with the partner’s products but cannot order from them online due to obstacles like location or shipping costs.
This ecommerce business model is best for new ecommerce store owners who want to expand their customer base.
7. Direct-to-Consumer (D2C)
The direct-to-consumer (D2C) model involves selling products straight to consumers, bypassing wholesalers or third-party retailers like Amazon. It simplifies the shopping process for customers by eliminating the need to choose between competing brands.
8. Hybrid
Hybrid models mix different business types—B2B, B2C, and D2C—to offer more flexibility in the ecommerce market. This means businesses can use different strategies to reach customers in various ways.
For instance, a company might sell directly to consumers (B2C) and also provide services to other businesses (B2B). Alternatively, it could use D2C to control its brand while working with wholesalers. Amazon is a great example again, combining B2C retail with B2B services.
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Value Delivery Frameworks for Ecommerce
Once you have chosen the ecommerce business model, the next step is the selection of an appropriate value delivery framework. Let’s discuss the most innovative and profitable value delivery frameworks for ecommerce businesses.
- Just-in-Time Purchasing
- Dropshipping
- Wholesaling
- Warehousing
- White-labeling
- Outsourced Fulfillment
- Subscriptions
- Rent and Loan Model
- Freemium Model
1. Just-in-Time Purchasing
Just-in-time purchasing is a way to run an online store. The store doesn’t keep any products in stock. Instead, whenever a customer orders something, the store gets it from the supplier and sends it to the customer.
This plan is good for people who don’t have a lot of money or space to store products. It can also help businesses save money on inventory costs.
Just-in-Time Purchasing Example: Both Apple and McDonald’s follow the just-in-time delivery framework.
A case study on Apple suggests how this value delivery framework helped it streamline the waiting time and a number of steps in the delivery of its tailor-made iPods.
From 90 days, the delivery time was reduced to 90 hours as the JIT framework helped Apple produce tailor-made products when customers had placed orders.
Source: Apple
2. Dropshipping
In this plan, an online store buys products from a wholesaler or manufacturer. Then, the store sells the products to customers for a commission.
For example, suppose you have an online store. In that case, you can add products from AliExpress and set your prices higher than AliExpress’s prices.
Once your store is set up, you can target potential customers through ads and other digital marketing channels.
Dropshipping became very popular when ecommerce dropshipping platforms like WooCommerce, PrestaShop, and Shopify went mainstream.
Dropshipping Example: Daily Steals is a successful ecommerce business that follows the dropshipping value delivery framework. It works in the niche of technology, home, and office, with a peak traffic of 1000000.
Source: Dailysteals
Daily Steals is a store that sells products at discounted prices. It’s a successful store because it always has the best deals in its niche. It also shows discount badges on all products on every page of its site.
It uses PPC ads to its advantage. The store also strategically places display ads showcasing its flashy premium deals and discounts.
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3. Wholesaling
Wholesaling is a business plan where an ecommerce store sells products in bulk and at a lower price than the general market prices. The biggest example of this model is Alibaba, a very popular platform for small and large wholesalers that trade with businesses worldwide.
Also, check out: The Best WordPress Themes for Wholesale Stores
4. Warehousing
Many ecommerce stores store their products in warehouses. These items are listed on the store, and when someone makes a purchase, the products are shipped directly from the warehouse. For example, Amazon’s fulfillment centers handle storage, packing, and shipping all in one place.
5. White-labeling
White-label branding is a business plan in which one company produces the product, and another company rebrands and distributes it. An example of this plan is influencers that sell white-label products through their social media accounts.
White-labeling Example: Seed Beauty, a private label company, produces Kylie Jenner’s products and white-label cosmetics for ColourPop. White-label products are generic, mass-produced products. For example, if you want to sell white-label cosmetics, you can focus on one product, like lip balm.
6. Outsourced Fulfillment
Outsource fulfillment is a business model where shipping is given to another company.
Many ecommerce stores use this model because they are too busy running their business or don’t have enough staff to ship their products. Fulfillment by Amazon (FBA) and other services for ecommerce stores are examples of outsource fulfillment.
Outsourced Fulfillment Example: A hand sanitizer brand, Touch Land, was growing fast during COVID-19. It sold high-quality moisturizing hand sanitizers. Soon, they were sold out, and almost 34,000 customers were on their waiting lists.
They even did pre-orders to meet the demand, as they had up to 700 orders per day and sold 10,000 dispensers to industry-leading brands in those three months. This is when using 3PL services helped them.
How Nate Materson, CEO of Maple Holistics, Achieved Success with Amazon FBA
7. Subscriptions
A subscription-based e-business model allows users to purchase and then subscribe to a service for a set period (usually monthly or annually). Once the product subscription expires, the users could either terminate the contract or renew it. Ecommerce stores such as Tie Bar and Five Four Club work on this subscription-based business model.
Subscription Model Example: An American meal kit service, Blue Apron, provides high-quality food ingredients. It allows its customers to set their food preferences and then takes care of everything after the customers have subscribed to receive their meal kits. It’s a great example of how the subscription business model can work with an ecommerce store.
8. Rent and Loan Model
With better digital payment models, it is now possible to set up rent-and-loan business plans. Under this plan, users or companies can rent out physical or digital products to others for a monthly cost. In several cases, this model also includes lending money to earn interest.
Websites such as Loan Now and Lending Club work on this model.
Rent and Loan Model Example: Lending Luxury is an ecommerce store that is successfully using the rent and loan ecommerce value delivery framework to make luxury apparel affordable for couture-hungry people.
9. Freemium Model
Freemium is a pricing model in which some features of a product are provided to users for free, with the rest behind a paywall. Hootsuite uses this strategy for its social media scheduling service. It provides a limited number of free posts’ scheduling, but users have to pay for unlimited scheduling.
Freemium Model Example: Spotify is a music streaming platform that uses this strategy. Users can access basic, limited, ad-supported services for free. However, they have to upgrade to the premium account to access unlimited service for a subscription fee.
Ecommerce Marketing Strategies
Once you have the model and the plan, the next step is choosing the right promotion options.
- Affiliate Marketing
- Paid Promotions
- Native Advertising
- Sponsored Posts
- Influencer Marketing
- Social Media Marketing
- Referrals
1. Affiliate Marketing
Affiliate marketing is when you promote a product by another producer/supplier on your website or blog. Top ecommerce websites provide affiliate programs where content producers can sign up to become affiliates.
For example, you can sign up for the Cloudways web hosting affiliate program. When you bring leads to Cloudways, you will earn a commission.
2. Paid Promotions
Paid search, like Google Ads, is an effective way to drive traffic to specific products or pages. Your ads can appear at the top of Google for relevant keywords within hours, and you can even integrate promotions into your ads.
With paid promotions, you obviously have to pay Google or any other platform to promote your products, but the way advertising platforms charge varies.
For example:
- Pay Per Click (PPC): Advertisers pay for each click that leads to their product page. Affiliate marketing programs like Viral9 and Max Bounty use this model.
- Pay Per Sale (PPS): Publishers earn a commission when a sale is made through their referral. Platforms like Shareasale, Clickbank, and Commission Junction use this model.
- Pay Per Lead (PPL): Promoters earn a commission for lead generation. Facebook Ads, Google Ads, and Maxbounty offer this plan.
- Pay Per Action (PPA): This model covers any type of visitor action, such as clicks or sales. Maxbounty uses PPA for lead generation.
- Pay Per View (PPV): Used in video marketing, where content creators are paid for each view, typically lasting ten seconds. Platforms like YouTube and Facebook use this model.
- Pay Per Mille (PPM): Used for display ads, where advertisers pay per 1,000 views. Costs vary by country, with higher rates in the USA and lower in India.
3. Native Advertising
Native advertisements is a recent addition to online marketing. It came to light when Buzzfeed started adding promotional content in native or natural articles. These articles were about regular topics but promoted brand products by mentioning them somewhere within the article without breaking the flow.
Readers would not think that these are promotional articles as nothing of the sort is mentioned in the content. Native advertising costs vary on various factors, such as the content website’s rankings. If you’re considering going this route, make sure what the Federal Trade Commission (FTC) says about it.
4. Sponsored Posts
Sponsored posts is a practice in which one brand buys an article of a third-party website. In sponsored posts, the terms ‘Sponsored,’ ‘Paid,’ or ‘Promoted’ is mentioned at the top so readers know that this is not a regular publication of the website.
For example, sites like Forbes, HuffPost, and BuzzFeed frequently feature sponsored posts from various brands.
5. Influencer Marketing
An influencer is a celebrity, public figure, or content creator with an engaged audience. This makes them valuable in ecommerce marketing. Influencer marketing leverages their credibility to promote your ecommerce brand through paid endorsements.
Partnering with influencers gives your online store direct access to a targeted audience interested in your products. When consumers see their favorite influencers using products from your store, they’re more likely to make a purchase.
6. Social Media Marketing
Another popular ecommerce promotion strategy is social media marketing.
With 71% of adults with internet access using social media, platforms like Facebook and Twitter offer great opportunities for businesses to get noticed, attract followers, and increase sales. Companies can also use these platforms to share their products and brands, boosting their online visibility.
7. Referrals
Lastly, you can try a referral marketing strategy. This is where happy customers tell others about your business, and you reward them for it. For example, Dropbox grew quickly by offering extra storage to users who referred their friends. It’s a simple way to get your customers to help spread the word and build your brand.
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Choosing Your Ecommerce Model
Choosing the right ecommerce business model is crucial.
Why?
Because once you pick a model, you’ll invest your finances, time, and effort into it. So, it’s important to ask yourself some key questions before making your decision like:
- What will you sell, and how much will you sell it for?
- Will you sell a single product or want to sell a range of products?
- Who is your product for? Who is the audience you want to sell to?
- What would your audience/potential customers want? What will be their expectations?
- Which factors will you compete on? (price, quality, selection, customer service, the value you add, or something else)
Answering the above set of questions and being clear on them will give you a clear idea of what ecommerce business model would work best for your online store.
What Kind of Products Can You Sell on Your Ecommerce Store?
The beauty of online commerce is that you can sell almost anything. However, it’s wise to start with a small range of products. Your store can offer physical products (like clothing or shoes), digital products (such as ebooks), or services (like babysitting).
Physical Products
Physical products are the most commonly sold items in eCommerce stores. They often achieve the highest sales, as they require packing, shipping, and delivery.
So, how do you choose which products to sell?
- Follow Your Passion: Start by considering what you are passionate about. For example:
- Love cars? Consider selling car parts and accessories.
- Enjoy reading? An online bookstore could be a great fit.
Online commerce allows you to turn your interests into a viable business. Analyze your chosen niche and identify opportunity gaps, which are underserved aspects of the industry. Additionally, understand the pain points of your target customers.
- Conduct Keyword Research: Use keyword research to gauge demand for your product. This helps in planning inventory and order placements effectively.
Digital Products
Digital products can be delivered directly to customers online. Examples include:
- Web design templates
- Ebooks
- Digital art
If you’re a web designer, content writer, or artist, consider creating an ecommerce store for digital products. To effectively market digital products, focus on:
- Blogging: Write valuable content related to your niche to attract potential customers and drive traffic to your store.
- SEO: Optimize your website and product listings for search engines to improve visibility.
- Social Media Marketing: Promote your digital products on social media platforms to reach a wider audience.
Services
If you offer services like carpentry, house cleaning, or hair styling, you can create a website to sell these services online. For example:
- A team of carpenters can offer home improvement services.
- A mobile hairstylist can provide at-home salon services.
To boost demand for services:
- Create Informative Content: Use blogs and articles to showcase your expertise and attract potential customers.
- Utilize SEO: Optimize your service pages to rank higher in search results.
- Engage on Social Media: Share your services and customer testimonials on social media to build credibility and reach potential clients.
Summary
Choosing the right ecommerce business model is important because it shapes how you run and grow your online store. In this blog, we covered different ecommerce models, how to deliver products for each model, and effective ways to promote your store. We also talked about how to pick the best model for your business.
If you have any questions, just ask in the comments below. And don’t forget to subscribe to our newsletter for more useful tips and guides.
Q) What is the business model for e-commerce?
A) The business model for e-commerce involves buying and selling goods or services over the internet. It can include various models such as B2B, B2C, C2C, and C2B, depending on the participants in the transaction.
Q) What is B2C, B2B, B2G, C2G, C2C?
A) B2C (Business to Consumer): Businesses sell directly to consumers.
B2B (Business to Business): Businesses sell to other businesses.
B2G (Business to Government): Businesses sell goods or services to governments.
C2G (Consumer to Government): Consumers interact directly with government entities.
C2C (Consumer to Consumer): Consumers sell to other consumers, usually through platforms like eBay or Craigslist.
Q) What are 6 most popular forms or models of e-commerce?
A) The six most popular e-commerce models are:
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Abdul Rehman
Abdul is a tech-savvy, coffee-fueled, and creatively driven marketer who loves keeping up with the latest software updates and tech gadgets. He's also a skilled technical writer who can explain complex concepts simply for a broad audience. Abdul enjoys sharing his knowledge of the Cloud industry through user manuals, documentation, and blog posts.
