Which Ecommerce Business Model is Right for You? [7 Options]
In 2019, Americans spent approximately $586.92 billion on ecommerce, an increase of 14% over 2018.
Not only are ecommerce businesses incredibly profitable because of the low overhead costs (depending on the ecommerce business model) and access to a vast customer base — the growth of the retail segment shows no sign of slowing.
Though ecommerce only represented a little over 10% of retail in the US in 2019, it drove about 45% of total retail growth.
Often, when getting a grasp on the different types of ecommerce businesses, they’re broken down by these types of participants:
- Business-to-Business (B2B)
- Business-to-Consumer (B2C)
- Consumer-to-Consumer (C2C)
- Consumer-to-Business (C2B)
- Business-to-Administration (B2A)
- Consumer-to-Administration (C2A)
Though these six primary eCommerce business structures involve different business models and face their own challenges, these categorizations are not necessarily the easiest way to explore what business model you’ll want to pursue.
Most likely, you already know if you’re business-based or consumer-based and who your target market is going to be.
Instead, it is more helpful to be more specific about the type of ecommerce business model you want to use, such as:
- Print on demand
- Selling digital products
- Subscription models
- Recurring revenue
- White label
Determining which of these models will be the best fit for your ecommerce business will depend on a number of factors — mostly what you’re selling.
Let’s dig into the possibilities:
#1: Print on Demand
The print on demand model allows you to create custom-branded products — shirts, coasters, frames, calendars, and so on — after a customer orders it. The idea of not having to produce a product until after someone has not only agreed to pay for it but actually has paid for it is ideal.
Of course, there are many reasons that print on demand businesses are such an attractive ecommerce business model for creative entrepreneurs: you don’t have to carry inventory, the costs of getting your shop up and running are minimal, overhead is nearly nonexistent, and there are no minimum order quantities.
Also, there are plenty of success stories to learn from in launching your own print on demand ecommerce shop.
Like print on demand, the most significant advantage of dropshipping is the fact that you don’t have to keep any inventory on hand. This, of course, means that the costs to launch your ecommerce business is much lower than that of a more traditional retail establishment.
The way dropshipping works is that when someone purchases an item on your ecommerce site, you automatically acquire the item from a third party, which ships it directly to the customer.
This means you don’t have to handle the product yourself. Instead, you’re providing the service of connecting the customer with products they want.
#3: Selling Digital Products
Ecommerce is a game-changer for digital products. Digital commerce allows you to directly market your digital products, such as digital books, online courses, and software as a service.
The markets are just ripe for these sorts of goods with ePublishing sales going from about $15 billion annually in 2015 to an estimated $29 billion in 2020.
The winner, however, is software as a service. This segment of the digital product market was sitting at about $78 billion in 2015 and is projected to reach $132 billion by the end of 2020 — that’s 69% in growth.
#4: Ecommerce Subscription Models
The ecommerce world is continuing to evolve, giving various ecommerce business models their day in the sun. One model that has gained a lot of traction recently is the subscription model, also referred to as recurring revenue.
Many companies using this model have become household names, such as Netflix, BarkBox, and HelloFresh. Unlike a digital goods model, a subscription service is less limited in the types of products you can use it for. It’s a powerful model for everything from dog food to WordPress plugins.
What’s incredible is how popular the services are with online shoppers, with about 15 percent of them signing up for subscription services within the last year.
Of course, the best part about this model is that your customers are regularly purchasing products, which keeps the revenue flowing in.
#5: Wholesale Ecommerce
When you’re thinking about setting up a wholesale eCommerce model, you’re already plunging into the incredibly profitable B2B world.
The way wholesale works is that you sell your products in bulk to another retailer rather than selling them individually online. You incentivize larger purchases with a discounted price, raking in profits based on volume.
This example may help to put things into perspective regarding how people profit off this ecommerce business model:
You can sell individual pairs of underwear to folks like MeUndies does — which is an excellent example of how to blend a subscription business model into an eCommerce store. Or, you could sell all the underwear fabric in bulk to whoever actually makes MeUndies, effectively creating a wholesale ecommerce business.
There is money to be made both ways. You just have to look at your product and decide if you want to enter the market with a wholesale business model or something else.
An ecommerce store for your charity or nonprofit can really go a long way toward helping you maximize the amount of revenue that can be used for creating the good you want to in the world.
Not only can an ecommerce store — often using the print on demand or dropshipping model — be incredibly effective in raising revenue for your cause, but it can also open the door for accepting online donations.
#7: White Label Ecommerce
White-label ecommerce is all about your brand — not necessarily the product. With white labelling, a company produces a lot of a generic product, which various brands will then buy and slap their logo on.
That’s why it’s all about the brand.
Given this, white labelling lends itself to savvy ecommerce marketing entrepreneurs who are confident that they can optimize various channels to drive traffic to their branded version of the generic product.
Final Thoughts: Which Ecommerce Business Model is Right for You? [7 Options]
At the end of the day, what ecommerce business model will work best for you comes down to a few factors: what you are selling, who you are selling it to, and what resources you want to allocate to starting up the business.
No matter which model you decide to go with, you’ll want to make sure you have the right tools to help customers check out quickly and keep your ecommerce store running smoothly.
What are some of your favorite examples of successful ecommerce businesses? Tell us about them in the comment section below!