Over the years, eCommerce has grown by leaps and bounds.
Retail sales through eCommerce reached $4.9 trillion in 2021, and this number is expected to grow by 50% over the next four years.
When you look at the numbers above, it makes sense that more and more people want to join this quickly growing industry.
But before you do that, you need to learn about its different business models and figure out what makes you unique.
So, in this guide, we’ll talk about the different types of eCommerce business models, their pros and cons, and much more.
Let’s get right into it!
Different Types of Ecommerce Business Models
Most people think of an online marketplace or a site that brings buyers and sellers together when they hear the word “eCommerce.”
Even though the general idea is right, the word “eCommerce” is just a catch-all term for many different ways to run a business.
So, let’s talk about some of the most common ways to run an online business.
Business-to-Business (B2B)
B2B is a type of business model in which one company sells its goods or services to another company. Sometimes, the buyer is the person who will use the product, but most of the time, it’s regular retailers and wholesalers.
Most B2B companies have a high minimum order quantity (MOQ), but when compared to other retailers, they charge less per unit. A high initial investment is also usually needed to start a B2B business.
B2B Examples
Platforms like Alibaba, where most sellers only sell in bulk and most buyers are also resellers, are a bad idea.
An online security company sells its security software to an eCommerce site to keep customer data and credit card information safe.
Business-to-Consumer (B2C)
Most people think of B2C when they think of an online business.
It is the traditional idea of buying and selling online between a business and a consumer.
One of the most common ways to do business online is through B2C.
Basically, a B2C transaction is anything you buy from an online store as an end user.
Most B2C companies don’t have a minimum order size, but their prices are a bit higher than those of B2B companies.
B2C Examples
Most of the buyers on marketplaces like AliExpress and Walmart are also the end users. Online banking services like Payoneer and PayPal.
Business-to-Business-to-Consumer (B2B2C)
Now that you know what B2B and B2C mean, what the heck is B2B2C? Well, it’s just a mix of these two ways of doing business.
A B2B2C business talks to its customers through a third-party platform instead of its own brand.
Let’s just say that a B2B2C business model involves three people. There is a primary brand, a middleman, and then the customer.
The customer knows they’re buying from the main brand, but they’re connecting with them through a middleman, which in this case is usually a platform.
B2B2C Examples
Using sites like AliExpress, Amazon, and Etsy to sell your goods.
Apple’s App Store and Google’s Play Store.
Direct-to-Consumer (D2C/DTC)
D2C, or direct-to-consumer, is a type of eCommerce business where manufacturers sell directly to customers.
This method of making sales doesn’t depend on retailers or distribution networks.
Over the years, the D2C strategy has been a huge success, and by 2023, sales are expected to reach $175 billion.
We don’t recommend that new business owners start a direct-to-consumer (D2C) company because it’s a more advanced business model.
But you can learn a lot from it and use what you’ve learned in easier business models, such as dropshipping.
D2C Examples
Shein is a top Chinese e-commerce company that has become a leader in the fashion industry. Dollar Shave Club is a lifestyle brand and e-commerce company that sends customers grooming products by mail as part of a subscription service.
Casper is a popular mattress brand known for its high quality and low prices.
Consumer-to-Consumer (C2C)
A C2C business usually takes place in an online space where customers can trade with each other directly.
Classified ads and auctions are two of the most common ways that C2C is used.
C2C marketing has become very popular as more and more people use the internet.
Over the years, a lot of platforms have been made to help people connect with each other.
You can post ads for your products on these sites so that other people can see them and make offers.
C2C Examples
eBay and Craigslist are two of the best-known C2C platforms that let people hold online auctions.
Exchanges for cryptocurrencies like Binance let users buy and sell cryptocurrencies online.
Consumer-to-Business (C2B)
C2B is the exact opposite of the traditional business model for eCommerce, which is B2C.
In C2B, consumers sell products and services to businesses in exchange for money or other benefits.
The C2B model is mostly for freelancers and contractors who work for themselves.
Let’s say you build Shopify stores as your main job. If a business or organization pays you for your services, you are adding value to the business.
This is also how the C2B business works on a basic level.
C2B Examples
Online C2B platforms like Upwork and Fiver are often used by businesses to connect with independent service providers.
Photographers who sell their pictures to sites online.
Business-to-Government/Administration (B2G/B2A)
B2G is a business model in which companies sell their goods and services directly to government agencies.
It can be a small business that helps with IT or a big company that makes military equipment or airplanes.
Getting a contract from the government is hard for businesses that sell to the government. For choosing sellers, each government agency has its own set of rules.
So, if you want to start a business that sells to the government, you should know how the government buys things.
But if you’re lucky, you can get deals worth billions of dollars.
B2G Examples
Lockheed Martin is a company that works with the government to sell aerospace products and other cutting-edge technologies.
The government has to pay to use software like Zoom for video conferencing.
Consumer-to-Government/Administration (C2G/C2A)
C2G is like the opposite of B2G, with one small change.
In this business model, consumers offer the government something of value, like a product, service, or piece of information.
Still, the transaction is started by the government as a way to help the people or make its own work easier.
Keep in mind that a C2G business model is not the same as the traditional idea of eCommerce.
It doesn’t always involve a buyer and a seller, but any transaction between a citizen and the government could be done this way.
C2G Examples
A citizen giving information to the government or selling services to it.
You can vote without going to a polling place or filling out paper forms if you use the electronic voting system.
Different Types of eCommerce Revenue Model
After deciding on a good eCommerce business model, the next big step is to choose a way to make money.
Your choice of revenue model will depend mostly on how you want to handle your inventory and find the products.
So let’s talk about 6 different ways for eCommerce to make money, what’s good and bad about them, and some success stories to get you excited.
Private Label
When you buy an original product from a third-party manufacturer and sell it under your own brand name, this is called “private label.”
As a private label retailer, you can make changes and improvements to the product to fit your needs, and the supplier will only sell it to you.
What’s great about a private label is that you make your own brand. This gives you more options for how to set prices and lets you get a better margin.
So, private labeling is a great option if you have an idea for a great product but don’t have the money to make it.
All you have to do is find a reliable company to which you can send your prototype and have the product made according to your specifications.
You can then sell the product on a marketplace like Amazon or start your own online store on a site like Shopify or WooCommerce.
Pros
Full control over product specifications
Better control over quality and more room to be creative
The opportunity to make your own brand
It is easier to keep customers coming back.
Stand out from the rest of your competitors.
Cons
usually needs a big investment to start.
takes longer to build and more planning.
It can be hard to get people to know about a brand.
Success Story
AmazonBasics is an in-house brand that started selling cheap electronics and batteries in 2007. Today, they sell everything from kitchen gadgets to tech accessories and everything in between.
It has since become one of Amazon’s best-selling private label brands. Its success comes from the fact that it sells customers products that are both cheap and good.
Shop online
White Label
People often use the terms “private label” and “white label” in the same way. But the main difference between the two is that white labeling doesn’t give you much creative freedom.
The products’ specs are already set, so they can be made in large quantities without any branding and sold to many retailers.
But you can still put your own logo on white label products and sell them for more.
Selling white label products usually has low start-up costs, and some suppliers offer them without a minimum order quantity (MOQ).
But the biggest problem is that you don’t have any say over how the product works.
Also, it’s hard to stand out because a lot of other companies are probably selling the same product under different names.
On top of that, most suppliers only give you a small number of ways to change your brand, which makes it even harder for you to make a unique brand.
Pros
Start-up is easier because products are already made.
If you add custom branding to your products, you can charge more for them.
Doesn’t need a big investment up front
Suppliers often sell white-label products with no minimum order quantity.
Add brand-name products to your catalog quickly.
Cons
No say over how the product works
Hard to stand out from the crowd of competitors
Packaging often looks generic
Success Story
White labeling business models don’t have a great success story to share because, at the end of the day, you’re just selling generic products with your own labeling.
But it’s still a step in the right direction, and if you can find the right white label products, you could make a lot of money.
Wholesaling Model
Wholesale is another type of business that needs a big start-up cost.
Not only do you have to buy a lot of products, but you also have to pay for space to store them.
After that, there are many more problems, such as managing inventory, keeping track of orders, and so on.
Wholesalers are the middlemen between manufacturers and retailers/distributors.
Wholesale is a common way for B2B businesses to make money.
This means that you will probably sell your stock in large quantities to other businesses at a discount.
One of the best things about wholesaling is that once you have a good relationship with the retailers and they keep ordering from you, your income will grow faster.
Pros
You can sell a lot of your goods.
The money coming in grows faster and more steadily.
Get orders that come back.
Easy to sell everything you have.
More power to bargain with stores
Cons
Needs a big start-up investment
You might need to spend money on a warehouse.
Chance of not selling all of the stock
Success Story
Alex Monroe is a well-renowned name in the fashion jewelry industry.
They’ve been around for more than 30 years, and during this period, they’ve partnered with The Victoria, Disney, Kew Gardens, and many other brands and companies.
This wholesale company has been successful because it has never lost sight of its main goal, which is to sell handmade jewelry that is inspired by nature.
Dropshipping Fulfillment
Dropshipping is a way to get a product to a customer without having to store it.
All of your orders are filled directly by the supplier, so all you have to do is find the products.
Dropshipping lets you make money by making sure that each sale gives you a certain amount of profit.
So, let’s say you buy the product from the supplier for $30. You could sell it in your store for $36 and make a 20% profit.
If you want to grow as a dropshipper, our private label dropshipping services can help you build a brand.
Pros
No need to keep the stock.
can be started with a small amount of money.
Your business is easy to run and automate.
Less risky ways to try out new products
You don’t have to do what they say.
Cons
Quality control is not always easy.
Possible stock-outs from the supplier
Less profit unless you go for private labeling
Customer service isn’t always easy.
Success Story
The well-known dropshipping store Mooshe Socks sells socks with cute designs on them.
They show that you don’t always need an original idea to get noticed.
A successful private label dropshipping business can be run with just creativity and good marketing skills.
Print on Demand (POD)
Print on Demand is another way to fill orders, and it’s also a type of white labeling.
It’s basically getting custom designs printed on things like t-shirts, mugs, and hoodies and then selling them under your brand name.
There are many Print on Demand (POD) sites and companies, like Printify and Printful, that can help you do that and even fill the orders for you.
POD businesses are becoming more popular because it is a low-risk business model.
It works the same way that printing does after a customer places an order.
So you can sell custom products without having to worry about keeping track of the stock.
Pros
Start with a small amount of money.
No trouble with keeping track of stock.
Hassle-free order fulfillment
Sell custom designs to build your brand.
Little to no risk
Cons
limited to selling only certain items
Not much you can do about the print quality
Low margins of profit
Success Story
One of the most well-known names in the POD business is Printful. Since it was started in 2013, the company has served more than 200,000 customers.
Their success is due to the fact that they offer many printing options, ship quickly, and, of course, make high-quality prints.
Printer
Subscription-Based Model
Recently, subscription-based revenue models have been getting more and more popular.
The idea behind it is to charge customers a fee and send them products at set times.
Depending on what the customer wants, these times are usually once a week, once a month, or once a year.
The hardest part of a subscription-based model is choosing what to sell.
Most of the time, fashion, beauty, and food are the most common types of products for a subscription model.
D2C businesses have used the subscription model a lot more over the years.
Pros
Set up a good relationship with your customers.
Income that can be predicted because of repeat orders
It is easier to keep customers.
chance to look into untapped markets
Get the same orders no matter what time of year it is.
Cons
Trouble keeping customers interested
Sudden cancellations can make it hard to make money.
Getting a customer to trust you enough to sign up for the first time
Success Story
The best example of a direct-to-consumer brand is Dollar Shave Club. They became famous not only for selling razors, but also for giving men a cheap and easy way to take care of themselves.
They knew that shaving is a habit and that going to the store every two weeks to buy razors can be a bother.
So they took advantage of the chance and came up with a way to make it easier: a subscription model.
How to Choose an Ecommerce Business Model?
To choose an ecommerce business model, you just need to follow a simple formula.
The first thing you need to do is decide how much money you want to spend, what kind of product you want to sell, and whether it will be a digital service or a physical good.
Then think about who you want to read your writing. Will it be customers or other businesses?
After that, think about how you want to get the product to the customer.
Find the answers to these questions and choose a business model for your eCommerce site that meets all of your needs.
FAQs about Ecommerce Business Models
What Are the Best eCommerce Business Models for Small Businesses?
If you want to start an eCommerce business with little money, you should use one of the following models:
Print on Demand Dropshipping
White labels
Which Ecommerce Business Model Is Most Profitable?
One of the most profitable ways to run an eCommerce business is through private labeling. Because it lets you set yourself apart from your competitors by making your own brand.
How to Start a D2C Brand?
Over the years, D2C businesses have grown a lot. This model gives them control, makes their brand clear, and gives them a high profit margin. If you want to start your own direct-to-consumer brand, here are some things to think about:
The Perfect Idea
Your idea doesn’t have to be original, but it should be good enough to base a business on. You can even sell everyday items as long as you solve a problem and have something that no one else does.
Market Analysis
Do a thorough study of the market before you jump the gun. Learn what works and what doesn’t about similar businesses that are already open. Then figure out how you’ll be different from them.
Target Audience
To run a successful direct-to-consumer (D2C) business, you need to connect with your customers. So, make sure you know exactly who you want to reach out to.
Brand Message
Your top priority is to build a brand that people can trust. To do this, you need to be clear about your brand’s goals and values. Give potential customers a reason to buy from you and show that you’re not just in it for the money.
Killer Marketing Strategy
D2C brands don’t use a middleman or a network of stores to get their products to customers. So, you need to make sure you have a good marketing plan to get people to pay attention. You should also remember that this will cost you a lot of money.
How to Choose between White Label and Private Label?
When deciding between white label and private label, there are many things to think about. But the most important things are what you plan to sell and how much experience you have.
Go for private labeling if it’s different from the generic products already on the market.
But white labeling would be better if you are new to the business and don’t understand how products are made.
How to Choose between Dropshipping and Print on Demand?
People often argue about dropshipping vs. print on demand because both are low-risk ways to run a business. Which one you choose depends mostly on your long-term goals.
POD is a great choice if you don’t mind selling a limited number of items and have the creativity to come up with new designs often.
But dropshipping is the better choice if you want to keep your options open and are willing to try out new trends and look through thousands of products.
What Is the Most Affordable Ecommerce Business Model?
Dropshipping and Print on Demand are without a doubt the least expensive ways to run an eCommerce business. Because neither of them requires you to keep stock, and your orders are also filled directly by the supplier.
Final Thoughts
Ecommerce is a big business, and people who are new to it have a lot to learn.
Before you start, you should choose a business and a way to make money that fits your goals.
We hope that this blog post gives you the information you need to make these choices.
