What does the word ecommerce mean to you? The first thing that comes to mind is probably the phrase ‘selling stuff online’. While that’s certainly true, it’s too simple of a description to give ecommerce the justice it deserves.
After all, the online retail sector generated more than 16% of all retail sales in the United States in Q2 of 2020 – a whopping leap from the preceding quarter when it stood at 11.8%. Such a strong market must be diverse enough to sustain such quick growth.
Luckily for online business owners, there definitely is enough variety in terms of e-commerce models to allow for real opportunities to expand into new areas, even in the face of healthy competition. The same is true for those of you who are just getting started in e-commerce business – different models of ecommerce provide different routes to earning a profit. That’s what we’ll discuss today!
Main e commerce business classifications
To cover all of the types of e commerce, we’ll divide them into two ‘levels’. The first level is the business classification (or business model), which describes who the acting participants are in the marketplace as well as the direction of the transactions happening within the marketplace.
It might sound a little complicated, but these are familiar terms for anybody who has been in business for any significant period of time. And, if you’re new to the business world, we’re honored to be the first to introduce you to the four main e commerce business classifications!The #onlineretail sector generated more than 16% of all #retail sales in the United States in Q2 of 2020 – a whopping leap from the preceding quarter when it stood at 11.8%. Click To Tweet
1. B2B (business to business)
B2B business models focus on providing a service or product from one business to another. Those services or products are typically provided on a larger scale than B2C businesses, since the clients of B2B businesses have broader needs compared to individual customers.
Examples of B2B businesses include physical office suppliers, digital software developers (e.g. Slack, Monday), business accounting and analytics (see the BeProfit Shopify profit calculator, for example), business loans, and so on.
2. B2C (business to customer)
When most people imagine an e commerce business model, this is the one that comes to mind: businesses that sell their services or products to individual customers.
From large corporations like WalMart that operate in brick and mortar locations and online, to smaller e commerce shops – there are countless B2C businesses around the world, and even more potential customers!
3. C2C (customer to customer)
This is one of the less-intuitive business models, but proves to be a viable option nonetheless. Customers selling to customers? Well, what would they sell? And who would buy stuff from some random Joe?
We have one word for you: eBay. Ever heard of it? The grand-daddy of ecommerce platforms allows random Joes to turn their basement junk into dollar bills, proving for more than 25 years that the C2C ecommerce business model is totally doable. Of course, the most successful C2C businesses are selling items of value, not junk!
4. C2B (customer to business)
If C2C is ‘less-intuitive’, then C2B e-commerce business models might really leave you scratching your head. That’s because customer to business ecommerce transaction models are a fairly new phenomenon. These models come in a few forms, but share one thing in common: customers who are able to sell their goods or services to businesses.
Examples of C2B e-commerce businesses include affiliate marketing, stock photo sales, vlogging or blogging (to review other businesses’ products, for example), and any other service that a business finds valuable and that a consumer can offer!
6 types of e commerce revenue models
- White labeling and Private labeling
- Direct to consumer
- Subscription-based services
Dropshipping is a B2C e-commerce business model that eliminates the need for merchants to store the goods that they sell at any point. Instead, a dropshipper focuses on effective ecommerce advertising and building a base of recurring customers. Contrary to what many self-proclaimed ecommerce gurus might say, you’ll actually need to invest real effort into developing this e commerce advertising revenue model.
But once you have the pieces in place, you can sell products that are stored, packaged, and delivered by a supplier. In case you weren’t aware, roughly 30% of all online retailers fulfill most of their orders using dropshipping – there are big bucks to be earned by dropshipping on Shopify, Amazon, or any other e commerce platform!
Online wholesaling is a B2B ecommerce business model whereby business A produces goods and sells them in bulk to business B. This drastically reduces the amount of marketing needed for business A to sell enough of their products to earn a profit and create a base of repeat customers.
On the flipside, it does add some risk in terms of the products’ reputations – if there’s a business B that purchases the products in bulk but provides poor customer service, it could damage the name of business A.
The online wholesale and B2B global market generated an estimated $6.6 trillion in 2020, eclipsing the quickly growing ecommerce retail global market which only reached $4.1 trillion.
3. White labeling or Private labeling
White labeling is a B2C e commerce business model that lets merchants acquire products from a third-party (producer or vendor) and then rebrand and sell them as their own. It’s a great way to start a business if you’ve got a mind for marketing, but lack the ability to manufacture products yourself.
Private labeling is the same concept in many regards, except the manufacturer produces the goods solely for one merchant. You can think of store-brand cereal (or really store-brand anything) as a private label product.
White label products can range from cosmetics to electronics, to workout equipment and pet supplies. Since the Coronavirus pandemic started and lockdowns followed, the demand for white label and private label products has jumped 75%, clearly demonstrating the viability of this type of ecommerce revenue model.
4. Direct to consumer
If you can do it all, then why not? Direct to consumer or D2C is an ecommerce business model where the merchant is the manufacturer and distributor all-in-one. Of all the types of revenue models in ecommerce, D2C is the only one that doesn’t incorporate any third party vendors or retailers (typically).
Data shows the D2C sector growing at a remarkable rate, with double digit growth over the past few years – a trend that’s projected to continue into 2021 with a 19.2% growth rate in the D2C market. Popular examples of D2C businesses include:
- Warby Parker
- Dollar Shave Club
Print-on-demand, or POD for short, is an e commerce business model that can be seen as a subcategory of white labeling. This is a B2C e commerce business revenue model where the merchant receives orders through their store, and then forwards those orders to a supplier to – you guessed it – print the requested designs onto their products on demand.
The POD sector is also on the upswing, evidenced by the 44% rise in new stores that Printful (a print-on-demand platform) saw in the wake of the COVID lockdowns. If you’ve got a creative mind, you’re good at marketing, and you can provide good customer support, then this could be the ecommerce model for you.
6. Subscription-based services
A subscription revenue model in e commerce can be B2C or B2B, and comes in three main variations: replenishment, curation, and access.
Replenishment subscription-based e commerce businesses are designed around convenience for the customer. One prime example is Dollar Shave Club, where the business replenishes subscribers’ supply of shaving products on a monthly basis, saving the customer time and money in the process.
Curation subscription-based e-commerce businesses are designed around novelty for subscribers. Customers get a collection of different products with each delivery that they can then give feedback on. The next delivery becomes more tailored to the customer’s tastes, and this feeds into the satisfaction that subscribers feel when they get more of what they like without having to choose for themselves!
Access subscription-based ecommerce businesses are designed around exclusivity for customers. Subscribers get VIP access to products or services that are otherwise unavailable. This can be the entire business model, or a small part of the subscription service that keeps customers waiting for the once-in-a-while perk they’re bound to receive as exclusive members.
Subscription-based ecommerce services grew by a jaw-dropping 4,500% between 2011 and 2016, leaving no question as to the opportunities there are to make a killing with this ecommerce business model.
Which of these e commerce revenue models is most profitable?
The answer to this question depends on the individual ecommerce business owner who is asking. Each of the different models of ecommerce are a better fit for a different type of business person.
Ask yourself the following questions to help you decide which ecommerce revenue model is best for you:
- Who is your intended audience – businesses or consumers?
- How proficient are you at online marketing?
- Do you have time to handle customer support?
- Can you take some risk in your business? How much?
- What sorts of products or services do you want to sell?
- Do you have storage space for inventory?
- Can you create a brand for yourself?
- How much money are you able to invest upfront?
- Do you feel comfortable delegating responsibilities to third parties?
- Will you manufacture your own products or do you need a supplier?
Dropshipping, print-on-demand, and white label business models all require marketing skills, time to invest in customer support, and the ability to create a unique brand.
Wholesaling, direct to consumer, and subscription-based service business models all require bigger upfront investments, a bit more thought into the products being manufactured or distributed, and storage space to keep inventory.
Again, there’s no one-size-fits-all answer as to the best e-commerce revenue model. What is true for you and your online business won’t necessarily be the same for another ecommerce store owner. Take your time to consider all of the factors that come into play to determine which e commerce model is best for you!