Ecommerce makes up over 14% of all sales worldwide. That equates to over $4 trillion in revenue made on the internet in the last year. With so much potential for profit online, many are left wondering: what is ecommerce, and how do I get the most out of it?
If you want to start an ecommerce business, the first step is to decide what type of ecommerce you’re going to engage in and what business model you’ll use. Once you know what you’re selling and how you’ll sell it, you can then look for the best ways to grow your online business.
In this guide, we’ll cover the four main types of ecommerce and the 9 different business models that you could apply to them.
The Four Types of Ecommerce Businesses
With so many online businesses emerging in the last two decades, it can be helpful to divide them into categories based on who’s selling to whom. The following four ecommerce models are broad categories that we’ll later narrow down into more specific business models.
Business-to-consumer, or B2C, is the most common type of ecommerce. In this category, a company markets and sells products or services to individual customers for themselves. Clothing stores, home décor, and meal prep stores are great examples of a B2C business.
Business-to-business (B2B) ecommerce is where companies buy and sell from one another. These sales could be goods or services. Two examples include a catering company selling its services to a law firm, and a law firm selling its services to a tech company.
In a consumer-to-business (C2B) ecommerce model, individuals sell their goods or services to businesses. Here, you might imagine a freelance photographer contracting with a professional sports team or a new restaurant.
The fourth type of ecommerce business is consumer-to-consumer (C2C), where individuals market and sell to other individuals. eBay is the most prolific example of a C2C marketplace, with Facebook Marketplace and apps like OfferUp and Poshmark following closely behind.
Examples of Ecommerce Business Models
Now that we’ve looked at the four types of ecommerce, let’s look at some examples of ecommerce business models. Getting a feel for successful models in ecommerce can lead you to a few online business ideas.
Traditional retail is a business model type that closely reflects in-person shopping models.
A traditional retailer will usually sell goods from several different brands to its customers. Whether you source from wholesalers or small businesses, your job as a traditional retailer is to provide added value to your customers and prospective customers during their shopping experience. That value can come in the form of convenience, quality assurance, expert advice, and more.
For example, Target and Walmart are traditional retailers that leverage convenience. Upscale grocery stores like Whole Foods and Fresh Market leverage quality assurance. Retailers leveraging expert advice include Vitamin Shoppe and REI.
Single Brand Retail
The single-brand retail model is, well, exactly how it sounds: in this model, a retailer sells their brand and only their brand.
The single-brand ecommerce business model is quite popular for people just starting in ecommerce. If you have a small business producing goods or services, it makes sense that you would stick to your brand when first starting out. As you expand your business, you can weigh the pros and cons of selling other brands on your site.
There are countless examples of successful single-brand retailers online. A few that are prominent in the clothing industry are Pendleton, Patagonia, L.L. Bean, Bonobos, and Lululemon.
One of the less accessible types of ecommerce for beginners is wholesale. Wholesalers generally sell in bulk to retailers or individuals at a discount that reflects the size of the purchase.
To become a wholesaler, you need access to large quantities of a specific good. This barrier to entry is often why most ecommerce businesses do not start as wholesalers. But it’s important to know they’re out there.
The prime example of a successful ecommerce wholesaler is Alibaba, a wholesale marketplace with nearly limitless options to find distributors of all product types. Some examples of smaller more niche wholesalers would be companies like Nuts.com and Black Ink Coffee.
Dropshipping site owners are responsible for marketing and selling products that are ultimately fulfilled by a third-party supplier. The site compiles and brands products that are easy to ship and have a low level of customer support needed.
Popular products to dropship include cell phone accessories, grooming tools, niche products, custom office supplies, face masks, and much more.
Many ecommerce businesses have digital products to sell, such as music, instructional courses, or software. In many ways, this is the height of ecommerce since these products don’t have a long history of being sold in brick-and-mortar stores.
While digital goods may have a higher degree of difficulty when it comes to production, your business’s logistics will be much simpler. No physical goods mean less physical space, materials, and capital needed upfront.
Some popular platforms that help creators sell digital products are Bandcamp and Kajabi.
Subscription services represent ecommerce models that rely on monthly and annual subscription revenue.
One of the benefits of employing a subscription services model is flexibility and scalability in pricing. After launching your service, you’ll be able to evaluate what level of subscriptions bring you the most returns.
Prominent subscription service businesses include streaming companies like Netflix and Hulu.
Subscription goods are similar to subscription services in their sales strategy, but instead of services like entertainment, businesses are offering recurring delivery of goods.
In recent years, the trend of subscription boxes has taken off with the rise of companies like Dollar Shave Club, BirchBox, and HelloFresh. These companies have taken markets like grooming, beauty, and food products and allowed customers to curate their subscriptions boxes to be sent on the timeline of their choice.
The membership services model is similar to subscription ecommerce business models, but these sites tend to have a bit more focus on interaction and community. Some popular examples of membership sites in the Health & Wellness industry include Peloton, KetoConnect, and The Neuro Studio.
An affiliate sells products for a company they actively promote but are not employed by. Affiliate arrangements can take on many forms, some as simple as offering discount codes to your Instagram followers in exchange for kickbacks from a brand. Alternatively, you could actively fulfill orders for a company in exchange for a percentage of profit.
How To Select Your Ecommerce Business Model
Hopefully, you now have a better understanding of ecommerce terminology around different business models that have become increasingly popular over the last decade.
After surveying the types of ecommerce available to you, ask yourself the following questions to help select your ideal business model:
- What do I want to sell?
- Who is my ideal customer?
- What kind of pricing will work best for my goods or services?
- Is my business likely to grow rapidly?
- What third-party services will help my business the most?
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