Whether you are deciding about starting an eCommerce business or you have already spent some time in this industry, it is crucial to know the types of different eCommerce business models. Choosing the right eCommerce business model can have a significant impact on a business’s success and profitability. What’s more, it is also worth taking a minute and thinking about the sources of revenue for a business.
Due to that, this blog explains eCommerce business models, as well as related to them revenue models. Although it may seem pretty complicated, reading this blog will provide all the information necessary to understand the pillars of running an eCommerce website.
In order to have a starting point, let’s begin with the definition of eCommerce.
What is eCommerce?
eCommerce refers to buying and selling products or services online through digital channels. Platforms like Amazon or eBay have revolutionized the way people shop and make the eCommerce industry a key contributor to global business growth. In comparison to traditional shopping, eCommerce provides more convenience, availability, and affordable prices of products for customers. From retail giants to small entrepreneurs, eCommerce has become an essential part of many business strategies.
To get a better understanding of the eCommerce industry, the next paragraph explains the eCommerce business models.
What are eCommerce business models?
If you’re new to an eCommerce business, it is worth knowing how your business will operate. An eCommerce business model is an approach that businesses take to sell products or services online. It encompasses aspects like target marketing, pricing strategy, and distribution channels. There are several eCommerce business models, each with its own unique approach to selling products online. They can vary widely, with each model offering unique advantages and challenges. Without further due, let’s get to the explanation of each of them.
Types of eCommerce business models
B2B stands for business-to-business, which is a business model that involves the sale of products or services between two businesses. In B2B, the buyer is usually a company or organization that needs to purchase goods or services to support its own operations. The seller, on the other hand, is a business that offers products or services to them. This model usually encompasses larger transactions with high value that are made cyclically. For example, a business that provides steel parts for a construction company.
In this model, B2C stands for business-to-consumer and means the sale of products or services from the company directly to the consumer, who is the end customer. In this day and age, everything from clothing and electronics to groceries and household items can be purchased online. The competition in the market is fierce, so eCommerce companies must be able to provide a seamless and user-friendly online shopping experience as well as excellent customer service to attract and retain customers.
This model is based on transactions between consumers, consumer-to-consumer. C2C eCommerce model is possible through online marketplaces such as eBay or Allegro, which provide a platform for individuals to buy and sell goods with each other. It became a great way to sell redundant items for homes, handmade items, or even start own small businesses. However, it also comes with its own set of challenges, such as the need for effective communication between buyers and sellers, ensuring the quality of goods and services, and protecting against fraud and scams.
In this case, C2B stands for consumer-to-business. This model is based on selling products or services from consumers to companies. In comparison to B2C, in the C2B model, consumers become the creators and offer products or services to businesses. This model is ideal for freelancers, consultants, or other individuals who can offer a specific set of skills or expertise. What’s more, C2B allows consumers to take control of their own economic goals by leveraging their unique talents and abilities. With the rise of the gig economy, C2B is becoming increasingly popular and offers exciting new opportunities for both consumers and businesses alike. To give an example of C2B, imagine a freelance artist that creates original graphics for a game development studio. Another example of C2B can be affiliate marketing, which is performance-based marketing, where a business rewards its affiliates for each customer or sale that is generated through the affiliate’s marketing efforts, e.g,. fitness influencer earning a commission on the sale of supplements and protein powders he promotes on his/her Instagram.
Apart from the business models described above, there are also less popular models like D2C (direct-to-consumer), B2G (business-to-government), or B2B2C (business-to-business-to-consumer); nonetheless, the ones described earlier in this part are the most common and important ones for someone new in eCommerce.
How to choose a suitable eCommerce business model
A suitable business model is key to the success of your online store, as it will determine your revenue streams, marketing strategy, and target audience. Before you dive into choosing a model, it is essential to first understand your niche and industry trends. Once you have a clear understanding of your market, the choice between different eCommerce models is easier. Secondly, you need to understand your customers. Answer the questions like “Who are they?”, “What features are the most important for them?” and “What are their buying habits and behaviors?”. It’s important to do research and understand your customers’ needs before making a decision about an eCommerce website. Then, take a moment and think about what makes your product special and what are the pain points. By understanding the strong and weak sides of it and how it differs from the competition, you can properly prepare to sell it online and avoid unpleasant surprises. Moreover, be honest about your product, as trust and loyalty are vital in this industry.
What are the types of eCommerce revenue models?
The terms “eCommerce business models” and “eCommerce revenue models” are related but refer to different aspects of an eCommerce. eCommerce business models describe how a company creates, delivers, and captures value through its eCommerce activities.
eCommerce revenue models describe how a company generates revenue from its eCommerce activities. It focuses specifically on the different ways a business can monetize its eCommerce operations. To understand it better, here are the most common revenue models that can be seen in today’s eCommerce.
Sales revenue model
This revenue model is about getting revenue from selling products or services. It is the most common model of all eCommerce revenue models. Any website that sells products or services online follows this model, no matter the chosen business model, like B2B or B2C. Even if they have additional revenue streams, this usually is the foundation that enables eCommerce businesses to operate and develop.
This model involves offering customers regular access to a product or service for a recurring fee. In 2023, many eCommerce companies already introduced the subscription model to their businesses, as it provides convenience and affordable prices for customers. Despite the fact that most people think about Netflix or Spotify when they hear about the subscription model, this model is also applicable to almost every product or service, not only online. For instance, subscription for fresh meat and vegetables for restaurants that are delivered regularly (e.g., each Monday).
Here’s how one of Carrefour’s Group brands we had the great pleasure of working with does it, which should be a great proof and example that you should at least consider too. Planeta Huerto is a Spanish brand selling eco products over the web.
Merchant introduces something called Planeta Huerto Club, which for a monthly payment offers extras such as 8% cashback, free shipping from a certain amount, and some other benefits that are exclusive to the members.
We were not the ones who invented the trend and suggested this strategy, yet it is not difficult to deduct its impact on revenue, customer retention, loyalty, and conversion rates.Nicolas Kroll, CEO at BitBag
Transaction fee revenue model
Here is the model that works among eCommerce marketplaces. The transaction fee revenue model is a solution where a company charges a fee for each transaction that occurs on its platform. Due to that, it allows multiple third-party sellers to list and sell their products on a single platform. In exchange for a commission on each sale, marketplaces provide a convenient shopping experience for customers and a global customer base for sellers. A common example where the transaction fee revenue model is implemented is the aforementioned Amazon or eBay.
Dropshipping has gained great popularity in recent years. There are A LOT of tutorials online on how to start a business based on this model. But what makes it so interesting? With dropshipping, businesses can sell products without holding inventory or managing delivery methods and fulfillment. Instead, they partner with manufacturers or wholesalers who handle those aspects of the business. This allows businesses to focus on marketing, customer service, and building their brand without spending money on inventory management and logistics. Nevertheless, the downside of this approach may be the lack of control over product quality or inconsistent shipping times.
This is another eCommerce revenue model that is immensely popular. White-labeling means selling a product under the company’s own name and logo, but the product is not manufactured by it. Instead, a product is purchased or manufactured by a third-party supplier. This allows businesses to offer a wider range of products without having to develop them in-house. White-label products are often customizable, so businesses can add their own branding and packaging to make them unique. This revenue model is popular in industries such as beauty, fashion, and technology, where businesses can offer products at competitive prices. However, it is crucial to choose reliable suppliers and ensure that a product meets quality standards.
Wholesale refers to a model where a business sells large quantities of a product/s to another business for resale. It is a popular approach among B2B companies. First, a business purchase products in bulk from manufacturers or distributors at a discounted price and then sell them to other businesses or consumers at a markup. Overall, wholesaling can be a very profitable source of revenue if inventory and logistics are managed effectively.
As shown in this article, there are many eCommerce business models and a range of options regarding revenue streams. The choice depends on your needs, budget, and desired customer base. By considering all the options available, you can choose a way that may lead you to success in this constantly evolving industry.
Thinking about starting an eCommerce business? Contact us and arrange a free consultation.