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 min read
May 24, 2019

How to Define E-commerce Business Models – Part 1/2


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E-commerce is taking over the world and continues to grow rapidly every year. With the number of online shoppers increasing annually, e-commerce offers a wide range of business opportunities to choose from. There are a multitude of e-commerce business models and a clear understanding of them will help you choose one that best fits your business.

An e-commerce business model can be defined by certain factors such as:

  1. The type of the product
  2. The end-customers
  3. Sources of the product
  4. Online market places
  5. Marketing tactics and revenue building

Taking the time to define a business model can help new business owners focus their efforts in the long run. In this blog we discuss the first three factors: the type of products, end-customers, and the product sources.

Types of Products

  • Physical Products – Customer prefer to buy physical products online for the ease of shopping experience. It includes practically any physical goods and can be sourced in a variety of ways — by making, manufacturing, acquiring, or drop shipping. For physical products online, check out sites such as Sourcify, Maker’s Row or Printful.
  • Digital Products – It includes digital content, media, eBooks, apps, etc. Unlike physical products, these do not need to be shipped and need to be made only once. It can be sold repeatedly, making it a profitable venture for new business owners. Check out these sites to find out other digital products that are sold online – FilterGrade, Skillshare, ABetterLemonadeStand.
  • Services – It includes businesses such as training, consulting, social media management, content, and more. This model requires entrepreneurs to possess a specific skill set that can be offered as a service to other people. Some good examples for e-commerce service sites are 99 Designs and Upwork.
  • Others – This category includes products such as affiliate marketing, and creating mobile apps, and marketplaces. They are equally good in revenue generation, and are good options for entrepreneurs to use in many different ways.

End Customers

Choosing the right end-customer matters, because it directly impacts revenue generation. The most common options for selling are:

  • Business-to-Consumers – B2C is the most common option amongst new business owners. It offers many options to drive revenue, based on the niche audience chosen.
  • Business-to-Business – B2B is a less common option chosen by entrepreneurs. Choosing the source of materials or products will largely influence the final products that are sold in this model.
  • Business-to-Government – B2G includes various government levels as your end-customers. This demands a lot of work and requires collaborating with government officials and agencies. The disadvantage here is that this model takes time to generate revenue.

Sources of Products

  • Making – Most home businesses come under this category. It includes art, food, beauty products, apparels, etc. This process is however challenged by limitations such as time and scalability. It also involves heavy marketing activities that consume a lot of time and labor. In cases such as digital products, mobile apps or specific skill sets, the business may be fruitful to pursue, considering the demand for those products. However, it should be noted that making is a time-intensive process that may lead to slower profits.
  • Manufacturing – It’s an ideal option when the product is not existent in the market, or if you want to make your own brand. Manufacturing gives the advantage of scalability when the product demand goes up. Entrepreneurs can choose to have a private label, where they tie up with a manufacturer who is looking for a seller. In this model, adjustments can be made to the product based on the needs of the end-user segment. An alternative to this is white label products, where there is no option to make any adjustments to the final product. This option has the disadvantage of selling the same products as other businesses who collaborate with the same manufacturer.
  • Wholesale – In this model, the business gets a discount when purchasing inventory from another business, while the products are sold at a markup price set by the wholesaler. The disadvantage is that manufacturing is not under the company’s control, and products need to be sold as they are. Wholesale goods usually have a minimum order quantity to order, and have low upfront costs and risk of frauds.
  • Drop shipping – In this model, the new business acts as a middleman, selling goods that are manufactured by someone else. When an order is received, it is passed on to the manufacturer for packaging and delivery. Businesses can make money here only through what the customer is charged on the website. The advantages include no storage for inventories, and fairly low startup costs. The disadvantages are low profit margins, and low brand control like packaging or aesthetics. However, this model is one of the easiest to adopt for new business owners, to start with.

The remaining two factors of e-commerce business models, online market places and marketing tactics for revenue building, will be dealt with in part two. Now that you have information on the three primary factors, you’re ready to start planning your e-commerce business model.

It’s an era of Internet-savvy customers, and e-commerce needs mobile apps to take the business to the end-user. Vajro can provide you with a mobile app for your e-commerce business almost instantly. If you’d like to explore a mobile app for your business, please contact us.

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