If you're ready to grow your business, a great place to start is by figuring out which e-commerce business model suits your needs the best. There can be a lot of variation from one to the next, and it's important to understand the differences so you can make the best decision for your business. Here we share the top six e-commerce business models, types of revenue models, and examples of successful ventures.
Top Six E-commerce Business Models:
Here are the top six e-commerce business models:
1. Business to Business (B2B)
This business model is when one business sells to another. Typically, this arrangement includes the sale of services, like when a recruiting agency works with a company to help them fulfill a role, but can include the sale of products too, like if an office furniture company sells their goods to another business to outfit their space.
2. Business to Consumer (B2C)
In the B2C model, the business is selling directly to the end-user of their product or service through an e-commerce platform. This is the most popular e-commerce business model, and it typically requires the least amount of time to make a sale.
It's typical for B2C businesses to use technology to connect with their target audience, employing things like mobile apps and retargeting ads. An engaging and smooth experience can build customer loyalty and increase word-of-mouth marketing.
3. Consumer to Consumer (C2C)
In the C2C e-commerce business model, there is usually a platform involved that connects consumers to each other to facilitate the sale of goods or services. Platforms like Craigslist and eBay are examples, and they make their money from charging consumers for certain transactions, like listing their items for sale. In this model, there may be some issues with quality control, as it's challenging to monitor exactly who is using the platform and how honorable their products or services are.
4. Consumer to Business (C2B)
Yet another e-commerce business model is the C2B model where individuals sell their own products and services to companies, like in the case of a freelancer or sole proprietor offering up their expertise. The C2B model is used a lot by social media strategists, copywriters, online influencers, and graphic designers, but it can also extend far beyond these roles.
It's common for those in the C2B model to use websites like Upwork to connect with their target audience. This model is beneficial because, as the consumer in the equation, you're able to set your own price and create your own demand.
5. Business to Government (B2G)
B2G e-commerce is when a business entity sells its goods or services online to government agencies or public administration offices. Businesses may go into contract with the government entity so they are their sole clients, but these contracts are usually long-term and highly beneficial. As an example, a government or public administration agency may hire a software company to develop and maintain a military-grade web communications portal.
6. Consumer to Government (C2G)
In this e-commerce business model, the consumer is providing something of value to a government agency through online means, like in the case of paying taxes or tuition, but it can also be something as simple as filling out feedback on a government website.
Types of E-commerce Business Revenue Models
Here are six types of e-commerce business revenue models:
- Wholesale: The wholesale revenue model is traditionally for B2B entities that open their online doors for other businesses to purchase their product at a discounted price. Some businesses, like Sam's Club, may offer wholesale pricing on bulk items to consumers.
- Dropshipping: Dropshipping is popular because you don't have to manage inventory or packaging. Instead, orders go to a third party supplier who handles fulfillment. Wayfair uses the dropshipping method. This method can be more pricey, but with a small business loan, you can set your business up as you've intended.
- Private Labeling and Manufacturing: In this revenue model, a retailer contracts with a manufacturer to develop a product that's exclusively sold via their business. An example is the 365 brand at Whole Foods.
- White Labeling: With this model, purchase a product from a distributor, then apply your name and branding to it and sell as your own. White labeling may be found on some Costco-brand products as they are actually items from larger manufacturers with the Kirkland branding applied.
- Direct to Consumer (D2C): In the D2C model, there is no middleman; instead, businesses sell rights to consumers, like Warby Parker and their prescription eyeglasses. This model builds customer loyalty quickly, as they are better able to customize the user experience.
- Subscription Service: Subscription services are convenient for customers, and businesses can easily use subscription services to sell additional products. Examples include Hello Fresh and Community-Supported Agriculture (CSAs).
Examples of Innovative E-commerce Business Plans
Some successful and innovative business plans to get inspired by include:
- Book of the Month Club: This subscription service allows customers to choose one book per month to be shipped to their home, but they also have the option of adding on additional books.
- ModCloth: ModCloth is a B2C company that specializes in selling vintage-inspired and indie-type clothing, shoes, and accessories to women. They are attractive to consumers because their style is so unique.
- Parachute: This bedding brand has a remarkable customer loyalty base as a B2C company that employs the D2C revenue model. Its focus on premium bedding has set it apart from the competition.
- Slack: Slack is an online communication platform that workplaces use so employees and teams can communicate with each other. This B2B company allows for file sharing, collaboration with in-house and remote workers, and the forming of channels to keep projects separate from one another. Slack operates via desktop and mobile apps, making it easier than ever to have a strong line of communication with your coworkers, no matter where you are.
- Carlstadt: Carlstadt is a B2B wholesale florist that operates in certain parts of the country. They open their warehouse to local florists and allow them to shop for and purchase flowers for use in their own shops. In this way, florists don't have to keep a large amount of inventory in their stores to fulfill orders or run the risk of receiving wilted flowers from an online business.
So much has changed in the way that businesses, customers, and government entities operate, especially with the advancement of technology and the availability of online shops and portals. Knowing what the right pairing of e-commerce business model and revenue model is for your business can help you reach your goals and position you well as an organization that others should want to do business with.