With the development of e-commerce platforms or CMS like Magento, it has been never easier before to launch an online e-commerce store right away and start your online business journey. However, before going online you have to consider which type of e-commerce business you should operate. Even experienced e-commerce agencies don’t know all types of business models and can’t give proper consultation for the same.
At Ceymox Technologies, we believe in providing the right consultation to our clients to sell online and leave no stone unturned to turn their brands into e-commerce leaders. And identifying the right business model plays a big role to serve your target audience, resources, and budget. In this blog, we will go through the different types of e-commerce business models available, and which one will be right for your business.
Business Model Types by the Participants Involved:
In most online businesses, there are always 3 different parties involved; these are sellers, buyers or consumers, and administrators. These parties form different business models on the basis of who is buying and who is selling. The 6 major types of e-commerce businesses are:
In the Business-To-Consumer or B2C model, the goods or services are sold directly from the seller to the end consumer. In B2C there are several other models but let’s assume this one in general. This model was in the nascent stage during the 1990s but now has become ubiquitous. If any online brand is selling its products through an online marketplace like Amazon or directly from its e-commerce site then it will be termed as a B2C model.
In the B2C model, you can reach millions of customers without losing your profit to the intermediaries. It will also let you build a huge reputation, brand value, and brand loyalty among consumers. One of the best examples of a B2C brand is Walmart.
In the B2B or Business-To-Business model, the transactions take place between two business entities i.e. one business entity sells goods or services to another business entity. Mostly, wholesalers, distributors, and manufacturers are involved in the B2B business model, and the purchasers resell it to the end-user i.e. the consumer.
This is how it works: a wholesaler will check a B2B online store and make an order of quantities in bulk. The seller will validate the order and ship the required goods to the wholesaler. After receiving the products, the wholesaler will further sell them to the retailer or to the end-consumer at higher rates.
In comparison to the B2C market, the B2B market is quite smaller in size. It also requires a large amount of money, and the payment cycle is also long, but the order quantities are huge in size. A prominent example of a B2B seller is Alibaba.
3. Consumer to Business:
As the name indicates, in this business model, the goods are sold by individuals to business organizations. It is just the opposite of the Business to Consumer (B2C) business model. In the C2B business model, the consumers provide the value, and the business consumes that value.
Let’s understand in easy words, suppose an individual places its services or goods for sale on the online marketplace. If these products or services can create value for businesses, then the companies will buy them from individuals. In this market, services are generally sold from individuals to consumers. Freelance developers, freelance writers, social media managers, and accountants, are a few examples of consumers who generally sell their services online.
In the C2B business model, the consumers set the prices of their services or negotiate with businesses to meet their requirements. Upwork, Freelancer, and People per Hour, are a few examples of the C2B business model.
4. Consumer to Consumer:
The C2C (consumer-to-consumer) model involves commerce transactions between two persons in which one person sells a commodity via an online auction and the other person purchases the product by offering the highest bid. C2C platforms generate revenue by charging a flat fee or a commission.
For example, if a person wants to sell a mobile phone, he or she can list the phone on a specific website (eBay). Someone else can purchase the phone by contacting the seller through eBay.
Since there is a huge number of buyers and sellers available in the market, online businesses can leverage the C2C model growth. But there is a backside to this model, the C2C business model is not highly scalable, as you are just an individual seller. That’s why most of the C2C websites switch to the B2C model eventually for better growth. A few popular examples of the C2C business model websites are OLX and eBay.
5. Consumer to Administration:
The C2A business model involves the transactions between the public administration and the consumers. Another name for C2A is business-to-government (C2G). This concept provides a straightforward method for establishing contact between the public and the government. A few examples are Electronic taxation, distance learning, e-health, online surveys, and other C2A applications.
6. Business To Administration:
In the B2A business model which is also popularized as B2G, the seller or the business unit sells goods and services to an administration. For instance, a cyber threat protection company may provide its services to government organizations to make sure they are protecting the data of the users.
Business Model Types On a Revenue Basis:
Defining the e-commerce model on the basis of the type and number of participants involved is just one aspect. Another aspect of the business model is the revenue basis. The way you handle inventory management, get, and dispatch your products has a substantial impact on your revenue. So let’s get into more detail about the various e-commerce business categories based on revenue.
Dropshipping Business Model:
Dropshipping is an electronic commerce business model in which companies sell things online without keeping inventories on hand. Based on revenue, this is one of the most prevalent eCommerce models today. Alternatively, the seller forwards the orders to the supplier, who supplies the items directly to buyers. The supplier is in control of inventory, stocking, and packaging in this arrangement.
Thus, even if you don’t have a huge capital to invest, still you can start the business following dropshipping model. You would be able to save money on warehouse space, tracking inventory, stocking, packing, and shipping products. This saved money can be invested in better aspects such as website development, customer support, and marketing strategies.
Despite so many pros, there are certain disadvantages linked with dropshipping model. The competition in this model is pretty high and the success mostly relies on the industry niche. There will be many other businesses selling the same products by dropshipping. The entry-cost barrier is quite low, that’s why other businesses can also enter your industry easily. Since you have no control over the supply chain with the dropshipping e-commerce business model, bad suppliers might harm your brand’s reputation.
Private Labeling and Contract Manufacturing Business Model:
If you don’t have the resources to develop or manufacture a product but have a great product idea, then the contract manufacturing business model will be right for your business. You can find a manufacturer who will develop a product for you, and you will sell it under your brand name.
Your products are made entirely under a private labelling model, and you have the legal right to sell them under your brand name. With contract manufacturing, you retain the product’s design and attributes and have complete control over manufacturing and fulfilment costs, allowing you to reduce COGS (cost of goods sold).
This business model has certain drawbacks. Finding reliable outsourced manufacturers with whom to actively collaborate can be tough. Many merchants fly to China and Vietnam to minimise manufacturing prices. Furthermore, even if a prototype is perfect, private producers cannot guarantee defect-free goods. To sell high-quality products, you should ensure that quality control mechanisms are in place.
White Label Business Model:
When a producer produces a product for a large number of resellers, the white-label business model is used. A white-label manufacturer, for example, might offer coffee to five separate shops. Each store can brand the coffee, personalise the packaging, and sell it to customers.
It seems similar to private labelling but in the private labelling model, the product can be provided exclusively to only one retailer, while in this business model, it can be provided to many.
White-label vendors have only limited control over packaging design and cannot customise or influence product quality. Since these items may be purchased from any merchant, the product is not unique. As a result, if you choose this approach, you will need to engage in marketing to differentiate your brand on the market.
Furthermore, most manufacturers have a minimum order volume, so you must be aware of product demand among your clients. Make certain that you do not have a large volume of unsold items.
Subscription Business Model:
The subscription business model has become highly popular in recent times. In this model, the customers get products or services for a specified period of time and on a recurring basis. They have to pay to use that product or service for that time period. This model is generally seen in the services industry in which the customers subscribe to video streaming platforms like Netflix, and Amazon Prime; Food delivery apps like Swiggy, and Zomato; e-commerce delivery like Amazon Prime, and others.
For e-commerce businesses, the subscription income model has numerous advantages. Store owners may improve customer retention, increase consumer loyalty, and plan inventory management ahead of time.
Wholesaling and warehousing business model:
Wholesaling and warehousing is a business model in which an e-commerce company sells large quantities of things at a discount. This is the most difficult model to enter because you must spend on warehouse space and inventory management solutions.
It is just the opposite of the dropshipping model. On their own, e-commerce businesses stock goods, fulfil orders, and offer goods in volume. Most wholesalers solely use the B2B model, and their operations are limited to bulk order fulfilment. Some of them apply to both B2B and B2C transactions, although they only offer discounts on B2B bulk orders.