Many people imagine going to a website and buying products when they think of e-commerce. Aside from e-commerce, there are so many other aspects of it. Business models and delivery methods have evolved in the e-commerce industry. There are many different kinds of e-commerce businesses.

You can determine which e-commerce model is right for your business by understanding the types of e-commerce.

Types of eCommerce 

In basic terms, e-commerce refers to the sale of products online by a company. The internet offers a variety of ways for an item to be sold, just like the non-digital world:

• Business to Consumer (B2C). B2C businesses sell or curate their own products to individual customers through their online stores. In e-commerce, B2C and Direct to Consumer (DTC) are often used interchangeably. But DTC is only one type of B2C e-commerce.
• Business to Business (B2B). Business-to-business e-commerce occurs when one business sells to another online. The shopping experience on B2B sites is typically geared toward higher order volumes from customers (think: 1000+ items instead of 1 or 10). Additionally, they typically offer a higher level of “white glove” customer service and more customization options.
• Consumer to Consumer (C2C). A classic idea is being revived. Businesses that sell directly to consumers through online marketplaces are known as C2C businesses. This is most famously demonstrated by eBay. Since the most popular sites (like eBay and Etsy) and free alternatives like Craigslist and Facebook Marketplace have long been popular, there haven’t been many C2C businesses. Recently, businesses like Poshmark and Grailed have realized the value of offering a more personalized C2C service.

The types of business models used in B2C e-commerce

Business models for B2C can be found in many forms. A B2C business model that is right for your business is crucial for success, even if consumers do not always know which type they are buying from.

A direct-to-consumer (DTC) model

Direct-to-consumer (DTC) marketing refers to selling your own products directly to consumers. Gymshark for example.

• As DTC businesses own their production process, they typically have strong margins, good product quality control, and competitive pricing.
• The disadvantage of owning your own manufacturing business is that it is a big investment. In order to make your products, you will need to set up a production line, factory, or kitchen.

Subscription DTC

A subscription ecommerce business is similar to a direct-to-consumer one, but you can only purchase their products by subscribing. A true subscription business requires your customers to opt in to recurring purchases, unlike a DTC business that offers a “Subscribe & Save” feature. The subscription model is popular with consumables.

• If subscription businesses are successful at retaining customers, recurring charges can increase customer lifetime value (CLTV).
• There are some disadvantages to subscription businesses, such as their inability to cater to many reusable product categories.

Private labeling and white labeling

In some cases, companies want to create a unique product without manufacturing it themselves. As a result, they turn to a white label/private label model. A supplier creates a product that meets the needs of an e-commerce business using this model. Suppliers manufacture it, then ecommerce businesses brand it and sell it as their own. In highly specialized categories, manufacturing highly specialized products requires niche expertise, and branding them requires strong focus. White label businesses, for instance, are common in the skincare industry. An exclusive supplier makes a product for you, and if it’s not exclusive, it’s white labeling.

• Business owners can focus on branding since a supplier handles the manufacturing, and the ecommerce business itself is much simpler to operate.
• Ecommerce businesses usually have lower margins and less quality control when they don’t own the supplier. Additionally, suppliers must invest in designing and sampling their products up front.

E-retail

E-retailers serve as trusted curators and intermediaries of other brands’ products, similar to physical grocery stores and shopping malls. Ecommerce businesses buy their products at wholesale prices from other brands and then sell them to customers. In addition to bespoke product curation, they add value to the shopping experience. In similar fashion to brick-and-mortar stores

• Having a broad product selection without developing each product is an advantage for the business.
• It is harder to distinguish your brand when you don’t have a product of your own. It can also be challenging to manage wholesale products purchased in bulk.

Drop shipping

Wouldn’t it be nice if you didn’t have to worry about managing inventory or purchasing it upfront? Drop shipping promises that. This business model doesn’t require you to produce goods or store inventory. Storage and fulfillment are handled by a third-party partner, you just tell them when orders arrive. A drop shipping business can be classified as either a white label or an e-retail e-commerce business. When it comes to “drop shipping” white labels or marketplace e-commerce businesses, they do not keep inventory on hand. 

In most cases, drop shipping happens behind the scenes—the customer is unaware that a product has been dropped shipped. If a major department store has a robust e-commerce site, it may dropship items from smaller vendors instead of holding the inventory directly. Rather than processing the order and customer information themselves, the department store forwards them directly to the vendor, who fulfills them from their own warehouse. 

• Due to the absence of upfront inventory purchases, this business model is most logistically light and least capital-intensive. As a result, it is appealing to many first-time entrepreneurs.
• The disadvantages of drop shipping are that margins are typically low, and drop shippers are dependent on their supply partners to ensure their operations are successful..

Wholesale B2C

The term “B2C wholesale” may sound oxymoronic, but it’s not entirely false. Traditionally, many businesses only served other businesses, but e-commerce enabled them to sell to the general public as well. Sites like these usually have the features of B2B sites (large selection, large volume, highly customizable orders, detail-focused product pages), but are open to customers making smaller orders. There are several examples, such as ULINE, and Alibaba.

• A large order size benefits these businesses in terms of operational efficiency. A B2B business model like this can also provide diversification for existing, offline-oriented companies.
• Among the disadvantages of B2C wholesale shops is that customers extremely price sensitive, and the businesses that succeed usually have a significant advantage in terms of cost (such as massive scale).

Ecommerce business models: how to choose one

The number of e-commerce models might seem overwhelming when you’re planning your own business. It is only a matter of asking a few simple questions that will help you choose the best model.

Who is your audience and what do they want?

The products of great businesses are driven by the needs and frustrations of their audience. For instance, if you’re passionate about helping new resellers source for inventory, ask them questions like:

• Can you identify the types of customers who will buy our product line?
• Do you have strong relationships with customers who will buy our products?
• Do they prefer to buy in bulk?
• Are they willing to pay extra for a more premium product?

All these questions will help inform whether you need one product or many, whether you can do a subscription model, and whether you’ll be able to afford a lower-margin option such as a marketplace or drop shipping.

How many resources do you have?

It is common for new business owners to be optimistic. Nevertheless, it is helpful to be realistic and even skeptical when deciding on your business model. Depending on your business model, some business models require more cash upfront and more time to operate, such as direct to consumers and private label. Business models such as marketplaces and drop shipping benefit from good supplier relationships as well. When you take stock of your supplier relationships and cash available for investment, you can decide what business model is best for you.

A final note

There are many different approaches to the ecommerce industry today. As a result, there are plenty of existing companies that can be tapped into. You can determine the best business model for your business by analyzing existing businesses, your audience, and your own capabilities.