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How To Choose an Ecommerce Business Model

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So you have a great internet business idea that is going to set you for life? This is great but, in order to turn these business ideas into reality a lot of work needs to be done and many decisions need to be made. Choosing an ecommerce business model is difficult so making the correct choices at the beginning will lay a good foundation for your business.

This post will be showing you the choices you will need to make and will discuss the advantages and disadvantages of them.

The general basis of starting an online business is built by these key decisions:

  1. Who you are selling to
  2. What you are selling
  3. How you acquire what you sell
  4. Why choose you to buy from

Who you are selling to?

The primary business models are:

  1. B2B - Business to business
  2. B2C - Business to consumer
  3. C2C - Consumer to consumer
  4. C2B - Consumer to business

Each business opportunity comes with pros and cons so let’s look into what each of them has to offer:

B2B (Business to business)

The B2B model refers to the selling of products or services from one business to another. The benefit of selling directly to other businesses is that their orders are usually larger so you can ship a lot more product.

Businesses also need to routinely stock up on their inventory so will need to place orders frequently. However, the downside to selling to businesses is that orders are usually larger in size meaning that it can take a lot longer for the sale cycle to complete.

Learn more from this explanation:

B2C (Business to consumer)

The B2C model refers to selling your product or service directly to the person that will end up actually using it. Selling directly to consumers is the most common business model.

Starting point: Selling online is an easy and effective way to reach millions of potential buyers. Whether you have to sell a little or sell a lot, e.g., Amazon.com provides you the required tools and experience to sell online successfully.

C2C (Consumer to consumer)

The C2C model refers to selling your product as a consumer, rather than a business, to another consumer. A popular example of the C2C business model is by purchasing items at auction, either live at an auction house or online via websites such as eBay. The aim of C2C businesses is to help a buyer find a product that is unique and would be otherwise difficult to locate elsewhere.

Bottom line. For most of you this will be your starting point in selling online as you will build freedom and financial independence by low volume selling on some of the marketplaces such as eBay or Amazon.

C2B (Consumer to business)

The C2B model is actually a rather new concept where an individual sells products or services to a business. The rise in C2Bs has come about largely due to the Internet. Tripadvisor is a popular example in that people can write reviews and give feedback to businesses which will then implement their ideas to improve customer satisfaction.

For the remainder of this article we will be focussing on the main two business models: B2B and B2C.

Let’s now look at the types of product that you will be deciding on selling.

What you are selling?

When starting a business, you must be clear in what you are going to sell to a consumer. Such products include:

Physical items

Selling physical items is the most common business strategy. They make up the majority of goods that are sold online. There are so many examples of physical goods to buy online such as food and electronic equipment.

Even so, selling physical items online comes with its own set of challenges such as thinking about potential damages that could occur on shipping (and with that comes insurances) and how you will store the product itself as regardless of big the product you sell, it will require space.

Intangible or digital items

With the ever growing advancements in technology, an ecommerce website selling digital items is becoming a very popular. Examples of items you can purchase online include movies, music and applications on video game consoles or smartphones.

Unlike when you sell tangible items, there is no need to worry about storage issues, which is a great advantage, while also being able to resell the product multiple times over. However, the biggest and most common problem with selling digital items is piracy and having your item illegally downloaded and distributed on the internet so remember to invest in security and processes to prevent this from happening.

Services

It’s not only products you can sell to businesses or consumers; you can use your own personal skill sets to provide solutions to problems that they cannot solve themselves.

Online services include Amazon product listing optimization, product photography, create advertising campaigns and search engine optimisation. If you have excellent knowledge in a certain area then selling your skills (e.g., on Fiverr.com) for that service can be very profitable but the drawback to this is that you often have limited capacity and time constraints.

Ok, so now you have established what you are going to sell. But how are you going to get it in order to sell it?

How you acquire what you sell?

There are four main ways in acquiring your product and they are as follows:

Manufacturing the product

The first way you can acquire a product for your ecommerce store is by hiring someone to make it for you. There are multiple business opportunities available to you such as finding a local business or going overseas.

If you do decide to hire a manufacturer abroad, for example in China, the costs of producing the product tend to be a lot cheaper than a business in the same region as your store. It may also be a good idea to seek professional advice from people or agencies who have experience to get you the best fit.

Make the product yourself

By making the product in house, you control everything about how it is created such as the materials that it is made out of. However with all this creative freedom comes a large proportion of your time spent on producing the product, meaning less time on other aspects of the business, i.e., actual selling.

You will also need the knowhow in actually creating the item, otherwise you will suffer from poor quality or faulty goods. However if you have the correct skillset, it will be much more cost effective than hiring out a third-party.

Buying wholesale

The most straightforward method of obtaining a product for your ecommerce store is by buying wholesale directly from a manufacturer and then selling it on your store for a higher price than what you paid for it.

Most of the time this will be selling already established brands which have already been proven to be successful in selling so there is less of a risk of a product not sold due to the item not being unknown on the market. Buying from the manufacturer also means that the product is available to sell immediately so you can start trading a lot faster.

A potential downside to buying wholesale however is that you must purchase a minimum quantity of their product so if you only require a low amount or product, you may be refused business.

Via dropshipping

The concept of dropshipping a product to a customer is by selling them a product that you don’t actually have in your possession. A buyer will place an order on your store which you will then forward on to a supplier who will then fulfill the order. Your business will never have to store the product or worry with the hassle of shipping it to the customer as the supplier will be doing that for you. Another benefit is that your store can be easy to scale as there is potential to sell a whole variety of products.

When dropshipping a product, it’s important you have enough margin in order to make the costs of hiring the supplier worth it. You will also need to bear in mind quality control.

The final component of choosing an ecommerce business model is deciding on ways to compete with rival businesses.

How do you stay ahead of competition?

Getting your store out there and being successful in a marketplace filled with many different stores and sellers is tough. Deciding on how to get your business above the rest means that a key strategic decision needs to made on how to compete with them. There are multiple ways of doing this and they are as follows:

Offering higher quality products

This is a big way that you can gain an edge over competitors. If you can identify that your market has low quality products and you can provide a solution to that, consumers will want what you have to offer. Better quality products last longer and leave a lasting impression, increasing the likelihood that customers will return to your store.

Presenting a wider range of products

Having a broad selection of items to sell means that you can forge your own space in a marketplace as it will be unlikely that a store will end up being similar to yours. Having a unique selling point is a great way of obtaining business.

Providing additional value

Customers are most impressed by a business who provide excellent value for money; the last thing they want is to feel they got the absolute bare minimum for spending their hard earned cash. By going the extra mile, you will earn a great reputation with consumers for providing them a product or service they would not have got from a competitor.

Giving great service

This method is follows on from the previous method. Great service, such as fulfilling an order on time or early, can boost your store’s credibility. Customers like to feedback which then leads to reviews. If potential customers see that you have left a good impression on others, they will be more likely to try your store, even though you will be a newer and smaller business than what they’re used to.

Pricing

This seems to be an obvious choice but it is last on the list for a reason. Competing on price isn’t the most optimal way of competing for ecommerce stores starting out. Existing and bigger rivals can often offer prices lower than yours as they will already have better profit margins. Having said that, if you can get pricing right it can be a valuable way of attracting customers away from competitors.

So overall...

Being able to make definitive decisions based on the four elements of choosing an ecommerce business discussed in this article will give a good foundation to build your store from.

Take your time over these decisions as the wrong combination could prove fatal.

Get them right however and you will not only enjoy getting your business up and running, but also ready to start reaping the rewards that come with it.

How To Choose an Ecommerce Business Model
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