Here is how to decide on probably the most worthwhile e-commerce enterprise mannequin for you
With an estimated 2.14 billion digital shoppers worldwide, it’s no surprise that both new and established businesses are benefiting from our love of online shopping. However, before diving headlong into the world of ecommerce, it is important to know how to choose the most profitable ecommerce business model for you.
The best business model for you will depend on a number of factors: your product, your budget, your inventory management forecasting skills, your digital marketing experience – the list goes on and on.
While it is tempting to jump on the latest trend or pick the safest option, solidifying your ecommerce business model early on will prevent confusion later and will help you on your path to steady, long-term success.
It also lowers your chances of being in the dreaded 20% of businesses that fail in the first year.
Regardless of whether you are still looking for a profitable product idea or have procured your products and are rarely on the road, now is definitely the right time to find out which business model best suits your individual requirements.
Core Classifications of the E-Commerce Business
First, let’s take a look at the top classifications for ecommerce businesses. This will help you identify the most profitable e-commerce business model for your selected products and / or services.
B2C – Business to Consumer
B2C is the most common company classification. Everything you as a consumer buy online – from groceries to perfumes to new laptops – falls under the huge roof of B2C e-commerce.
B2C ecommerce is popular because of the large pool of purchases, low startup costs, and relatively easy setup. However, it is also the most saturated market and runs the risk of low profit margins.
B2B – business to business
A B2B e-commerce is a business that is sold to other companies. This can take the form of services such as software platforms or physical products such as office supplies or groceries.
B2B e-commerce is characterized by higher order values, high profit margins and professional brand credibility. However, it also requires significant upfront investment and is hampered by a limited pool of purchases.
C2B – Consumer to Business
While we don’t often think of consumer-to-business e-commerce, it is actually a widely used classification. Upwork, a website where freelancers offer their services to businesses, is a perfect example of C2B e-commerce. Affiliate marketing and photo sales are also notable examples.
C2C – consumer to consumer
The most common type of C2C ecommerce occurs through online marketplaces such as eBay and Craigslist, where consumers can trade, auction, buy, and sell with other consumers.
Profitable e-commerce business models
Choosing the right business model serves as the basis for other important aspects of your business plan. This includes identifying your target audience, creating a budget plan, creating your ecommerce pricing strategy, and planning your marketing methods.
Dropshipping enables companies to market and sell products on an order-by-order basis, eliminating the need to purchase products in bulk. Inventory is stored, packaged, and shipped by the supplier himself, which means dropshipping companies save a significant amount of money on warehouse and shipping costs.
In fact, you can start a dropshipping business with little to no capital.
The plethora of beginner-friendly small business ecommerce platforms makes dropshipping one of the most viable options for startups and businesses with minimal ecommerce experience. However, market competitiveness, a lack of brand control, and low profit margins can all have a detrimental effect on sales.
Dropshipping may be the most profitable ecommerce business model for you if:
- You are a start-up or a small business with limited capital.
- You already have a significant amount of social media.
- You have intuitive online marketplace knowledge and are up to date with trends (e.g. how to improve eBay sales or the latest products).
- You are testing several products on a trial basis.
The wholesale process involves buying large quantities of products directly from the manufacturer and selling those products to retailers and businesses at a reduced price. It’s a traditional model that has recently undergone a digital transformation, revolutionizing e-commerce and becoming the UK’s most profitable e-commerce sales generator.
Wholesale can be done on an online marketplace such as eBay or Amazon Business or via an e-commerce platform. E-commerce platforms are becoming increasingly popular –
Buying in bulk at a negotiated price can result in high profit margins and higher revenues. However, the very real possibility of wasting inventory makes it a high risk, high reward ecommerce business model.
Wholesale may be the most profitable ecommerce business model for you if:
- You are ready to make a large investment upfront.
- They are a B2B e-commerce.
- You have a good understanding of inventory forecasting best practices.
Selling private label products is a perfect e-commerce model for companies looking to develop a brand.
In short, private labeling means buying a generic from a manufacturer, customizing it to match your brand’s aesthetic, and then selling it under your own private label. It’s a stable market, expected to quadruple by 2025, with high profit margins and retention rates.
There are two ways that companies implement the private label model.
Trademark via Amazon FBA
Amazon Fulfillment (Amazon FBA) is a service provided by Amazon that not only allows you to store products, but also to package and ship them on your behalf. It removes the stress of running your own warehouse and gives you access to the millions of customers who use Amazon every day.
While there are additional fees, it’s not as expensive as doing B2B wholesale or selling private label products through your own website.
Selling private label products on Amazon may be the most profitable ecommerce business model for you if:
- You have a solid branding concept that you want to expand.
- You are ready to make a moderate investment upfront.
- You plan to sell mid-range products (Amazon FBA is not the best option for high or low cost products).
Private label on your own website
Using your own online store to sell your products is ideal for companies with long-term goals of establishing themselves as an independent brand. This model gives complete control over website design, branding, pricing, production, marketing and sales, making it extremely popular with entrepreneurs.
While this is a highly profitable business model, it is also an incredibly high risk for companies with little e-commerce knowledge. To maximize profit potential, choosing the right ecommerce software for your business is vital, as is a solid branding concept and high level of intuitiveness for your customers’ needs.
Selling private label products through your own website may be the most profitable ecommerce business model for you if:
- You have experience in digital marketing and SEO skills at the company level.
- You have a solid branding concept.
- You are ready to make a large investment upfront.
With 15% of online shoppers signing up for a subscription box – and 35% of them signing up for three or more – now has never been a better time to build a profitable subscription service business .
If you identify a product that customers need / want on a regular basis and offer it to them through a monthly subscription fee, you can secure steady income from loyal customers. From meal sets and makeup boxes to craft beer and survival kits, the possibilities are endless.
The curated subscription model (selling personalized variety boxes) is the most lucrative to date and accounts for a whopping 55% of all subscriptions.
There is a lot of work to be done in building a subscription box business, however, and it isn’t for every product. The market demands new and innovative ideas, consistently high quality products and regular purchase incentives.
Subscription may be the most profitable ecommerce business model for you if:
- You have to make significant investments in bulk to buy.
- Your product fits into a replenishment, curation, or access category.
- You can build strong customer relationships (the subscription model often involves more customer interaction than other models because you support customers throughout their subscription lifecycle.
Which model should you choose?
Now that you know how to choose the most profitable ecommerce business model for you, it is time to ask yourself some very important questions.
Once you have linked your answers to the different business models, your most appropriate model should become clearer.
- Who is my target group?
- How much can I invest in advance?
- Am I a single product or a multi-product store?
- Do I want to be responsible for inventory management and costs?
- What is my ecommerce experience?
Remember, it is normal for businesses to change as they adapt and scale. Many emerging companies are ultimately using a hybrid model to not only increase their purchasing pool, but also to respond to customer requests.
By using a CRM system to segment the market, companies can gather useful information such as customer demographics, buying patterns, engagement levels and preferences, and thus tailor their business to the habits of loyal customers.
Whether you’ve settled on one business model or torn between the two, laying a strong foundation now can help your business flourish over the long term and increase your chances of profitable success, even if you decide to switch later on.
Author: Nicholas Shaw
Nick Shaw joined Brightpearl in July 2019 as Chief Revenue Officer (CRO), the leading retail digital operations platform that includes sales and inventory management software, accounting, logistics, CRM and more. He is responsible for EMEA Sales, Global Marketing and Alliances. Before joining Brightpearl, Nick was GM and … Show complete profile >