Are you looking to grow your eCommerce business?
Perhaps you want to start an online store and need some ideas?
Luckily, you don’t have to start from scratch! There is a simple formula to it. It begins with understanding how different eCommerce businesses are structured. Followed by identifying customers & delving deeper into their revenue model.
The eCommerce business is constantly evolving. Whether you are just starting out or have years of experience under your belt, it helps to keep up with the latest industry trends.
This is a pretty humble number all things considered. Also, proof that there is plenty of room for growth for newer players to be more innovative right here on the internet.
In this article, we will take a look at different kinds of eCommerce business models and dive deep into what makes some brands tick.
But first, let us build some context. Traditionally, eCommerce businesses differ by the kinds of goods they sell, the consumers they target the business model they adopt, and the platform they choose. Let us take a quick look at the different parameters that influence your eCommerce business model.
Types of Goods Sold
Ecommerce businesses can be broken down into three different categories depending on the kind of things they sell
Online retailers selling everything from books, gadgets, appliances, stationery, hand-knitted socks, and groceries fall into this bucket. Think Amazon, Macy’s, fine cookware brand Williams-Sonoma and everything in between.
Businesses selling software, ebooks, music, text, images, video, will fall into this category. Rocketium falls into this category. So does Spotify and meditation app Headspace.
Sell insurance, cruise line tickets, or run a financial planning advisory, online? You are in the business of providing a professional service in return for a fee. Think of aggregators like Airbnb or Kayak, and Uber.
Why What You Sell Matters
It may seem self-evident but the choice of your product offering influences every other key decision you will make.
So, it is important to identify the right product mix, industry segment, or niche. Keep in mind that businesses selling physical goods have to deal with the logistical challenges of delivering those goods.
Companies selling digital artefacts do not have to grapple with such problems. Firms selling tickets or timeshares, however, have to find ways to tackle demand and supply in a more dynamic manner.
Types of Target Audience
What you are selling matters but it is also very important to determine who you are selling to. Ecommerce businesses function differently depending on who they cater to. Largely, eCommerce companies can be classified as:
Business to customers
Ecommerce businesses which cater directly to end consumers are classified as business to consumer models. For instance, a brand like Victoria’s Secret can retail via a single-brand online storefront, or offer their goods on platforms like Etsy or Amazon, which feature selected sellers.
Business to business
Companies that serve other organizations, who in turn sell to the end consumer, are classified as business to business firms. Brands like Quickbooks, Hubspot fall under this category.
Customer to customer
Any platform which encourages peer-to-peer sales amongst individuals can be classified as a consumer to consumer business. Marketplaces like Etsy, Craigslist, and eBay qualify as C2C businesses.
Customer to business
Individuals who approach businesses to offer their professional services, on a project on a consultancy basis can be seen as consumers catering to business. Freelancers, including designers, writers, and voiceover artists selling their services on a platform like Upwork fall under this category.
Some people also like to think of businesses selling to governmental bodies or agencies as a separate category.
Why Understanding Your Target Consumer Is So Important
The kind of target audience you are hoping to sell to matters more than you think. For instance, B2C businesses tend to spend fewer marketing dollars to make a sale. B2B business needs to expend more resources and time convincing a customer to give them an order.
However, keep in mind that B2B companies are assured of the larger average order value and recurring customers. B2C on the other hand deal with a larger volume of visitors, smaller orders, and more churn.
Understanding the profile of your target buyer can also help you decide on your revenue model.
Would it make sense for you to adopt a freemium model and offer a rich set of features to paying customers, or does the subscription model with a flat fee fit your needs better?
As a C2C business would you want to charge your users a commission from every successful sale you broker, or would it be easier to attract a much larger audience and monetize your platform through selling advertising space or both?
Different Types of eCommerce Revenue Models
Ecommerce companies embrace different revenue models to become profitable. Here are a few of them:
One of the fastest-growing methods of eCommerce, drop shippers act as a middle man connecting buyers to manufacturers, by marketing and selling items fulfilled by a third party supplier, like AliExpress or Printful.
Subscription services bring convenience and savings to consumers and have become a very popular way of doing business for any number of companies, today. This can help you increase the lifetime value of every customer but ensuring recurring sales. For instance, Dollar Shave Club uses a membership model to cultivate loyalty by shipping directly to the consumer. Another successful eCommerce subscription model has been adopted by Birchbox.
Retailers can hire manufacturers to create a unique product for them exclusively. Paying someone else for manufacturing helps eCommerce merchants make the highest possible profit margin, and stay lean on investments in production and design.
This method allows business owners to apply their name and brand to a pre-designed,pre-made product without spending time and resources developing a solution from scratch.
For instance, Rocketium offers a white-label solution to large eCommerce clients who want a plug and play solution to fit into their existing workflow.
Ecommerce companies can also focus on a wholesale revenue model, look at rental and loan-centric businesses, and the freemium model.
Different Types of Ecommerce Platforms
Ecommerce platforms fall into three categories.
Individual brand website
Websites dedicated exclusively to one seller fall under this category. For instance, Bonobos offers hyper-customized men’s clothing retails on their exclusive website.
Online retailers can allow access to a selected number of sellers who follow their guidelines, for instance, Etsy and Amazon would belong to this category.
Marketplaces, however, are platforms where multiple sellers are welcome as long as they adhere to minimal criteria, for instance, eBay only steps in to regulate interactions between customers and sellers, in case of a dispute.
While there are no hard and fast rules when it comes to deciding on the right kind of product, revenue model, and platform for your business, there are many brands worth emulating. We hope you found this article useful in fine-tuning your eCommerce business model. Please do share it with your network. Thanks for reading.