While setting up a new ecommerce business online, there are many choices with respect to the business model you can follow. Major online ecommerce platforms vary in their modus operandi, which ultimately defines what the core of their business is. Selecting the right  e commerce business models is an important first step towards defining the future of your business.

In this post, we’ll talk about the most popular ecommerce business models in existence, and discuss their pros and cons for new businesses. We will break down this post into major sections that answer the following questions:

• What are the major ecommerce business types?

• What type of products can be sold, and what are ways to acquire products?

• What are the most popular ecommerce strategies?

Ecommerce business models can be classified into four broad categories; B2B. B2C, C2C and C2B.

B2B refers to businesses selling products or services to other businesses instead of end-consumers. These can be offices, agencies, manufacturers, retailers and so on. An example is Alibaba, which provides bulk-order goods for other businesses. While B2B can bring in more revenue per sale and help maintain sustainability through repeated orders or contracts, B2B sales take more time to materialize and the number of sales is significantly lower than B2C.

C2C refers to the sale or exchange of goods/services between consumers without the direct involvement of your business. Good examples of ecommerce platforms using this business model include eBay and Craigslist. A major advantage to this approach is it doesn’t require as much involvement of your business, allowing you to keep company size small. However, these businesses are typically very hard to set up, and require a major marketing effort. New players have a much harder time against major players in the C2C market as compared to B2C or even B2B markets.

This refers to consumers providing services (or goods) to businesses, as is the case with freelancing platforms such as UpWork.

Once you have decided whether you want to target businesses or consumers (or let consumers target other businesses/consumers), it is time to decide what you want to sell on your platform. This can often be the first step as well; however, the vision of your online business (B2B/B2C etc.) will often determine what will you deliver, and how you will deliver it.

The sale of physical, tangible goods (both for B2C and B2B) is the most common form of e commerce today. Subsequently, it is also the most complex, considering how it has a lot of moving parts (physical). These include production, inventory and storage, shipping and insurance/warranty claims. This requires a lot of manpower and reliance on third-party vendors (suppliers, shippers etc.), and can be very difficult for new businesses to operate at scale. Yet, a major chunk of ecommerce sales come from physical goods, with Amazon as a prime example.

These include digital products such as software, games, ebooks, music/videos and so on. The sale of digital products is relatively simpler without the hassle of inventory or shipment. Steam by Valve Corporation is an excellent example of an ecommerce platform selling digital copies of games and related software content.

If you want to sell physical goods on your website, your choice begs the question: where is the product going to come from? There are many ways ecommerce platforms get a hold of products to sell.

• Creating your own products: The most common reason for startups to take their business online is that they have created a product, or are offering a service themselves, and are ready to sell it. Such businesses can be large or small, but typically are not easy to scale well. Examples include jewellery makers such as J.L. Lawson and Co.
   

• Getting manufacturers on board: Often companies make use of manufacturers to create products according to specifications. High capacity manufacturing units in countries such as China provide an ideal manufacturing base. In fact, most technology companies such as Apple use this approach to get their products manufactured by third-party factories or production plants. Contracts in these cases can be quite complex.
   

• Wholesaling: The idea is simple: buy products from a manufacturer in bulk and at a discounted, wholesale rate, and then sell the products at retail price. Walmart is an example of this type of business. While it can be very profitable, there are inventory management-related risks to be mindful of, which might not be ideal for small businesses.
   

• Dropshipping: Dropshipping businesses act as intermediaries between consumers and manufacturers. You receive orders from your customers, and forward them to known suppliers/manufacturers who either ship products to you (which you in-turn ship to your customers) or ship to your customers directly. Dropshipping eliminates the problems associated with inventory management, but might not be reliable as it depends on order fulfillment from the supplier. This business model is good for small businesses with low investment, but is not ideal for operating at scale.

Now that we have talked about major ecommerce business models, it is time to think strategy, and find out which model would be the most effective for your business. There are quite a few ways you can differentiate yourself as a business in the highly competitive ecommerce industry.

New ecommerce businesses can utilize B2B or B2B channels to deliver a better quality product that whatever exists out there, and that is indeed one of the only ways to get a share of the market easily.

If you have a large network of vendors and can stock and sell items on a large scale, one of the best ways to penetrate the market is by cutting down on the prices to attract more customers. This strategy, however, is not ideal for small scale businesses, since a larger business will always have economy of scale on its side and will almost always beat your price.

Value addition and maintaining good quality of service can be challenging for large businesses. However, smaller businesses can stand out very easily using exception after-sales services. Whether you’re making your own product or selling wholesale products, adding value (such as providing installation/usage instructions or training) can always go a long way towards establishing a good name for your business.

Getting an ecommerce business off the ground can be challenging, but not impossible. For small businesses with low capital investment, there are some proven business models such as dropshipping products for B2B/B2C along with some value-addition. For starting businesses that can afford to grow big quickly, an ideal strategy would be to cut down unit costs by involving a manufacturer, and then selecting the most economically feasible distributor network to maximize profits. Wholesaling is also a good option at this point, which also applies to large, already-established businesses that want to make an entrance into the online market.