If you want to start your own business, you will need to familiarize yourself with business models. Business models are basically how your business is going to gain revenue and make profits.
But as you’ll have to know who you’re going to do business with before you can decide how you’re going to make money, let’s find out what types of businesses there are and who you can do business with.
If you business is B2B, you will focus on providing products and services to other businesses. In other words, the sales are done between companies and companies.
Herman Miller, for example, is a 100-year-old furniture and design company providing lasting office furniture to businesses.
This is the most prevalent eCommerce model where businesses sell their goods directly to the end consumer.
A local grocery store in your area is a good example of B2C business.
C2C business are where consumers sell directly to other consumers. These transactions, these days, are often done through C2C E-commerce websites.
C2C e-Commerce websites are platforms that connect consumers who have things to sell and those who want to buy.
These websites usually make money by charging commissions per transaction or through advertisements.
Ebay is a C2C Ecommerce business platform.
C2B is business done between businesses and individuals. The majority of C2B businesses are freelancers.
Once you have identified who you can do business with, let’s jump into how you’re going to make money with business models.
Your business model is simply a description of how your business makes money. It’s an explanation of how you deliver value to your customers at an appropriate cost.
For example, if you are an organic veggies retailers, your business model should be “buy organic veggies from farmers at wholesale, and sell them at retail, the difference between your wholesale price and your retail price is your margin”.
Based on the inventory management and sourcing and selling of the products, Ecommerce business models are classified into:
Drop shipping business model is where you play the role of a middleman. You do not have to worry about stocking and maintaining inventory. This model involves partnering with a wholesale vendor who has inventory in their stock, and when your customer places an order with you, your wholesale vendor will ship directly to the customer on behalf of you.
The primary work of a drop shipper is creating a website displaying the products for sales, and handle the marketing of the businesses. Inventory and delivery are handled by the wholesale partner.
Inspireuplift is a successful ecommerce drop-shipper offering hundreds of products in their store, ranging from electronics to pet accessories.
Shopify and Oberlo are popular among drop-shippers. These platforms are user-friendly and inexpensive to start off with. A widely used model is to set up a quick store and drive traffic with Facebook Ads.
This is probably one of the most traditional types of business models. It runs on the principles of keeping inventory and distributing. This means you buy products directly from manufacturers at the lowest rates possible, store them in your warehouse, and distribute them to retailers at profitable prices.
This business model suits businesses with guaranteed demand, because setting up and maintaining a wholesaling and warehousing business model requires big initial investments and efforts.
DollarDays is an online wholesaling and warehousing business with an impressive product catalog of more than 260,000 products.
The basic plan of Shopify, which costs $29/month, is sufficient to open up an online wholesale store.
This business model is probably the most popular these days, and suitable for those who do not have the ability to, or do not want to manufacture their own products.
White label branding involves two companies creating one product. One company manufactures the product, then the brand sells the product as their own.
If you go to Target or Walmart and see that they’re selling some products under their own brand names, these products are white labelled products. These giants rely on their brand reputation to make offerings and give customers a better reason to shop exclusively with them.
Outsourcing is mostly white-labelled too. When you want to start your own brand and outsource the manufacturing part to a manufacturer in China, your products are white-labelled.
Nike, Zara, Adidas, any brand who outsources their manufacturing but sells under their brand names is white-label brands.
Sourcify is the most well-known platform for connecting businesses to factories. If you have a product of which you want to outsource the manufacturing, Sourcify can connect you to their database of reliable manufactures all over the world.
A company with the subscription business model sells its product or service to receive monthly or yearly recurring subscription revenue.
The easiest example of subscription business model to understand is magazines companies. Instead of selling a magazine as a one-time purchase, magazine publishers offer a subscription service for the delivery of a weekly or monthly magazine.
The customer pays a recurring fee for the publishers on a monthly or yearly basis to have newest magazines delivered to their doorstep.
There are a lot of big subscription-based businesses these days. Netflix, Amazon Prime, and The Dollar Shave Club to name a few.
We have just gone through the most common E-commerce business models of the digital era. It is important to understanding these models and choose one where you can make the most out of your existing skills and resources. That will give you a momentum to kick off your business and increase your chances of getting to the top of the pile.