Ecommerce continues to grow year on year, and more businesses are moving their platforms online. Before setting up an online store, one of the primary considerations is deciding which ecommerce business models to follow. This can significantly influence the type of products a store sells.
In 2020, 85% of global consumers shopped online, and this number continues to rise. Ecommerce is the future, and there are an estimated 12-24 million ecommerce stores on the internet. It's not a trend that's fading away, and it makes sense people want to get a slice of this lucrative pie.
But instead of just jumping in and setting up an online store, it's essential to take a step back and develop an ecommerce strategy. If you're thinking about setting up an ecommerce store, then choosing what type of model to follow is a vital part of the setup. It's also essential to understand the importance of customer lifetime value to ensure each business can make the most out of every customer.
This article will examine and discuss the six most common ecommerce business models in 2022 and provide examples to help you understand what type of ecommerce business model is suitable for your company.
A business model refers to how a business sells products online, who its customers are and what standpoint it takes when marketing itself. Some individuals will set up a business online, whereas others will sell from a consumer level. There are six common ecommerce business models, and they all function in a variety of ways. These are:
Taking the time to understand the dynamics of selling products online and developing a business plan before you jump in will add to the success of your ecommerce store. Part of your research should include finding more about the best business models stores currently use.
We'll go through these in more detail to give you a clear picture of what each one entails.
The ecommerce business model you choose will influence what customers you sell to. It'll also affect how you market your products and how you position your own business in the massive global market of ecommerce. However, you don't need to tie yourself down to one business model when deciding to sell online. You can choose more than one if that suits you and opt for a hybrid approach.
There are six common forms of ecommerce business models that online retailers use. Let's go through them in more detail.
A business-to-business model is when a company positions itself as selling its products to other companies. It could be a digital product like software or something physical like office supplies. If your products are aimed toward other businesses, then a B2B model could be the best to adopt.
In a B2B model, you can sell your products to specific niche markets - for example, market-specific software for healthcare companies. Or you can sell to more than one target market, like making more general software that could be adopted by different industries and tailored to them.
When adopting this model, marketing to other businesses is a crucial element. You'll also want to take up any networking opportunities, allowing you to develop relationships with other companies to sell your products to them.
When working with businesses, orders can often be large, so it's vital to ensure there's enough inventory to manage big orders.
While business to business is a lucrative model, it's vital to ensure your products provide value to the companies you're marketing yourself to. Customer retention rates in B2B ecommerce are usually 76 to 81%. However, marketing to existing customers is still crucial for maintaining business.
Salesforce homepage.
One massive B2B ecommerce business is Salesforce. They market a digital customer relationship management software that integrates marketing, sales, and customers. Salesforce sells itself as a vital piece of software for other businesses to use.
Another is Hootsuite. Hootsuite is a social media scheduling tool that allows businesses to schedule all their posts across their social media networks from one easy platform. They also support direct messaging on the app from different accounts and provide detailed analytics reporting across all apps. Despite being marketed toward businesses, it's also a handy tool for individuals who use their social media profiles as their businesses.
The majority of online stores are made of business-to-consumer stores. This is probably the most popular business model. Suppose you've been to an ecommerce store selling physical products like apparel or accessories to customers. These are all business-to-consumer ecommerce models.
It's a straightforward model to adopt, but there are different types of B2C models that are used:
The COVID-19 pandemic saw online sales skyrocket. As a result, many organizations that operated primarily through brick-and-mortar stores moved online. Some top retailers have closed in the UK and become only online-based stores. In contrast, others have opted to retain some stores and function as online businesses.
When using the business-to-consumer business model, companies have to adapt to changing shopping trends and use an online platform to quickly manage inventory and sales.
As the business-to-consumer model is widely used, it's easy to find plenty of examples that meet the requirements. Direct selling stores include Macy's, Target, and Hot Topic. They sell products directly to customers via an ecommerce platform.
Most social media platforms are free to access for the consumer but make their money via targeted advertising to their users, using the advertising component of the B2C model. Companies like Facebook are also known to make money from selling information about their customers. They could also be considered community-based.
Meanwhile, streaming services like Netflix, Amazon Prime, and Hulu sell their product via a subscription service. Customers pay a monthly fee to access their products. Companies that provide online software use the subscription service model when encouraging customers to pay for their business's products or services.
Companies like Etsy and Patreon are online intermediaries that allow people to set up shops and accounts on their websites to sell products and services. They then take a percentage of the sales made on their website from their customers.
The consumer-to-business model refers to individuals who sell products to companies. When we think of ecommerce stores, we usually take the viewpoint of businesses selling to customers. But there are other situations where the consumer sells to the business.
A common form of a consumer-to-business is self-employed freelancers who sell services directly to businesses to benefit them. For example, a freelance videographer may sell their services and create videos for companies that will pay them for the work.
A firm advantage of consumer-to-business electronic commerce is the ability for individuals to set their rates and prices. Working on their own time is attractive to freelancers who want to work for companies without being tied to a contract.
One of the most popular sites that fit the consumer-to-business type is Upwork. Another is Fiverr. They are both websites where freelancers can use the platform to connect with businesses and sell their services directly to businesses who also use the platform. While most wouldn't think of these platforms as ecommerce, they are making money online, which means they fit the category.
Online marketplaces have also seen the adoption of the consumer-to-consumer model, in which individuals can sell directly to other people. The digital landscape has seen websites that provide an online platform for people to make sales rise in popularity.
This means people can set their prices at the market rate and sell items in their own time. It allows hobbyists to sell their products without going through the tiresome process of setting up an online store. Doing so might be suitable for someone planning only to sell a few products or dip in and out of selling online instead of doing it permanently.
Popular item selling sites like eBay or Vinted function because they provide an online marketplace where people can sell products to other people. Even Facebook had to get a piece of the action. The company added Facebook Marketplace to allow users to put items up for sale without leaving the website. The consumer-to-consumer model continues to rise in popularity as ecommerce becomes more popular.
These popular marketplaces allow users to sell old products to make a bit of spare cash. However, consumer-to-consumer orders tend to have a lower average order value.
The consumer to administration model is where customers make electronic transactions to administrative departments to pay for goods or services. It provides people with direct interaction with public administration departments and big institutions like health services or education providers. It's a standard part of daily life.
Consumer to administration is typically used when individuals pay for their healthcare electronically. But it's also commonly used when students make payments for online learning courses. They are paying for a service they are accessing online from an administrative department like a college or university.
The electronic federal tax payment system (EFTPS) falls under the consumer-to-administration category. Consumers are making electronic tax payments directly to a public administration department in the government.
The business to government model refers to companies who specifically market their products or services to government agencies. Typically, governments put the contracts up for bids, called Requests for Proposals. Companies have to develop a bid to go along with the contract. The government will then choose the company that has created the most suitable offer. That company wins the contract and gets the funding. Of course, they then have to deliver on the contract.
It can also be referred to as business to administration, as businesses are marketing themselves to public administration agencies across the country.
Typically, most sales happen behind the scenes due to this process. A government is rarely going to go on to an online store website and make a big purchase. This industry moves at a much slower pace when compared with other ecommerce models like business to consumer due to the amount of bureaucracy involved.
Business to administration transactions can happen at every level, from countrywide federal contracts to local government agencies in cities and towns.
This form of ecommerce is the kind of business that sells to the government. It happens when defense organizations develop munitions and weapons to sell to the US army.
But it doesn't have to be military-based. Companies might offer services that are beneficial to the government, like waste management contracts. In these scenarios, the government contracts out the work to a third-party company to be carried out under a governmental contract.
When deciding which of the ecommerce business models is most suitable for your ecommerce website, you should think about a few things first:
There are a few different forms of products you can sell online. Physical products involve any item you will ship out to your customers, such as apparel, jewelry, and skincare products. A digital product would be selling software to a business or consumer, while selling a service could involve being a freelancer and offering marketing support to a company or individual.
Once you've finalized your customer base and whether you'll be marketing yourself as a consumer or a business, you'll be able to choose which business model suits you.
The ecommerce landscape continues to evolve each year and isn't going to vanish. The ability to sell online has seen businesses leverage technology to connect with customers via mobile apps or from an ecommerce platform. The different forms of ecommerce business models are integrated into almost every aspect of our lives.
Researching your ecommerce business model is a vital step to take when considering setting up an online business. Suppose you plan to set up a store on an ecommerce platform and sell products directly to consumers. In that case, the B2C model is the most suitable. There is also the option to take a hybrid approach and follow more than one model. Ultimately, the choice is yours alone to make.
Another primary consideration when running your ecommerce store is managing your cash flow. Artoh has developed a tool to help online business owners do it all from one easy-to-navigate screen.
