E-commerce Business Models
I would like to highlight the more nuanced attributes of e-commerce different business models or ways to structure a business to make money.
This is where you are licensing your product to other companies to put their name on it. An example of this would be a software company that allows you to rebrand their product as your own, such as a client portal or SEO service. This way the customer doesn’t know any different and thinks it is your own. It helps with branding and consistency.
If you have a product or service that businesses need, you could license it to them for a fee for them to brand it as their own. This helps the business owner be more cost-effective and gain access to the white label companies’ resources and knowledge.
Private label is when you are going directly to the manufacturer for products. This is popular in cosmetics, apparel, and phone accessories industry. This allows the business owner to control the product design and branding by directly dealing with the manufacturer. This can keep costs down and therefore help achieve higher margins. You can deal with overseas manufacturers or domestic depending on your need.
This is where you’re actually doing the manufacturing. The design, creation, and distribution of the product is on you. In this instance, you could be creating products for the private label companies with who you can do business with online. This is obviously much more expensive and requires more capital than other e-commerce businesses. Computer or tech companies may manufacture their own products.
Wholesalers are either producing the product or buying it in bulk to then turn it around and sell it to the retailers who then mark it up. Typically, retailers are reaching out to wholesalers to buy in bulk to achieve higher discounts to keep costs down. They then sell this product online to the end consumer.
Walmart is a great example of someone who has a ton of buying power and buys products in massive quantities at massive discounts. They then are able to pass these savings on to their customers and offer products that are cheaper than their competitors.
Distribution is exactly what it sounds like. You are responsible for holding inventory or shipping the products out to customers. Amazon’s distribution or fulfillment centers are great examples of this. Another product is going from the supplier to the distribution center which is then sent to the customer.
Businesses need help getting their products delivered so if you can figure out a way to assist with this both quickly and cost-effectively you could have a great business on your hands.
Dropshipping is where an online store can ship their goods directly to the consumer without having to carry the inventory. They are using a third party supplier to order the product and get it delivered.
Typically, margins are much smaller with this type of business model because there is not a lot of flexibility or uniqueness around design to differentiate the product. Phone cases and accessories or jewelry could be products that a drop shipping business could focus on.
Subscription services seem to be exploding these days. The growth trajectory for this model is massive.
Just think about all the products you subscribe to on a monthly basis from your streaming apps to your accounting software. There are a ton of e-commerce businesses that have their businesses completely online and are selling software products for a monthly subscription. These can range anywhere from very cheap to very expensive depending on the product or service. If you have a problem that needs to be solved and software can achieve this. Find someone who can build it and then sell it to the right people.
Retail is where a company is selling directly to the consumer at full price. Retail can be thought of as your popular stores like Target or Best Buy that are selling their products online to the consumer. Think of it as setting up a website and hanging your shingle to sell to your ideal customers. It is considered a business to consumer model.