With over $800 billion spent online in 2020, it’s conclusive that online retailing is the future. But what e-Commerce business model should you follow to be profitable online in 2021? Let’s find out.
For several years e-Commerce was shunned as the dark side of the internet – a place where scammers and con-artists booked their berths in the thousands. This may sound like a bit of an overstretch, but ask anyone who grew up in the late 80’s and you’ll know what we mean.
The prince of Nigeria is still looking for a worthy heir online for an investment for $5000, but he’s caused fewer victims today than his record from 10 years ago. The reason? People know their way around the internet now.
Why E-Commerce Businesses Are Trending
Online businesses like Amazon or Flipkart are perhaps the only medium through which people feel comfortable buying stuff today, with COVID only boosting its reliability and credibility further. The sector has had tremendous success for the past decade, and almost everyone is convinced it’s the only way to go from here on. And it’s because there are several benefits of e-Commerce over the traditional brick and mortar stores, some of which include:
- Comparatively minimal resources and upfront cash flow needed to set up.
- Could be hosted anywhere in the world, and doesn’t depend on locations
- Delivers to the entire globe, making everyone a potential customer/client
With all this said, and a lot that’s happened over the past decade, E-Commerce is a tough space to survive in today if you don’t know what you’re doing. Tech giants like Amazon and Flipkart rake in millions per day, with a keen eye on competitors, and what they’re bringing to the online table. One wrong move, and the sharks will gobble you up. So it pays to do some research before jumping into the world of e-Commerce. And that is exactly what we’re here to help you with today.
In this article, we’re going to dive into the world of e-Commerce and attempt to understand what’s happening in this space, how it works, and what types of e-Commerce business models you can adopt into your business going forward, so that you minimize risk, and aim to get a share of the big pie that is online business. But before we do that, let’s take a look at the most common business classifications, as these will help in simplifying our decision in picking up a business model for our company.
Business Model Classifications
For years, companies have failed because of several reasons, but one stands as the most cited reason for a business to fail: not understanding who the target audience for the business is.
For instance: On first impressions, your pen company might look like it would do well as a store for school and college students to jot down notes, but what if you could make far better profits wholesaling to corporate companies with hundreds of thousands of employees around the globe, with a custom customer logo on them?
The above example might be exaggerated, but it’s not too far off the tree. The fact is that while you might think business owners might have thought about who their target audience is, aspiring young guns caught up with the trend that we’re currently seeing on entrepreneurship being the “cool thing” to do – these people wouldn’t have thought about it enough.
One thing to do when faced with such a situation is to evaluate your business idea and compare it with the existing business model classifications, to see where your idea can truly survive. Let’s briefly touch on these business classifications, and then jump straight to looking at working e-Commerce business models.
B2B is really simple and straightforward. Your product/service is sold to a business. So transactions between two businesses is a B2B business model. Our earlier pen store example – where we sold pens to a corporate entity – is a great example of B2B
???? Also Read – B2B Ecommerce Business Models – All Hype Or Gold Mines?
If your business sells its products or services directly to the person/audience that uses them, you’re a B2C business. A local grocery store might be a good example for this one. The grocer sells you groceries from his store, and there’s no middleman between you and him.
We’ll see how this works in e-Commerce as well in a bit, but for now, just note that this is one of the most common business models used in e-Commerce today.
Let’s say you’ve got a product that you have been using, and you’re not getting the right value out of it, so you’d like to sell it. The person that buys it from you will also be a consumer. This is called a C2C business model. Platforms like OLX and Cars24 use the C2C model, and make quite a bit of money out of it too.
There are more business model classifications that we’ll link to here, and you can read about them for more on this topic if you’re into it. But these are the most common, and most popular business model classifications out there, and it would be wise to use these to understand where your audience is going to be and try and gain exposure in that sector.
Types of E-Commerce Business Models
Now that we’ve nailed down where our customers are likely going to lie, it’s time to put a pin on how you’re going to capture this audience, and convert them into a loyal following. Assuming you’ve got your eyes on a product that you want to sell – and an audience that you know you can sell it to – here are four ways to get started with an online store and start bringing in money.
Perhaps one of the most attractive business opportunities to college students as well as people starting out in business is Dropshipping, and for several good reasons. In this business model, you’ll essentially be creating an online shop with products that you can find for cheaper rates from other companies like manufacturers in China from sites like AliExpress. You put a percentage markup on these goods and list them on your site. Visitors on your site place an order, you place the order on AliExpress and get it delivered to you, then you deliver it to the customers. A classic B2B model example.
Just to make this simpler to understand, if I were to purchase this phone cover from Amazon (supplied by a third party seller on Amazon of course), it would cost me INR 399 plus shipping. Guess how much the same product is on AliExpress? INR 70. That’s how dropshipping works. You find a good selling product, then find dealers who are making it for far cheaper than the original value, put the product up on your store, and then sell it at a higher point. All you need to handle is shipping, marketing and website costs.
Dropshipping costs a lot less than starting and manufacturing a product company, and that is why it’s made a lot of people starry eyed. But if everything sounds too easy, you’re doing something wrong. While dropshipping looks lucrative, it comes with several hidden costs – cashback on returns, minimum order counts, delayed delivery dates and so on.
You can make money out of dropshipping, and a lot of it, but you will have to be careful or cash will burn a lot faster than you might want it to. And if this is your single source of income, ⚠️ we suggest doing a lot of research before even thinking of jumping in.
Similar to dropshipping, except that in dropshipping you place an order only after a sale on your website happens. In wholesaling, you purchase massive amounts of the product from a supplier at a cheaper rate (Business 101: you can buy a soda can for $3 USD but a combo of four will only cost you $10 USD instead of $12 USD) in one go. Next, you begin the sales process.
Wholesaling is not a perfect world, but it’s one where you can make a lot of money without having to spend much once you get your business up and going.
Private Labeling is quite confusing at first, especially to those just into business, but it’s essentially a money saver scheme. Let’s say you know of a very successful product, but replicating that product will mean money going into setting up a production plant, getting the design specifications right, getting the right quality of the product – cha-ching, cha-ching, cha-ching. And just like that, you’ve written off your home to the bank and your product hasn’t even launched yet.
???? We wrote about how 1mg leverages white labeling to improve their revenue, you can read about 1mg’s business model here.
To reduce this burden, many business owners just approach a company that has the designs and the setup needed to produce the particular product. You place your quote for a number of products, they name their price, and you pay them. A couple days later, the products are at your doorstep, and you sell them and make money. A simple process indeed, but one that needs to be carefully gone through. You do not want to associate with a shady supplier that has illegal access to the designs and is just looking to make a quick buck. Pay attention and this might be a great B2B model for you to invest in.
What is white labeling? Simply put, if private labeling is manufacturing your products from an authorised supplier and manufacturer, then white labeling is just pasting your company’s logo on a pre-made non-branded product, and selling it as yours. If you’re wondering whether that’s legal, it totally is, and it’s a legitimate business that has made a lot of people a lot of money.
Let’s go back to our trusty AliExpress example. This phone case is generic and has no sort of branding on it whatsoever, and so once you make sure with the seller if it’s okay for you to label it as your company’s product, you can ship them in, send them to a company that does the labeling, and ship them out as your products.
It’s as simple as that, but also a bit risky, because you’re not incharge of the quality of the product. Any damage to the customer’s value will permanently scar your brand. So make sure to watch out for that, and only make deals with trusted suppliers.
Business models are confusing, boring, and intimidating at times. But they’re also highly flexible, enforce proper action, and make you a lot of good money. It all lies in the minds of those implementing business models on how to get a good value and return on their investment into them. Regardless of what anyone might think, e-Commerce is a large battlefield, and nearly everyone has a chance to grab a fair slice of the pizza, but only those with good marketing skills, a great e-Commerce business model, and a knack for picking out great products will be deemed worthy of a seat at the dinner table.