A Guide to E-Commerce Business Models and Revenue Models

E-commerce Business Models and the E-commerce Store

The concept of an e-commerce business model isn’t new. In fact, Amazon launched its first-ever e-commerce store in 1995. However, the business model has seen exponential growth after a record year in 2020, when retail sales shifted primarily to the online space.

E-commerce is simply the buying and selling of products or services over the internet. The type of e-commerce store you have will vary depending on your approach to your customers, your inventory and your distribution style.

In this article, we are breaking down the diverse types of e-commerce business models so you can choose which will be the right fit for your e-commerce store.

Which Business Model is the Best Fit for your E-commerce Business?

Understanding the e-commerce business model and setting yourself up for success in the beginning is a key for lasting success in the online retail space. It is imperative that you understand your business model, know your target audience and know what structure will best align with your customer’s needs. Before you consider your revenue model and fulfillment options, you need to understand who your customers are and what niche product or service you are providing them.

Business-to-Business

In this business model (B2B), the business sells their product to another business. For example, Chocomize is a streamlined operation that focuses on creating unique corporate gifts that help bring awareness to your brand and satisfy your clients.

Business-to-Consumer
In this business model (B2C), the business sells to the person who ends up using the product, the end-user. For example, consumers can purchase from the Amazon platform from any Amazon retailer.
Consumer-to-Business
In this business model (C2B) the individual (the freelancer) sells their services to companies who are the end-user.
Consumer-to-Consumer
In consumer-to-consumer (C2C), goods and services are exchanged in an online marketplace. The individual sells their product to another individual via a marketplace like eBay.

E-commerce Revenue Models

Subscription Revenue Model

In this revenue model, a company charges an ongoing fee for services provided over a long period of time. Subscription boxes also fall into this category. An e-commerce model where consumers pay a monthly subscription fee and in exchange receive a bundled box full of a variety of items chosen by the retailer. To bring in revenue from this model, you will need a niche product, a target customer and a cost-effective way to source your products. This model is profitable but isn’t for the faint of heart, so be sure to do adequate research before deciding to hop on the subscription box bandwagon.

Sales Revenue Model

This is the most common business model among users and the profit, as in the name, comes from selling services or products online rather than through a brick-and-mortar only store. There are single brand websites- such as the North Face- that only sell their specific product, or there are marketplaces such as Etsy that have various vendors from different parts of the world selling on their website.

Sales Channels: Direct vs. Marketplace

Amazon (FBA)

Fulfillment by Amazon businesses are increasingly growing in popularity. James Moorish raved recently that the e-commerce platform “has created one of the most advanced fulfillment networks in the world. With an Amazon Seller Account, you can create an FBA business. The key benefit of this business model is the fact that you store your products in Amazon fulfillment centers, they pick it up from the center, package it, ship it to the buyer and provide customer service for all your products. Marketplace sellers have increasingly started to adopt FBA to leverage Amazon’s warehouses, fulfillment infrastructure, and customer base for significant financial gain.”

Personal Website/Single Brand
A personal website or a single brand website is an e-commerce store that only sells a specific brand. The Nike e-commerce store sells only Nike brand products.

Shopify
Shopify continues to dominate as one of the leading e-commerce store platforms. Harley Finkelstein, the President of Shopify said recently in their Q1 2021 Financial Results Conference Call that “More merchants (are) joining Shopify that are first-time entrepreneurs. One of my favorite stats to talk about is that every 28 seconds a new entrepreneur gets their products for sale on Shopify. That is important because that shows that we’re not only growing our piece of the pie, but we’re growing the pie itself. We are growing the actual market.”

Other Third-Party Platforms

There are other e-commerce store platforms that are gaining popularity. The following is just a sample of the many third-party platforms that are available for different niches in the e-commerce space.

BigCommerce
BigCommerce, with the tagline, “E-commerce for a new era,” is an e-commerce platform that allows for differentiated e-commerce experiences. They not only provide space to build out your e-commerce store, but they also provide launch and success services, including technical account management, customer success management and more.

WooCommerce
WooCommerce is an affordable plug-in for WordPress that makes selling products and services easy and cost-effective for anyone looking to open an e-commerce store. WooCommerce is completely customizable and is easy to use.

The following are website builders that you can use to build out your e-commerce business. The following three examples are not exclusive to e-commerce.

Wix
Wix is a third-party platform that is known for its ease of use. It is a great website for beginners and those who are just starting out building their website. Wix also allows its users to utilize its drag and drop builder and its already built-in themes.

Zyro
Zyro is a fan favorite in the e-commerce space because of its simplicity. This website builder already has existing templates and helpful page-building grids. Zyro is also known to have good site performance.

Squarespace
Squarespace is another e-commerce store platform that dominates the online space. Why? Squarespace’s platform gives store owners the ability to bring their brand to life through their creative platform, even if the owner does not have a creative background. Squarespace creates an equal playing field for e-commerce stores to focus on what really matters: their customer satisfaction.

Order Fulfillment Options

The e-commerce industry is complex and has many facets that you should consider before you decide which e-commerce business model you want to choose. The following is a quick introduction to the e-commerce industry and its fulfillment options:

Third-party Fulfillment

The third-party fulfillment model is an e-commerce business model where the retailer outsources the fulfilment. This model is different to dropshipping in that a fulfillment house is hired by the business and the warehouse is responsible for collecting from the supplier, keeping the product at their distribution center and then packaging and fulfilling the order.

Dropshipping

The dropshipping model is an e-commerce business model where the business does not have possession of the product they are selling. The store owner holds no inventory and the orders are sent to the manufacturer directly. They are responsible for shipping the item to the customer, not the e-commerce business owner. Dropshipping helps eliminate inventory risk, it takes less time, lowers ongoing costs and you have an immense amount of product flexibility.

In-house Fulfillment

The traditional order fulfillment model is most like that of brick-and-mortar retail. The owner of the business buys the stock wholesale. The business owner then delivers to the consumers directly. The benefits of traditional order fulfilment include lower costs of goods sold, inventory management and brand control. With this model you can be more in control of your stock and you don’t have to highly rely on suppliers. You also do not have to worry about missing items or low quality because you are responsible for this over the supplier before the product reaches your customer. You will spend more time on this model and have more ongoing costs and you do not have as much product flexibility.

Different Target Markets

When assessing your target market for your e-commerce business, you want to make sure you are validating your choice with market research. Start by defining what age bracket you want to target, their gender, location, even income level or education. You also want to always make sure you have a trial run to be able to evaluate whether your specific product or service will be successful in the target market you have chosen. We have laid out different real-world examples of successful e-commerce businesses that have narrowed down their target markets well and why they have found success by doing so.

Real-World Examples of Successful E-commerce Businesses

Everlane
Why They Have Succeeded

As an e-commerce business building trust with your customers is a key factor in building success. Samuel Hum weighed in, “Many of us are aware about the dark side of the apparel industry, and how little we know about what exactly goes on behind the making of our clothes. The modern consumer is now more aware, ethically conscious and skeptical. They demand to know more, but most companies probably wouldn’t oblige. And that’s why Everlane’s core narrative of being radically transparent about their business is extremely important and inspirational. They have visual fact sheets outlining how much everything costs, including how much the brand earns for every shirt and bag”

What You Can Learn from Everlane

You can build trust with your customers through radical transparency. Everlane targets a demographic that is looking to live in a more ethical world. Although your target market may not include those that are hoping for a more sustainable tomorrow, you can still build trust with your customers by being transparent about the products they are buying and the company whom they are purchasing from.

ASOSWhy They Have Succeeded

Asos is the one-stop-shop e-commerce store for all things fashion. From 3 Secrets behind Asos’ Success, “One factor in Asos’ success is that they have tailored everything they do to a specific demographic. There are no inconsistencies, no ‘general’ content. Niching down has allowed Asos to create content and adverts that engage their market, turning Asos into a fashion authority for young people.”

What You Can Learn from ASOS

Narrow in your niche. As SaaS founder Sunil Kowlgi said, success comes when you “keep your market focus an inch wide and a mile deep.” Asos have a narrow target market but offer a wide array of products that their customers can choose from- hints why they are gaining the younger audiences attention daily from their fashion revolution.

Dollar Shave Club
Why They Have Succeeded

Dollar Shave Club have landed billions of dollars’ worth of success. Nikhil Basu Trivedi wrote that, “The team has worked very hard to launch new products, improve margins, spend money effectively on advertising, and more. But there is one key element to the business that has made it so successful: Subscription. Dollar Shave Club built a direct-to-consumer subscription service for razors and other bathroom products.”

What You Can Learn from Dollar Shave Club

With the cloud-based world we are living in, people are more and more prone to products with a subscription. Dollar Shave Club capitalized on that opportunity by pairing it with the e-commerce space. The key here? Adapt to your customer base. Not only does the product you are offering matter but so does the ease of delivery and use for your customer.

Birch Box
Birchbox has been successful through word-of-mouth marketing. Arvinna Lee said, “They (Birchbox) created a subscriber-based platform where, for a small price, people would receive beauty product samples suited to their preferences. This allows subscribers to cut through the noise of numerous beauty products, and in turn, beauty brands can market their products by directly providing samples to people!”

What You Can Learn from Birch Box

If you are looking to create a subscription box, make sure you accommodate the preferences of your target market. The narrower your niche, the easier it will be to satisfy your customer because they will have products in their box that they will use.