Opening an ecommerce business or expanding your existing company to offer online sales can create a substantial stream of profit. The ecommerce industry, worth almost $5 trillion in the U.S. alone, is projected to grow by more than 50% by 2027.
You'll find endless opportunities to modify your business model or start a new enterprise to take advantage of ecommerce. In this guide, we provide the basics about the most common types of online businesses to provide inspiration for your next endeavor.
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The 6 Major Ecommerce Business Types
Most ecommerce companies fall into one of these 6 major categories. Your available resources and the audience you plan to serve inform the ideal business type to try.
Business-to-Consumer (B2C)
Also called direct-to-consumer, B2C involves selling services and products to individual customers. Some of the most common examples of this type of ecommerce include meal kit services like HelloFresh and online furniture retailers like Wayfair.
If you have a B2C business, your audience represents a segment of the consumer sector. You'll earn less on average per sale than with other common business types, but the shorter decision-making timeframe for B2C transactions typically translates to a higher sales volume.
Business-to-Business (B2B)
This type of ecommerce enterprise sells services and products to other businesses both large and small. Big examples of B2B business include software-as-a-service companies like Dropbox and facilities management providers like Sodexo, which provides cafeteria and maintenance staffing for large firms.
As a B2B business, you might market items that companies need for their own operations, or your clients may turn around and sell your products to consumers at a profit. B2B sales take longer than B2C sales, but they're also more valuable on average.
Consumer-to-Consumer (C2C)
C2C is a relatively new business model driven by online apps where individuals can sell their wares directly to others, both in their community and around the world.
Craigslist and eBay are the classic examples of this online marketplace model, though many C2C small business owners have since moved to social media services like Facebook Marketplace and apps such as OfferUp.
Consumer-to-Business (C2C)
You fall into the C2B category if you're a sole proprietor selling your services to a larger business. For example, a freelance web designer who contracts a set number of hours a week to a larger design agency is operating under this model. If you sell ads on your blog or website, you're engaging in C2B ecommerce.
Business-to-Business-to-Consumer (B2B2C)
B2B2C refers to any transaction where your business is selling something to another business, which will route the product to consumers. You might use this ecommerce model if your small business sells items to a distributor who can sell them in another country.
Business-to-Government Agency (B2G)
You might be interested in starting a business that solely seeks government contract work, known as a B2G business. This type of company works with public agencies at the federal, state, and/or local levels.
To start a B2G business, you'll need an understanding of how to bid on government contracts. While these jobs often pay much better than small private sector contracts, agencies may take months to accept your proposal and actually schedule the work.
5 Common Ecommerce Models
When you have a type of ecommerce company in mind, you'll also need to come up with a revenue model. These are some of the most common ways your small business can make money online.
1. Dropshipping
You can streamline your new business venture with the quick-start, low-overhead dropshipping model. You sign up with a dropshipping supplier, then create an online storefront where you advertise the available products. Dropshipping allows you to earn money online without having to deal with inventory or ship your merchandise.
It sounds simple, but dropshipping isn't a guarantee of easy money. Some of the caveats to consider include:
- Super-thin profit margins that make it difficult to earn real revenue
- Unreliable suppliers with slow shipping
- Inconsistent or even poor-quality products
You'll need to partner with an outstanding vendor to ensure success in this space, since you're responsible for returns, refunds, and other issues that arise with orders.
For this reason, the best products for dropshipping offer easy shipping and require limited customer support. Common examples include face masks, office supplies, health and beauty aids, and tech accessories such as cell phone cases.
2. Traditional Retail
If you want control over the quality of the products you sell, consider operating your ecommerce shop under a traditional retail model. Like a brick-and-mortar store, you can source items from various suppliers depending on your customer needs.
To make it work, you'll need to earn the merchandise markup by providing value your clients can't get anywhere else. Examples include outstanding customer service, expert consultation, access to high-quality or even difficult-to-source products, and convenient features like fast, free shipping.
For effective ecommerce examples from traditional retailers, look to grocery stores like Whole Foods and big-box stores like Target. Your online retail store can draw inspiration from value adds like exclusive app-based coupons, home delivery, and drive-by order pickup.
3. White Label Merchandise
Common in cosmetics, personal care, and related industries, the white label merchandise model involves selling products from one or more third-party suppliers under your own business branding. Going this route can help your small ecommerce company reduce manufacturing costs while building a name for yourself in the selected sector.
Before you fully invest in a white label business model, make sure you've done the research to select an in-demand product. Otherwise, you could end up stuck with items you won't be able to sell or have to heavily discount, significantly affecting your profit margin.
4. Private Label Merchandise
This ecommerce model could work if you want another company to make and sell products based on your original idea. Once you develop a prototype, you find a manufacturer who will create the item based on your specs. From there, they'll distribute your invention for sale by B2C businesses, large retailers such as Amazon, or even directly to the consumer.
The private label model minimizes your start-up and marketing costs. It also frees you up to focus on new product development if that's your area of expertise. Using an on-demand production facility prevents you from spending too much money on products you can't sell and provides the freedom to switch to another vendor if you encounter quality or service issues.
5. Subscription Service
Mail order has become big business, so it's no wonder that subscription services are so profitable. As mentioned above, meal kits have expanded rapidly in this niche over the past few years. Fashion boxes like Stitch Fix are also popular as an affordable alternative to in-person styling services.
You can adopt this business model to offer a product or service it makes sense for your subscribers to receive at repeated intervals. In exchange, you'll create a predictable stream of income for as long as your customers remain active. In addition to food and fashion subscriptions, beauty and personal care boxes sell well in the ecommerce space.
Which Ecommerce Model Is Right for Your Business?
These considerations can help you decide on the ideal business model for your ecommerce site:
- Set-up costs: Determine how much capital you have for your initial investment, whether you plan to use savings, borrow from family, apply for a business loan, or a combination of those methods.
- Time investment: You'll need to spend more time operating some types of ecommerce sites than others. For example, dropshipping is best if you're looking for a relatively hands-off approach to extra income and you're not as concerned about maximizing profit or building brand recognition.
- Market landscape: Once you have an idea for a new ecommerce business or product line, assess the market to see where you can fill a competitive gap and speak to customers' unmet needs.
The Best Way for Your Ecommerce Business to Accept Payments
Pay.com lets you personalize payment solutions for your small business. Our comprehensive, scalable services support ecommerce companies of all shapes and sizes. When you sign up for Pay.com as your payment service provider, you can:
- Accept a wide range of payment methods, including but not limited to credit cards, debit cards, and digital wallets
- Take client payments through a customized checkout page branded for your business
- Send secure Pay Links with detailed client invoices through email and SMS
- See all your transactions and run reports about your sales through the Pay Dashboard
- Manually enter payment details on your Virtual Terminal
- Highlight your attention to online security, since all our transactions meet the highest level of compliance with the Payment Card Industry Data Security Standards (PCI DSS)
It only takes a few minutes to start or expand your online business with Pay.com. Once we approve your account, you can accept payments right away. It's also affordable, since we charge a flat fee for each transaction with no hidden charges.
Click here to create your Pay.com account now!
The Bottom Line
Evaluating these ecommerce business types and revenue models can guide you in the right direction for a profitable online enterprise. In addition to expansive opportunities for profit, ecommerce offers low-cost start-up and a variety of operational structures so you can take a flexible approach.
Whether you're opening a brand new business for your ecommerce idea or expanding an existing company, Pay.com provides the partnership you need for affordable, secure online payments. Offering a variety of safe payment methods helps you align with your customer preferences and gain their trust, an essential for effective ecommerce sales.
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