Ecommerce is an ever-growing industry and is fast becoming a major part of the consumer experience all over the world. This growth provides massive opportunities for ecommerce business owners. To expand your business and increase company revenue predictably, you will need to select an effective ecommerce business model.

Business models are not one size fits all. The best ecommerce model for your business is one that best serves value to your target audience, minimizes risks, and creates ways to increase revenue in business. 

In this article, we will run through the best ecommerce models of 2021. Additionally, you will find out how to increase company sales by learning some useful tips to consider before choosing a business model.

4 major types of E-commerce businesses 

To know the best ecommerce business model that suits your business, it is first important to establish what type of ecommerce business you are running. The key question here is - who are you selling to? 

Let's dive into the 4 major ecommerce businesses for ecommerce transactions. 

1. B2B ecommerce (Business to Business)

B2B ecommerce involves transactions between two businesses. For example, if you are a business that makes coffee beans, your primary customer could be coffee shops. With this structure, sales of products are typically in bulk. Examples of B2B ecommerce include Salesforce, Hootsuite, etc. 

2. B2C ecommerce (Business to Customer) 

With this ecommerce business, you are selling your products to individual customers online. B2C is also one of the most common business structures in ecommerce. Examples of B2C ecommerce include Amazon, eBay, etc. 

3. C2B (Consumer to Business)

The C2B ecommerce involves consumers or customers providing goods and services to businesses. While C2B may sound counterintuitive, it is not a very traditional business model, it is fast growing in the online commerce world. Affiliate marketing, sales of stock photos, and blogging fall under this type of business structure. 

4. C2C (Customer to Customer)

While this also may sound a bit counterintuitive as a business structure, it has become popular and profitable in today's digital world. When we think of a C2C, a perfect example is eBay. Consumers sell products to other consumers and get paid. With this model, a consumer can put up a listing on a third-party platform that other consumers can bid on. For example, a consumer can put up a couch for sale and get other consumers to buy them. 

5 best ecommerce business models in 2021

With the right ecommerce business model, you can figure out how to increase company sales and increase online business revenue. Now that we have examined the 4 major categories of ecommerce businesses, we can look into five of the best ecommerce business models that have provided repeated success for many ecommerce businesses today.  

Here are the five best ecommerce models of 2021:

1. Dropshipping
2. Wholesaling
3. Private labeling 
4. Subscriptions 
5. Software as a Service (SaaS)

Dropshipping 

Dropshipping is an innovative ecommerce business model that simply involves setting up an online store to sell products to customers. This type of model eliminates the need for merchants or the logistical issues that arise with keeping inventory. You don't need to buy your products in bulk or store them in a storage facility. You also don’t need to worry about shipping your products. All you need to do is set up an online store.

You can do this via platforms like Amazon or any other online marketplace. So how does the dropshipping business model work? 

As we already established, you need to first set up an online store with your product listings. Next, you will need to find a supplier who will get notified when you make a sale. The supplier is paid and items are shipped directly to customers in your brand name. Of course, there are a number of complexities that you’ll need to address, such as what product(s) to sell, who to select as a supplier, and how to address other logistics such as returns, and quality issues.

If you want to start an ecommerce business and you have limited capital, dropshipping can be an effective business model. Research reveals that 30% of online retailers use dropshipping as their primary method for order fulfillment. As with any business, however, your success will depend on a number of details, some of which we’ve mentioned above. It is crucial that you carefully research this type of business before hanging out your shingle. 

Pros and cons of dropshipping 

Pros 

• Low cost: Perhaps the biggest advantage of a dropshipping business model is its low startup cost. This is in large part because dropshipping eliminates some major overhead items such as inventory and shipping costs. 
• Convenience and efficiency: Logistics issues are among the most significant and most commonly overlooked challenges of running a business. With dropshipping, your suppliers and partners handle the task of packing and shipping your products, taking most logistics obstacles off your plate. You can easily manage your business from any part of the world conveniently. 
• Low risk: With no inventory costs or management involved, the risks are brought to the barest minimum. 

Cons

• Increased competition: One of dropshipping’s biggest advantages -- its low startup costs -- is one of its most substantial disadvantages as well. The relatively low barriers to entry mean that many business owners can easily adopt this business model, increasing competition and making it difficult to stand out. 
• Low-profit margins: Ultimately, the dropshipping model essentially involves the outsourcing of most business functions. Again, while that is one of the advantages of the model, it also turns out to be one of its drawbacks. The higher product procurement costs work hand in hand with the pressure that competition places on the selling price to result in thinner profit margins. Therefore, dropshippers tend to have to rely on volume to make a decent profit. 

Wholesaling 

The wholesaling ecommerce model involves selling products in bulk to other businesses. Typically, wholesaling is a B2B ecommerce model where one business sells the bulk of goods to other businesses who in turn sell to customers downstream. These downstream customers may be individual consumers or businesses. On a B2B ecommerce platform, the wholesaler displays inventory that other businesses can buy. 

Pros and cons of wholesaling 

Pros

• Brand familiarity: With the wholesaling model, you are selling branded products that your customers are familiar with. While any expansion model will likely involve new customer acquisition, the reliance on repeat and regular orders from existing customers significantly reduce certain costs, such as marketing, and sales, among others. 
• Fixed profit margin: With this business model, the reliance on regular customers allows for easier income projections and streamlining to, increase business rev,ue. 

Cons

• Inventory management: Wholesaling involves managing substantial inventory and logistics challenges which can become extremely taxing on a business if not meticulously managed. 
• Supplier management: If you are selling a wide range of products, you will need to interact and manage multiple suppliers with different requirements, which can also become very challenging for the business. 

Private Labeling 

The private label model involves a retailer contracting with a manufacturer (or distributor in some circumstances) in order to sell their products under the retailer’s label or brand name. As the retailer, you can work with the manufacturer to determine the specifications and packaging of the product. Keep in mind that manufacturers will typically have conditions of their own in order to allow you to sell the product under your own label. You then pay to have it produced and shipped to your store. 

With this model, you don’t need to worry about the manufacturing costs. Those are built into the price at which you purchase the goods. You should, however, be very careful about who and what you choose to private label as the consumer views the product to be your brand, and issues with the product will inevitably reflect negatively on you. Many grocery stores, salons, and restaurants sell a variety of private label products.

In 2020, retail sales of private label products were around 158.8 billion dollars. Some private label manufacturers include Modalyst, AOP+, etc.

Pros and cons of private labeling 

Pros 

• Low cost: Using the private label model is much cheaper than creating a new product, as you avoid the extensive research, product design, and development costs. At the same time, those costs are baked into the price you pay the product manufacturer.
• Control: This business model gives you control over major aspects of your business including the pricing, packaging, and level of profitability. 
• Brand building: You can channel your marketing efforts to building brand awareness and expanding your product offerings 

Cons 

• High competition: The private label ecommerce business model has a low barrier to entry, meaning that it is easier for others to enter the space, and as such, competition can be brisk. Additionally, players with large amounts of capital can focus their spending on marketing and sales efforts, quickly pushing past smaller players. 
• No quality control: Since the manufacturer is primarily responsible for making and delivering products to customers, you might have little or no quality control. You want to make sure you partner with well-established manufacturers. At the end of the day, it is your brand that is on the line with the consumer if any quality issues arise. 

Subscriptions 

The subscription business model has become popular in online commerce. With this model, consumers pay a periodic fee to gain access to a product or service. This could be weekly, bi-weekly, monthly, or annually. The main point to note with this business model is that your product or service must be exhaustible or in certain circumstances, subject to continuous use. It should have a lifespan that lets customers renew to keep enjoying the service. This model can work for both B2B and B2C. 

Companies with this model can boast of a relatively stable, and perhaps more importantly, predictable income stream.  With the right product, you can incentivize customers to renew their subscriptions and ultimately increase online business revenue. 

Examples of businesses that run the subscription model include Dollar shave club, HubSpot, Netflix, etc. 

Pros and cons of the subscription model 

Pros

• Stable/predictable income: With the subscription model, customers pay a periodic subscription fee, making income more predictable and stable. 
• Recurring customers: With this model, you can have regular customers who subscribe to your product. 

Cons 

• Risk of churn: As this model functions on subscriptions, one of the key issues is to minimize “churn” (customers who terminate or suspend their subscription). Customers tend to unsubscribe from your product or service if they feel they are not getting enough value for their money.
• Difficult to keep customers engaged: Offering the same product may appear repetitive or boring to customers. Additionally, failure to continuously add features and benefits would make more innovative competitors attractive to your customers. It is crucial to keep customers engaged. 

Software as a service (SaaS)

Photo by Austin Distel on Unsplash

This type of ecommerce business model is hinged on technology. SaaS involves creating software that is accessed through the internet by users. These programs are hosted in a cloud-based infrastructure. There are a number of characteristics that are specific to SaaS businesses, among them is that they are subscription-based, customers can access them without the need to install any additional hardware, and updates are applied to the software without any intervention from the customer. These features are part of an evolution that has occurred in delivering software to end users, which used to include installing software on individual computers or servers, and complicated models of delivering updates.

There are literally thousands of examples of SaaS companies. They include many of the applications that businesses and consumers use today. Some prominent examples with this business model include Salesforce, Slack, Shopify, Hubspot, and Microsoft 365.

Some of the key pros and cons of the SaaS model

Pros

• Predictable income: Since this is typically a subscription business, it offers the advantage of predictability when it comes to revenue projections. This is particularly true since once implemented, SaaS offerings become integral parts of their clients’ businesses.
• Update Management: As changes and updates are performed at the provider’s end, companies are able to update as needed without any intervention from the customer. At the same time, customers are always using the most current version of the product.
• Customer Experience: As updates are more readily applied and done as needed by the provider, many customer experience issues are resolved across entire populations of customers and with greater speed. 

Cons

• High competition: This business model, due to its convenience and ease of use also becomes easy to replace, meaning lower barriers to entry for competition. SaaS businesses must continue to deliver increasing value to their customers in addition to a need to upsell to increase subscription levels.
• Longer Conversion: SaaS businesses typically have a longer sales cycle from the time that a prospects begins looking at the product til the time they become a subscriber. They also commonly require some period for free trials.
• Security: SaaS offerings can be prone to data loss and hack from fraudsters. Keeping data safe for both providers and subscribers is indispensable. 

With many ecommerce businesses, particularly ones that sell products, logistics is an often underestimated and many times completely overlooked factor. What happens after a customer clicks the buy button until the time they receive what they bought is a key factor to consider when making the decision to enter an industry and oftentimes the difference between thriving and crashing for businesses. One of the more seamless and reliable ways of addressing this is through a third party logistics partner, such as Fulfillment by Amazon (FBA).

Amazon FBA

The FBA program started in 2006, paving a way for online retailers to increase company sales and grow revenue with Amazon. FBA is a program where third-party sellers can automate their order fulfillment and shipping. By enrolling in this program, all your shipping (including returns), warehousing, packaging, etc. are handled by Amazon. 

With FBA, you don’t need to worry about packaging, shipping, and logistics no matter the type of business model you adopt. You can have fewer responsibilities and more time to focus on other areas of your business. You can also keep track of your inventory, sales, and delivery, using the Amazon Inventory Management System. 

Choosing the best e-commerce business model for your business 

Starting your ecommerce business is an exciting journey. Ecommerce provides massive opportunities to increase online business revenue. However, choosing the right business model is an important aspect you must figure out to ensure predictability in operation, sales, and revenue, and ultimate success.

Here are few things to consider when choosing the best ecommerce model for your business: 

• Who are your customers? Understanding what their behavior, needs, and problems are will help you choose the right ecommerce business model that serves them. 
• What do you want to sell? Do you want to develop a product or software? 
• What problem do you intend to solve? Understanding the problem will help you identify what product to sell and the best business model to solve them.
• What resources are available? If you have limited capital, you might want to consider business models that are more cost-effective like drop shipping.

An effective ecommerce business model can help you serve your customers better, boost sales and increase company revenue. Our list of ecommerce models is not exhaustive. However, you can analyze your business and choose any of the ecommerce business models listed above. You can also get in touch with eplaybooks to help you identify the best business model tailor-made for your business.