Successful Ecommerce Business Models: Everything You Need to Know
Ecommerce is the fastest growing retail sector in America. In fact, it’s grown by over 20% per year since 2010 and is projected to be a $4 trillion industry by 2020. What’s more, digital commerce has been shown to have higher conversion rates than brick-and-mortar stores!
With all of these benefits, it may seem like ecommerce would be an easy choice for any entrepreneur looking to enter the world of business ownership. But how do you know which model is right for your business?
In this article, we explore the most successful models: marketplace storefronts (like Etsy), wholesale storefronts, direct sell platforms (like Amazon) and drop shipping. Then we’ll go through some quick tips on how you can figure out which one is best for you.
What is ecommerce?
E-commerce is the electronic (online) sale of goods or services. Ecommerce can also be known as a “Shop-Online” and it includes any type where you buy something online, like with Amazon.
The ecommerce marketplace allows entrepreneurs to create their own storefront that others can purchase products from them on an individual basis. This is different than the traditional model where a company would sell from their own inventory.
What are marketplace storefronts?
Marketplace storefronts are community-driven platforms that allow entrepreneurs to sell their products and services, whether it’s handmade goods or digital downloads. These sites take a cut of the profit from every sale made on the site so you don’t have to worry about product distribution costs like warehousing and shipping.
Some examples include Etsy, LulaRoe, and eBay.
What are wholesale storefronts?
Wholesale storefronts work just like marketplace models but they’re geared towards larger companies looking to purchase items from makers or manufacturers on a large scale. For example, Etsy Wholesale is focused exclusively on businesses that want to buy bulk items directly from sellers in the hope of cutting down their own costs.
Wholesale storefronts are a great option if you’re looking to make bulk purchases, either for your business or as a personal buyer. However, they can also be risky if the company doesn’t have any experience in wholesale purchasing before– and this is where it might be best to stick with traditional marketplace models like Amazon.
What are direct-sell platforms?
Direct-sell platforms are websites or apps that allow consumers to purchase goods from the maker themselves. These sites can be an opportunity for makers who might otherwise struggle to break into ecommerce because they don’t have much money, credit history, or established business relationships with manufacturers and wholesalers. On top of that, these types of businesses earn profit from the sale price, rather than on other fees they might otherwise incur.
These platforms are often used for handmade goods and local products that can’t compete with larger manufacturers in terms of pricing or production volume. These businesses are often online stores that sell products and services to individuals, rather than to retailers or other companies. These types of sites may not offer a wide range of items like large retail shops but they can provide high quality customer service (if the business is small enough) and cheaper prices for customers due to lower overhead.
What is a drop shipping business?
A drop shipping business is a type of ecommerce model where the retailer does not keep products in stock, but instead purchases them from third party wholesalers when an order comes through. This means that these types of businesses do not incur any warehouse or inventory costs and can pass savings on to customers. The downside to this model is that retailers are limited in the number of items they can sell, and must rely on third party wholesalers to handle customer service.
Which business model is the best for ecommerce?
This is a difficult question. What works for one business may not work for another, and there are many different factors that go into determining which ecommerce model will work best.
Some of these factors to consider when deciding on an ecommerce model include:
• Budget: If you’re just starting out as an entrepreneur on a tight budget, it’s best to start with a more cost-effective model
• Time: If you’re not sure what your business will be yet, or don’t have the time for long term planning, it’s worth starting with an established platform that has all of these things in place.
• Type of product: Some ecommerce models work better for certain types of products than others.
• People involved: If you’re working with a team, the ecommerce model should be designed to work for them. An example would be an order-fulfillment business that needs warehouse space and equipment but does not use customer service agents as part of their operations.
It’s important to do some research when trying to decide which ecommerce model is the best for your business.
What are ecommerce business examples?
The first business to offer a web store or online shop operating on the principles of electronic commerce was eBay, which launched its website as early as 1995.
While there are many different types of ecommerce, online marketplaces are the most common.
Amazon is an excellent example of a marketplace as it has more than 300 million active customer accounts and offers millions of products that can be sold on its website through individual sellers.
How do ecommerce sites work?
An ecommerce site is a website that sells products online to consumers. These sites are often focused on very specific product or service offerings and usually don’t offer an extensive range of goods, as you might find in the typical brick-and-mortar store.
Ecommerce stores can be run by either businesses themselves or third parties acting as resellers of products.
Some companies have even expanded their business to include both physical stores and an ecommerce site. For example, Apple sells its devices in brick-and-mortar stores as well as online through the company’s website.
Ecommerce sites are sometimes also referred to as “e-store” or “online store.”
Some of the most successful ecommerce business models include: Multichannel retailers, Online marketplaces, Niche stores.
What is a multichannel retailer?
A multichannel retailer offers goods both in their brick-and-mortar stores and on the company's ecommerce site.
Some of these retailers have been around since, or before, the advent of internet shopping such as Best Buy and Walmart while other companies like Warby Parker are making a name for themselves by using an online-only format.
Online only retailers may have a physical store in order to promote the brand, but they focus exclusively on online sales.
Examples of companies with successful multichannel retail strategies include: Levi's and Nike who both sell their products in stores as well as through an ecommerce site; or Zappos which is entirely online.
What are online niche stores?
Niche stores will focus on a specific product or service. For example, Patagonia is an outdoor clothing and gear store that provides specialized items for the outdoors enthusiast. They might also sell some accessories such as headlamps to their customers who need them while they’re out camping in the wilderness.
How can I start an ecommerce business?
If you’re interested in starting an online ecommerce site then your first decision should be which model is best for your business.
Potential business models include:
• Income Generating Ecommerce Model: This model is the most common type and offers a wide range of products or services to generate income from sales. It includes buying any inventory and then reselling it online, such as an Amazon store. You would have to invest in inventory, and also pay for warehousing.
• Opinion Leader: This model includes selling your own products or services through a site where you’re the opinion leader on that topic. It might be because of expertise in the field or it could just be that people are already aware of who you are and your content is valuable. You can’t sell other people’s products or services, but you do have the opportunity to create digital and physical media.
• Transaction Processing Ecommerce Model: This is a model for businesses that don’t need inventory. The only thing they need are customers who want what they’re selling–either on an ongoing basis, like subscriptions, or one-time, like a product.
• Advertising: This model relies on advertising to bring people in without relying on any of the other models. It’s an interesting option for anyone who wants to try their hand at ecommerce and don’t really know what they’re doing yet – or those looking to grow their ecommerce business fast.
• Commission: This model is what everyone thinks of when they think of affiliate sites like Clickbank or JVZoo, for example. The person running the site gets a commission on every sale that happens through their website – usually between 40% and 50%. In order to make money in this way,, the site needs to have a lot of traffic and it has to be easy for affiliates promoting products on your website.
• B-Online Store: This is probably what everyone thinks of when they think through ecommerce models–a store, like Amazon or iTunes, where people come in one time and buy everything they need all at once. These stores don’t usually offer shipping, but will typically have the best prices and be able to provide one-stop shopping.
What do you need for an ecommerce store?
In general, a typical ecommerce store has the following systems in place:
• Product Pages: Product pages are like listings on eBay. They provide photos and descriptions about what’s available for purchase from your ecommerce store. You might want to include customer reviews, or a “shop now” button for people who are ready to buy.
• Checkout System: The checkout system is where customers enter their shipping information and provide payment so that they can complete the purchase of your products. This may be as simple as emailing themselves a receipt with all the information they need, or as complex as having to complete a long form with many fields.
• Inventory Management: Inventory management is the process of keeping track of your stock and knowing when you are running low so that you can order more products before they’re gone – it’s also important for understanding what products sell well so you know where to allocate more resources, or which products to get rid of.
• Payment: Your payment system is another important part of your ecommerce business model – this could be something like PayPal, Stripe, Square Cash, Apple Pay, Android Pay or even regular old plastic cards (Visa and MasterCard). Payment processors have many different rates for handling payments as well as setups and monthly fees – so it’s important to find one that will work well for your needs.
• Marketing: Marketing is always a key part of any business venture, but when you’re an online retailer with the ability to track everything from where traffic is coming from, how people are interacting on site all the way up to conversion rates, you can pinpoint what’s working and what isn’t. You should also consider the type of marketing that best suits your target market.
• Logistics: Ecommerce sites often require a different logistics strategy than brick-and-mortar stores do – for instance, if you’re shipping products to customers in North America (or anywhere else), you’re going to need a plan for international orders.
• Loyalty: You also have the opportunity with ecommerce to create loyalty campaigns that are personalized and targeted – meaning you can capture contact information so when people sign up they receive messages about items or deals relevant specifically to them.
• Mobile: Mobile is another opportunity to connect with customers, and according to Google’s data the majority of shoppers continue their shopping journey on a mobile device. Building an app can be costly in terms of both time and money, but this strategy has been proven by some retailers like Nordstrom – they found that implementing a responsive design helped convert more browsers to buyers.
• Social: Social media is a great way to connect with your audience, and it also gives you the opportunity for viral posts that get picked up by influential people in the niche. However be careful – if social media becomes too time consuming then it can backfire on you because customers will start feeling like they’re not getting their money’s worth.
• Returns: Some of the most successful retailers on traditional platforms like Amazon and eBay have been able to grow their business because they offer high-quality products with good customer service. These are the types of things that customers look for when it comes time to make a purchase, so be sure you’re doing everything in your power to provide them with exceptional returns policy.
Are you thinking about launching an ecommerce business?
If you’re thinking about launching an ecommerce business, one of most successful business models is drop shipping. Many consider Dropship Lifestyle to be one of the best courses explaining how to start a drop shipping business using Shopify. Check out I Buy I Reviews comprehensive review of Dropship Lifestyle here.
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