Various types of ecommerce business models are now thriving and very profitable. As a result, online retail sales are now increasing year after year, and experts have predicted that by 2025 ecommerce sales will make up to 25% of the total purchases in some countries.
So are you considering starting an ecommerce business? Despite how profitable the business is, you must know the fundamentals before engaging in it. For your ecommerce business to succeed, you will need a good business plan, knowledge of the market, and proper research of products and the various types of ecommerce business models.
However, many intending ecommerce business owners do not adequately understand how ecommerce works and the various types of ecommerce business models. Hence, they face many challenges while setting up their business and sometimes fail at the task. So, to save you from such challenges, this guide will show you everything you need to know about the various types of ecommerce business models.
What is Ecommerce?
Ecommerce entails business transactions done over the internet or, in simple terms, buying and selling goods and services online.
The internet primarily powers ecommerce, and it involves a simple process where customers access an online retail store, browse through the available products and services, and then place orders for what they need through their mobile devices.
After a series of steps to process and validate the orders by the ecommerce website, the customers will receive notifications stating that their order has been successfully processed. After this, the customers will patiently wait to receive their orders or access a service online.
Types of Ecommerce Business Models
Ecommerce businesses comprise all online marketplaces that provide a platform for buyers and sellers to connect and carry out business transactions via the internet.
The first thing you should consider when thinking about the types of ecommerce business models is who you plan to sell products and services to. So here are the eight major types of ecommerce business models you can choose from.
B2B ecommerce is a business model where companies or businesses sell their products or services to other businesses. In some cases, the buyer can be the consumer or end-user, while in other cases, the buyer resells these products or services to other buyers who may end up being the end-user or consumer.
The business-to-business ecommerce model usually involves a long sales cycle. Still, it tends to have more recurring purchases and higher sales, so it is very profitable and may be less stressful than other business models.
However, a B2B ecommerce model generally requires a larger startup capital because you will need to provide enough goods for several businesses to sell.
A B2C is one of the most commonly known types of ecommerce business models; it is a traditional retail business model where a business sells its products and services to individuals or end users. For example, anytime you buy things at an online shop for personal use, the transaction is considered a business-to-consumer transaction.
The B2C ecommerce model has a shorter sales circle and usually sells in small quantities. In addition, unlike the B2B ecommerce model, B2C company owners spend less time and money marketing their services or products because they have a wider target market.
Although this business model has more competition, it is still very lucrative and only needs a small startup capital since you can buy goods in small quantities.
Business-to-business and business-to-consumer ecommerce models are very easy to understand, and they are also the most common types of ecommerce business models.
However, the customer-to-consumer ecommerce business model has a different approach. It involves a process where consumers are allowed to trade, sell and buy products and services on an ecommerce website and are paid a commission. This business model is focused on increasing sales and brand awareness for bigger ecommerce businesses.
The C2C ecommerce business model can also be a website helping consumers to sell their products like cars, properties, clothes, etc., and services like website designing, dog training, hairdressing, etc., to other consumers.
A C2B ecommerce model is a system of operation where customers provide products or services for businesses. It is the direct opposite of the B2C ecommerce business model.
This business model can also allow individuals with different specialities to list the services they can offer, prices, and other specifications on an ecommerce website. Then businesses that need the services will approach them and order the services. Upwork is an excellent example of this business model.
THE B2G ecommerce model is also known as the business-to-administration ecommerce model. It is a mode of operation where firms or companies only offer their services or sell their products to government entities at the local, state, or federal level.
Many governments or public administration agencies depend on products and services from businesses to effectively operate in their various offices.
In this B2G ecommerce model, a government agency will submit an RFP (request for proposal), and different ecommerce businesses will bid for the project or opportunity.
G2B ecommerce is a business model where government agencies provide businesses with services and information. These transactions can be done through a vast network of government websites; government loans, grants, and support are good examples of services government agencies can provide for businesses.
Another good example may be government agencies providing information regarding business registrations and access to online forms that businesses can download for various registrations and applications.
This business model is similar to the G2B model; the only difference is that the government agencies in this model do not provide their services to businesses alone; their services are available to everyone.
Some examples of a G2C business model service may include an application for birth and death certificates, marriage certificates, school certificates, health services, etc.
The primary purpose of these types of websites is to reduce the time spent on addressing various requests from the citizens by government workers in-person.
C2G ecommerce model refers to business transactions between citizens and government agencies. While the government may rarely buy products or services directly from individuals, individuals may sometimes be involved electronically in financial dealings with the government. These transactions may include tax payments, health services, etc.
Advantages of Ecommerce Business Models
Lower Financial Cost
All types of ecommerce business models generally require lower startup capital because you do not have to spend money on setting up a shop or an office for your business, and you will only need a few or no staff at all for your ecommerce business. PIn addition, you do not need too much money for equipment, inventory, and other business operation requirements.
With ecommerce businesses, you can reach people and get customers from all over the world. The best part is that you can provide your services and products to customers in different countries from the comfort of your home.
Ability to Scale up or Down Quickly
One of the most significant benefits of all types of ecommerce business models is that the growth of your business will not be limited by space. So you can scale up or down your business according to market trends or demands without worrying about shelf space availability.
Ecommerce allows businesses to easily satisfy their customers’ needs because they can provide faster deliveries and services, and customer satisfaction can only lead to increased sales. This business model can also encourage impulse buying since customers can easily access everything your business offers on a single webpage.
24/7 Operations and Website Personalization
With an ecommerce business model, you can provide products and services for your customers 24/7 every day. In addition, you can easily personalize the features of a website to suit different target customers.
For example, you can create separate landing pages for people from different countries. This can help you give your customers a more exceptional experience, and you can make each customer feel you understand their needs and interests.
Disadvantages of ecommerce Business Models
Requires Internet Access
This is a basic need for customers of ecommerce businesses, and while it may not be an issue for some people, others might not have the best internet speed required for an optimal shopping experience. Also, people that do not have internet access may not be able to use ecommerce platforms.
The ease and flexibility that comes with all types of ecommerce business models makes it easier to establish one, so every day, more brands are setting up ecommerce shops for their products or services.
In addition, because these websites are easy to access, customers can easily compare different ecommerce shops and their offers leading to high competition between businesses.
Risk of Site Crash
It is also essential to know that customers cannot access ecommerce websites or make purchases during a site crash. This can be challenging for all types of ecommerce business models. Furthermore, a site crash can happen at any time, and if it is not fixed may result in loss of investments and wasted efforts.
With the recent explosion in innovation and popularity of the ecommerce market, many entrepreneurs have realised that all types of ecommerce business models can be successful and very profitable; it all depends on your approach.
If you want to start an ecommerce business, understanding the different types of ecommerce business models, how they work, and how to leverage them will go a long way in determining your success and how fast your business will grow. So if you found this guide useful, please leave your comments below.