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Jun 28, 2023 | 13 minute read
written by Kirsten Aebersold
Editor’s Note: The post was originally published in 2018. It was most recently updated in 2023 to reflect the current state of eCommerce business models
Today, no matter your industry, you’re probably doing business online. Whether you’re brand is B2B, B2C, B2B2C, or some other configuration, your business success is affected by your eCommerce business strategy.
In 2023, eCommerce is projected to make up about 20% of overall global retail sales.Decades ago, it would have seemed unfathomable for one in five retail sales to occur online,, but with online shopping becoming more common, the share of eCommerce sales is expected to grow even more.
The shift to digital is real, and businesses not already selling online will need to break into the eCommerce landscape sooner rather than later. Deciding on a suitable eCommerce business model is one of the first and most important steps.
Not taking the time to evaluate your business and understand your target market can lead to wasted money and unrealized revenue. On the other hand, digital advertising, SEO, and content marketing effectively drive traffic and revenue and help you realize a large ROI. Still, these tactics are best situated within t a well-planned eCommerce business strategy.
Whether you’re just starting to explore eCommerce models or already have an established digital commerce venture and want to expand your online presence, it’s important to know which model best fits your needs and requirements.
Electronic commerce, or eCommerce, is a business model that lets businesses and consumers buy or sell online. There are six major eCommerce business models:
We’ll review each of these six business classifications in-depth. We’ll also explore the five primary delivery models that you’ll need to consider when launching or expanding your online store.
As the name implies, business to consumer (B2C) is when a company markets its products or services directly to end users. It is the most widely known form of commerce. You complete a B2C transaction every time you purchase food from a grocery store, eat dinner at a restaurant, watch a movie at a theater, and get a haircut. You are the end user of the products and services these companies sell.
There are five different subsets of the eCommerce B2C business model:
In recent years, online B2C sales have increased. As a result, many traditional brick-and-mortar retailers have been incorporating digital channels to reach consumers where they shop.
This hybrid approach is when companies have both a traditional brick-and-mortar presence and an online shopping platform. Many companies integrate these approaches with an omnichannel eCommerce strategy to improve the customer experience. For example, many companies now let you order your products online and pick them up at one of their local stores. Many companies also allow customers to return products they bought online to local stores to ensure a quick and easy refund or exchange.
ITo successfully implement the B2C eCommerce model, businesses must have an eCommerce platform that can adjust to customer needs without service delays or runaway costs.
As the name implies, business to business (B2B) is when a company markets its products or services directly to other businesses. B2B eCommerce can be broken down into two methodologies, vertical and horizontal.
Vertically oriented businesses sell to customers within a specific industry. With a horizontal approach, you are selling to customers across many industries. Each method has its own pros and cons, such as industry expertise and market depth (vertical) versus wide-spread market coverage and diversification (horizontal).
Both can be lucrative pathways, but your strategy will depend on your products and customers, so consider them carefully.
Historically, B2B businesses were behind their direct-to-consumer counterparts, especially when it came to commerce innovation and digital sales. The problem lay in price negotiation and collaboration, as many businesses were used to leveraging sales representatives as the primary revenue-generating channel.
The modern B2B buyer has become tech-savvy and now shares many of the same demands and buying habits as the average consumer. Convenience, flexibility, personalization, and integrated experiences are expected in B2B commerce – providing them is business-critical.
Despite the slow adoption of digital strategies, B2B brands have focused more and more on eCommerce to keep up with consumers. A recent report by Gartner uncovered a recent dramatic shift with B2B digital commerce initiatives surpassing B2C. Gartner predicts that "by 2025, 75% of B2B manufacturers will sell directly to their customers via digital commerce."
Check out more of the top trends in B2B eCommerce that you should consider for your 2022 strategy..
Business to government (B2G) is when a company markets its products and services directly to a government agency. This agency could be a local, county, state, or federal agency.
An example of a B2G relationship is when an ammunition manufacturer sells ammunition to the US Army. An example of a local B2G relationship is when a private engineering company sells its engineering services to a county government to develop a new water and sewer system for the community. In B2G, companies typically bid on projects when governments announce requests for proposals (RFPs).
Interacting with government agencies differs greatly from working with other businesses or consumers. Due to having to deal with bureaucracies, business deals tend to move much slower than in other sectors. eCommerce companies can bid on government contracts, the same as other companies. Unlike many B2C transactions, however, many government agencies will not go directly to an eCommerce website and place an order.
Governments are more likely to place orders directly and quickly if the cost is low and the service is uncomplicated. An example of B2G eCommerce would be if a local government agency places an order directly from an online store for a part to repair a piece of equipment.
In B2B2C eCommerce, one business sells products, services, or goods to another company. The receiving business then sells to a consumer. An example of a B2B2C arrangement is when a wholesale distributor sells merchandise to retail stores that then sell the merchandise to consumers. The B2B2C model comprises three actors: the first business (the business of product origin), an intermediary, and the end user or consumer.
There are several different ways the B2B2C model can be used in eCommerce. For example, a company could partner with another company to promote its products and services, giving the partner a commission for each sale.
The primary advantage of the B2B2C business model for eCommerce companies is the acquisition of new customers. This is an important consideration for new eCommerce companies that need a way to grow their customer base rapidly.
Typically, commerce strategies are framed from the business’s perspective to start. However, models that start with consumers, including the consumer to business (C2B) model, are gaining popularity.
In the C2B eCommerce business model, individuals sell goods and services directly to companies. A common example are websites that allow individuals, such as contractors or freelancers, to share work or services they’re skilled in. Often, businesses will put in a request or a bid for that person’s time and will pay the person through that platform.
One of the most recognizable examples of a C2B business is Upwork, a freelancing platform that connects organizations directly with talent. Called a “marketplace for work,” Upwork gives businesses the ability to find and source project support, ranging from software development and content creation to UX design and even financial needs such as bookkeeping or filing tax returns.
A newer C2B eCommerce example is that of influencer marketing platforms such as Upfluence or GRIN. Similar to Upwork, both of these platforms connect businesses with individuals selling services. However, in this case, people are ultimately selling the ability to expand a brand's reach and visibility through promotion across their social media networks.
Another eCommerce business model is consumer to consumer (C2C). The rise of digital commerce has turbocharged C2C, with companies such as eBay, Craigslist, and Esty offering notable C2C eCommerce marketplaces.
In C2C eCommerce, consumers sell goods or services directly to other consumers. This is most often made possible by third-party websites or marketplaces that facilitate transactions on behalf of buyers and sellers.
These eCommerce marketplaces allow smaller businesses, or even hobbyists, to sell their products at their own pricing without maintaining their own online storefront.
Once you determine which model best fits your business, the next step is to identify the delivery method that will meet your needs and requirements. After all,, only some businesses manufacture their own products or maintain their own inventory and warehouses.
Here are five of the most common approaches businesses are using today:
Drop shipping is an order fulfillment method in which a business’s products are stocked, packaged, and shipped by a third-party supplier.
With drop shipping businesses, the team that stands up the storefront doesn’t have to worry about managing inventory, stocking warehouses, or handling shipping. Instead, they can focus on their front-end customer experience and building their customer network.
One of the biggest caveats to this approach that you need to consider is that your business will have absolutely no control over the supply chain. If products arrive damaged or late, or the quality is lower than expected, it will reflect poorly on your brand. While the onus is on the drop shipper to deliver, you’re the one that is in direct contact with the end consumer and ultimately responsible for handling support requests and managing the relationship.
With a subscription model, you commit to continue sending your products to customers over an extended period at consistent, predetermined intervals. There are different types of subscriptions, such as product discovery or unlimited services, so pricing, billing, and account management will depend on your business, your products, and your customer’s consumption behaviors.
Take ButcherBox, for example. ButcherBox is a subscription company that sends consumers farm fresh, organic meat and seafood products monthly. Customers can pick from a list of curated boxes or customize their own and can choose from different box sizes that will send higher or lower quantities of food.
Food is a category of consumer goods that tends to perform well with subscriptions, along with fashion, beauty, or even pet products.
Businesses that leverage wholesaling manage all parts of delivery aside from the manufacturing of the product. With wholesaling, you order goods directly from the supplier and are responsible for warehousing, inventory management, stocking, tracking customer orders, and shipping. Wholesale eCommerce is most common in the B2B space, but can also be leveraged as part of a B2C eCommerce strategy.
In private labeling, a business will hire a third-party manufacturer to create products based on their own unique ideas and designs. Private labeling will save you from having to build your own factory and manufacture your products while also giving you exclusive rights to sell your own goods.
Once your goods are manufactured, you can either have the manufacturer ship directly to the customer, to an online marketplace, or back to you for you to handle. Initial costs can vary, so private labeling is best for brands with resources and specific product designs or ideas.
With white labeling, you brand and sell a product under your own name and logo, but it’s manufactured and purchased from a third-party distributor.
White labeling is common in the fashion and health industries, particularly with cosmetics, essential oils, and companies that sell CBD online.
White labeling can boost your brand visibility, keep you from having to manufacture your own products and allow you to take advantage of the knowledge and expertise of the distributor.
Check out our guide comparing the top 4 eCommerce software solutions.
Now that you’ve familiarized yourself with various eCommerce business models, product management, and delivery methods, you can start the process of choosing your model. As you choose an eCommerce business model, you should:
Starting an eCommerce business can be an exciting and lucrative venture, but choosing the right business model can be challenging. First, you need to consider your target audience’s needs and preferences and choose the best model to support your target market.
Once you’ve identified your target market and the correct model needed to serve your customer base , you can focus on building and optimizing your eCommerce infrastructure and marketing tactics to fine-tune your business and maximize revenue.
Getting eCommerce right is essential but difficult. If you need support in deciding between aB2B, B2C, or B2B2C strategy, we’re happy to help. Talk to one of our experts today to learn what type of eCommerce business model is best for your business.
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