HighFiveAffiliate.com - Your Internet Marketing Resource

5 Main E-Commerce Business Models

5 Main E-Commerce Business Models

Since the onset of COVID-19 pandemic, online shopping has skyrocketed substantially. Online shopping has now become a part of modern life like never before, consumers the world over now profit from the perks of online transactions. The number of online buyers continues to grow. In 2019, it’s estimated that 1.92 billion people purchased goods and/or services online. Online retail sales surpassed 3.5 trillion US dollars worldwide.

The global coronavirus pandemic is affecting consumer behavior worldwide. In the week ending June 14, online traffic in the supermarket segment increased by 60.7 percent compared to the reference period in January and February 2020. Online visits in the tourism sector decreased by 47.5 percent during the measured period.

COVID-19 Impact On Online Traffic By Industry September 6, 2020

With so many options out there, I thought it would be a good idea to outline the five main e-commerce business models at work today.

Drop Shipping

Drop shipping is often used by Amazon Merch sellers. When the customer places an order, you then send the order to the supplier who then ships it directly to your customer. Benefits are no, inventory or upfront cost is required. You simply collect the money, pay the supplier his due and you just handle the customer service.

Wholesaling/Warehousing

You preorder your supplies (or craft materials) from a wholesaler who already has a product line, send them to a warehouse where they are stored (i.e. Amazon). A customer places an order and you ship it it off. 

Private Labeling & Manufacturing

You find a manufacturer to create your products en masse. They send it to you and you store it in a warehouse.  Customers place their order with you and you handle all the shipping. With White Labeling you still get the power of whatever brand you’re selling.

Avoid promising a “one of a kind” product because if you’re making handmade products yourself, it’s only a matter of time before you burnout.  

So say you find a pretty wooden table and paint it up decoratively and sell it as a one of a kind product. Then a few weeks later you that same table again, you won’t really be able to sell it on your shop because you already sold a previous one as “one of a kind”. So best to avoid saying that at all so as not to paint yourself into a corner down the road. 

A common mistake that many hand-made shop owners is to offer up custom or personalized design from scratch. The customer designs the product, then you make the product, sell it and deliver it. Can you see the problem with this model? 

It relies exclusively on your own effort.  

Regardless of how skilled you may be. What happens if you have 100 customers, each with their own custom design. How long will it take for you to make the product to their specifications and ship it? What if you run out of a particular material? What if you have a life event that hampers your ability to fill the remaining outstanding orders? What if the glue you were using to put together those cute jewelry pieces goes off and you suddenly find yourself also having to replace previously sold items? 

There’s no denying the inventible here. This model just isn’t scalable because it’s too custom and reliant on your  own physical ability to produce it. This very scenario played out with a jewelry designer who ended up getting terribly sick and needed surgery. Needless to say, all the stress of trying to keep up with the custom order requests, she wasn’t getting enough sleep and her health deteriorated. 

A better strategy is to do your research first to determine what your competition is selling and how you can improve upon it. Take note of which colors and materials are most popular. Then design that product, find a manufacturer that can mass produce it for you and send it to you in bulk. You then simply sell the item and ship it to the customer.

You can still offer customizations to your existing product such as color choices (as in t-shirt design). I’ve learned though that giving customers too many choices, results in no sales. They can’t decide which ones they want because they like them all and as such get distracted and go elsewhere. Limit your customizations to no more than five maximum. 

White Labeling or Wholeselling

You find a product that is already made with a manufacturer who then sends it to you in bulk. You slap your own label on it and ship it to the customer. This is very common practice with nearly all big retailers.  The advantage here is that you don’t have to create the product from scratch. 

Subscription Service

You bill the member each month and ship the products every month. Selling magazines are a prime example of this type of business model. Stitchfix, Blue Apron are online examples of this.

Have You Placed All Your “Eggs in One Basket?”

Many online e-commerce business owners get their start on ETSY and why not? There’s no initial outlay. Just .20 cents per listing paid every three months? Yeah, I can do that! 

ETSY is a great marketplace but your entire revenue stream should not rely solely on one. Think about…

  • You spend countless hours building your ETSY shop.
  • You give ETSY five percent of all our sales which is fair enough considering many other platforms charge 10-20%.
  • Etsy owns your shop. Here’s the real kicker…ETSY can shut your shop down forever at any time, without notice and for any reason.
  • It’s not transferable. If you’ve grown your shop to a six or seven figure business, you can never sell it and retire on the revenue of all your hard work. Neither can you pass it on to your kids when you die. 
  • Does that sound like a wise business model to you?

What To Do…

You can still use ETSY but only as one of four other sources of sales. That way, you can take the traffic and sales from ETSY while still retaining 100% control of your business. Down the road, you could actually sell it for big bucks.

Reliable Wholesale Suppliers – If you can find suppliers that keep you stocked on products and not 100% reliant on your own personal effort. 

Sales Funnel – This basically leads your customer from information to placing an order with you. Keep it simple. Too many people try to complicate this process but just keep it simple.

Build An Email List – When big companies buy out smaller ones, their main focus is the smaller customers existing customers. They want that customer base along with the product, of course. But the gold are the product fans. Your email list can make your company worth ten times more.  Also, if ETSY closes you down, your email list will save the day! It will make it possible to move from one platform to another. 

Additional Traffic Sources – You need to research and try out other traffic sources that can act as a back up plan. So that if one source shuts down, you still have another four going strong and can still pay your bills and feed your family. 

Leave a Reply

Your email address will not be published. Required fields are marked *