If you’re looking for the right eCommerce business to start, then this article will answer all of your questions as we cover the 9 Best eCommerce Business Models (and the one that is a complete waste of your valuable time).
After 20 years of being in the eCommerce industry, I’ve seen and done what feels like everything possible. I’ve seen the good, the bad, and the ugly of eCommerce. I’ve been a part of incredible teams with incredibly smart people, and I’ve worked with and mentored very junior people that still had a lot to learn.
I’ve started multiple businesses of my own and have worked with many passionate people who launched their own businesses.
I’ve worked my way up from being a 22-year-old kid in 1997, knowing nothing at all about eCommerce, to someone who busted his ass off and found a way into $200k+ per year jobs leading eCommerce businesses for some of the most popular brands in the world and consulting for others at rates of hundreds of dollars an hour.
Now I’m here to help you do the same and learn all of the things that took me over two decades to figure out.
Sometimes I forget that not everyone has been living and breathing eCommerce for 20 years. Some people are just beginning their eCommerce journey, and I sometimes get asked, “What exactly do you do?” and “What is eCommerce?”.
I know that some of you reading this today are in that same position that I was in back in the day, so I don’t want to make any assumptions about what you may or may not know at this point.
After all, it’s important for you to be extremely comfortable with what we’re discussing in the early steps, because I want you to have enough confidence in yourself to want to return here on a regular basis.
Regardless of your level of eCommerce experience, it may still be beneficial to read the rest of this article as there may be things that you yourself aren’t familiar with. I didn’t learn everything I learned all at once, and most people only have the opportunity to experience small parts of the eCommerce industry.
I’ve traveled a very unique road to where I am today, and I hope that I can share some things that I’ve learned along the way to help you on your own journey.
Starting at the beginning – the technical definition of eCommerce, according to Merriam-Webster, is “Commerce conducted via the Internet”.
While that is the most general of definitions, I don’t feel that just any commercial transaction that happens on the internet is really eCommerce. I mean sure, transferring $50 from your checking account to your savings account, using your bank’s website is technically an electronic financial transaction, but it’s not the kind of eCommerce that has you here reading this article right now.
eCommerce, for the purpose of what I’ll be talking about and what we’ll be covering from this point forward, is the digital exchange of currency for goods, services, or information. It is simply the act of selling things online.
In many cases, eCommerce is online retail (sometimes called e-tail). Whereas, people used to shop in physical stores (often called brick and mortar), today they buy the same products by shopping online. Of course, if you’re here, you already know that.
But, what we’re going to get into today are many of the different types of eCommerce businesses that are out there, and what it might mean to you as far as considering a career path or starting a business of your own.
It is estimated that there are over 1.3 million eCommerce companies in North America alone (U.S. and Canada). Over 75% of those are companies that have a brick and mortar presence (called omni-channel).
The remainder of those companies are what are referred to as “pure play” eCommerce, meaning they have an online presence only.
A site like Ebay is an example of pure play, as you can’t go to the Ebay store down the street and buy the products that you can find on Ebay.com.
And a site like BestBuy.com would be considered omni-channel, because you can, on the other hand, go into a nearby Best Buy store and shop or purchase products that are also available on the site.
Some sites may be “marketplaces”, where anybody can sell their own products on the big brand’s site. An example of this would also be Ebay, where any of us can quickly list and sell something on their site, as well as BestBuy.com, where with a little more effort and complexity, you can sell products online using their site.
Other examples of marketplaces are Amazon.com, which we will spend a lot of time talking about in future articles and podcast episodes, as well as Walmart.com, Jet.com and Sears.com.
Marketplaces are very much worthy of their own conversation and we will be having those in the future, as they have been dominating the eCommerce industry recently, for good or bad, and that trend is not likely to change anytime soon.
In 2017, eCommerce grew by $50 billion compared to 2016, and $35 billion of that came from Amazon alone. After all, more than $4 out of every $10 that were spent online in 2017 was spent on Amazon.com.
I know everyone shops on Amazon, but that is still an absurd number and really hard to comprehend. Over half of Amazon’s revenue comes from products sold by third-party sellers using Amazon.com as their selling platform.
In general, eCommerce tends to be in one of the following 9 forms. Some companies fall under more than one form, others only one.
We’ll start with the types of eCommerce that I’ll most refer to all the way down to the least.
1. Traditional eCommerce (B2C)
Traditional eCommerce is what most people think of when they think of eCommerce. It is also referred to as B2C, or Business to Consumer, eCommerce. It’s what you use when you buy a new shirt from Kohls.com, or when you order a new Barbie doll for your niece on her birthday from an online store.
Traditional eCommerce companies sell products, of which they carry inventory that they store in warehouses, and ship from those warehouses to their customers in a process called fulfillment.
They market to potential customers, and the best ones engage with shoppers to retain those customers to keep them coming back to shop with them over and over again.
This is the most common type for people looking to launch a career in the eCommerce industry. The eCommerce industry has added 200,000 jobs in that past decade and has grown at a 300%+ growth rate with no sign of slowing down.
From my own experience, I can tell you that it is still very hard to find talented, passionate eCommerce professionals, and those that do have these skills are often paid very well, relative to other jobs.
It is also the best type of eCommerce business to start, if you are looking to launch your own business. But, because of the need to carry inventory, it also requires the most initial investment to begin.
However, the promise of higher profit margins are often the reward for making this initial investment
2. Business to Business eCommerce (B2B)
B2B eCommerce, or Business to Business eCommerce, is the fastest growing and most evolving method of eCommerce today.
B2B is when a business sells their products to another business as their primary customer, either as supplies or perhaps as goods, sold in bulk at wholesale prices.
In those cases, those other businesses then sell these products directly to their customers.
Many B2C companies obtain their products from B2B vendors who offer products to their customers at bulk pricing that often is about half of the retail cost of the goods.
Sometimes it’s a bit less, sometimes a bit more, but it is typically at about 50% of what the retailer would charge their customers.
Other B2B examples would be for things like office supplies, where a company frequently has to re-order products that are important to the day to day operation of their business. Staples has one of the biggest B2B businesses, as they supply office supplies and products to a majority of companies in the U.S.
B2B is evolving more and more as customers and users of B2B sites are demanding better experiences and an opportunity for better merchandising and marketing.
For this reason, this is an area of growth for eCommerce jobs that will continue to increase over the next several years.
This is a more challenging model for an individual to start-up, but it is possible for the right product – especially if you have some existing connections with companies that need or want the products you are offering.
It is important to keep in mind that this also does not have to be a physical product but could be software / technology or even simply information.
3. Manufacturers / Direct to Consumer (D2C)
Manufacturers and distributors of products are finding that they can operate very efficiently by offering an eCommerce model for their customers that completely bypasses the retail shopping experience.
Examples of this type of business would be any company that makes its own product and sells those products to customers directly.
I mentioned the Barbie doll example previously, where you can buy a Barbie doll online at many places such as Amazon, Walmart, Target, and many other retailers.
But if you go to Barbie.com, you arrive at the eCommerce store for Mattel where they sell the Barbie dolls that they make, directly to customers.
More and more manufacturers are selling direct to consumer nowadays because compared to selling to a retailer for half price, they are finding it much more profitable to sell those same products directly to the same customers – but at full retail price.
As these manufacturers are gaining more and more experience and investing more and more time and money into their own eCommerce business, there isn’t as much reliance on the retailer to sell the product for the manufacturer. There are tons of job opportunities in all aspects of eCommerce at these various manufacturers.
Also, there are no requirements that you must be a giant manufacturer to be considered a D2C eCommerce business. If you have your own product, as many small businesses and start-ups do, you should probably be offering that directly to potential customers.
Perhaps you have products in retail stores or maybe you rely on distributors or salespeople to help move your product, but a great D2C site is the best salesperson you could ever hire.
Unless you know of a salesperson who is available 24 hours a day, 7 days a week and is always available to help generate revenue.
We talk a lot about manufacturing here at Launch Commerce, as we advocate for manufacturing your own products for many reasons.
One, when you sell your own product you don’t have to compete with retailers who sell the same exact product. Also, the profit margins are significantly higher than any other form of eCommerce.
Because we do this ourselves and for our clients, we have connections with trusted factories and manufacturers all over the world, and we’ll be spending a lot of time talking about how to source your products in the best possible manner for you.
4. Branded Business
A branded business will always also fall into one of the eCommerce types listed above. The beauty of this is that it can be in ANY of the first three mentioned, and potentially all three of them.
A brand, such as Under Armour, is extremely focused on its products, and building and maintaining a passionate customer following.
They may manufacture their own products, or they may have them produced by partners.
They may sell their products wholesale to retailers, or they may sell them directly to their own customers (brands almost always do).
They may even sell other related products or accessories that aren’t their brand in a partnership because they feel it is something that their customers desire.
This can be a large company or a small one, and personally, one of my favorite things to do is to build a brand. I’ve spent years working on building brands and have had the privilege of working with some of the most well-known brands in the world.
When a community of people are passionate about a brand, that is the most fun and exciting eCommerce business model to work in and is also the most successful and profitable.
I almost always recommend building a branded eCommerce business when I talk to people who are looking for ideas and guidance on what they could do to start an eCommerce business of their own.
It takes a lot of work and is very rarely an overnight success or get rich quick scheme. I’m not here to tell you how to do that, and you should ignore those who tell you otherwise, because there is no such thing.
If you want to get rich overnight, buy a lottery ticket – you’ll have similar odds of success at far less cost.
5. Print on Demand (POD)
Print on Demand, or POD, is an eCommerce business model where a business can sell a wide range of products with their own custom designs on them.
There is no need to buy or carry inventory as all of the items are printed – on demand – after they are sold, by a third party company that works as an extension of your business to print, package and ship the item to your customer.
There are many print on demand partners to work with that we will discuss in the future, many of whom have terrific integrations into eCommerce platforms such as Shopify that essentially automate the entire process for you.
The way a POD model works is that the print on demand partner company provides a catalog of products for you to choose from, such as t-shirts, hats, socks, home decor and various accessories, each with their price to print and ship each product.
Your eCommerce business would then charge whatever price you select to your customers, fully owning the rights to the designs and products that you are selling to your customers.
I always recommend a print on demand business for beginners who are looking to start an eCommerce business but aren’t able to invest much financially in the beginning.
It is possible to start a print on demand eCommerce business literally in a matter of hours – for just a few dollars – and you can do it with or without design skills (it’s always better if you have at least some skills, but we’ll help you if you don’t).
Profit margins in a POD business aren’t as good as other business models, but that is the trade-off for a business that requires significantly less money to start and operate.
The good news is that once your business begins to take off, you can easily make the switch to printing your own products and carrying inventory so that you can increase your margins by a significant percentage.
A POD business gives you the opportunity to build a brand into whatever you want it to be – with your design, your direction, your voice, and your vision.
Brands build monetary value above and beyond their eCommerce revenue alone. In as little as six months (typically 12-18 months) you can even sell a profitable brand business for a better than average multiple of the revenue that your brand is generating.
I’ll be talking A LOT about Print on Demand in various places on Launch Commerce, as well as showing the step by step build out of a POD business in real time, including every aspect of what we do to build it from zero to whatever it becomes.
A POD course will also soon be a part of our eCommerce training program that will give you the tips, tools and contacts to build your own successful print on demand eCommerce business as well!
6. Private Label
A Private Label eCommerce business is another favorite business model here at Launch Commerce, and is when a company has a product or products of their own, that has been manufactured on their behalf, to sell to its customers.
Many products found today on Amazon are private label products, and this is because so many factories are happy to manufacture products that they already make, but with another company’s branding and design, or private label.
It is relatively inexpensive, as a private label eCommerce business to buy private label products to sell. By doing this, you can build a brand that is different from existing competitors in the space despite having a nearly identical product.
Frequently when shopping you may see two similar products available for sale at different prices but are virtually impossible to differentiate otherwise. Sometimes one is a well-known brand that you may have heard of versus a smaller brand that you have never heard of, though the products seem nearly identical.
As a shopper, it can be hard to distinguish the difference between the two. But as a private label business owner, you will know that there is a very good chance that the two products may be identical, having been made in the same factory by the same people with the same materials at the same specifications.
But the great here thing is that one of them has a big brand name on it, and the other has your brand name on it instead.
We’ll be spending a lot of time talking about how to source products in China for private label businesses, as well as other countries such as Thailand, Bangladesh, Pakistan, the Philippines, and even right here in the United States.
Our Sourcing Products course will walk you, step by step, through how to design any type of product and have it produced for your business to sell.
Once you have a product or products of your own, we’ll teach you how to market and promote your eCommerce venture and build your brand into a business that customers will love to buy from.
7. Informational Product
Another type of eCommerce that we will talk about deals with selling items that are not physical products at all, but rather, are informational products.
An informational product is not a tangible product that a business has to ship out to a customer, but instead is a digital product that the customer would have to download from the store’s website or have credentials that allow them to access the content in which they are paying for.
Examples of this would be a subscription to Netflix for the ability to watch movies and shows, or on our very own LaunchCommerce.com site when you click the Resources & Products link in the top navigation.
We’ve created and prepared many useful books and guides on eCommerce that are available digitally for purchase, and when a customer completes their purchase, a PDF containing the information is emailed to them.
Any kind of information that others might find valuable is an opportunity to sell an informational product. This could be eCommerce knowledge like we offer, woodworking plans, digital personal training, or guidance on gluten-free cooking.
Anything that you may be an expert on is an opportunity to create a business sharing your experience with others.
Profit margins are terrific on digital products, compared to physical products, because once a digital product has been created it can be sold many times, repeatedly, without ever having to purchase or create more inventory.
Training classes and online courses are a very popular form of informational products, and the online course industry is expected to grow to be $325 BILLION by 2025.
8. Affiliate Marketing
Affiliate Marketing may not “technically” be eCommerce, but I have my reasons for adding it to this list. Affiliate Marketing is when you don’t actually have a product of your own to sell, but instead, you promote and pitch someone else’s product.
If a customer that you refer buys something from them, you would then get a share of the sale as a ‘thank you’ in return.
Affiliate Marketing can be a VERY lucrative business model, and many people have made millions of dollars this way without ever actually selling a product of their own. Many eCommerce sites have affiliate programs that offer affiliates a share of revenue, primarily because there really isn’t much risk involved from their perspective.
The affiliate does the work of customer acquisition, bringing the shopper to the site, so it is a mutually beneficial relationship to reward the affiliate with a little commission on any sales generated.
This form of business has been around long before the internet, but with the technology that is available today it is very easy to track and compensate affiliates. The seller determines what the compensation model will be, which may often be 5% to 25% of the sale, and in some cases, recurring.
For example, I have an affiliate program that I joined several years ago with an eCommerce platform that pays me 25% of the fees paid to them, from any customer I refer – forever – as long as that person remains a customer.
I had an affiliate link on my site several years ago; one particular company clicked on that link and then signed up with my affiliate partner and started a website through them.
The website that was created has become very successful over the years and has grown from a $30/month basic plan with that eCommerce platform (paying me about $7.50/month for a few years) to a $5500/month plan.
I’ve now been collecting about $1,350 each and every month for a couple of years, just for referring one customer to my affiliate partner that I’ve never met or even spoken with.
As I said, most large companies have affiliate opportunities when working with them. I am an Amazon affiliate, for example, and can promote tons of Amazon items. If someone clicks my link and then buys the item, I get a cut of the sale.
This is how many bloggers generate revenue, in addition to advertising networks.
In fact, you will find many affiliate links throughout LaunchCommerce.com as well, with one caveat – I will ONLY ever promote a business if I use them myself and believe that the product is something that would benefit my readers and clients.
We even offer the opportunity to be an affiliate of Launch Commerce.
You can create an affiliate account with us by clicking in the footer of our website, and if you bring new customers to our community, we will happily pay you for doing so.
It is important to remember that with Affiliate Marketing, you don’t own the product or have any control over the product or service that you are promoting.
If there is negative publicity around a product or brand that you are promoting, this could cause a loss of interest and ultimately, a loss of revenue for you.
This lack of control is one reason why I do not recommend this model as a primary business for people.
One main reason I bring up Affiliate Marketing as a business model in eCommerce is because of the many similarities it has to the next business model we discuss, that people do consider eCommerce.
Saving what is hopefully the most useful piece of information for many of you to read till the very end, the final type of eCommerce is dropshipping.
Dropshipping is when a person opens an eCommerce store for the sole purpose of selling another person’s products, without having to buy, see, touch or ship that product to customers themselves.
Dropshipping itself is the entire topic of our next article and podcast episode. Because of this, we’ll only touch on it lightly here in this article.
Dropshipping can be another very low-cost form of eCommerce that is easy to start, which is why it is a very popular type of business to start.
Because there is usually no financial commitment for inventory, this allows you to potentially sell a large variety of products on your site with little to no inventory investment at all.
Despite lower profit margins than other forms of eCommerce, dropshipping can be a very lucrative form of eCommerce when done properly.
However, dropshipping – the right way – takes a lot of time and effort, as well as networking and communication. People that can build trusted relationships with product distributors who will quickly and discretely dropship products on behalf of their partners are not easy to find.
It takes research, meetings and persistence, and sometimes a financial investment, in order to convince a distributor to work with you as a dropshipper.
This may counter what some people say, but this limited/restricted relationship is actually one way to know that you have a great partner to work with, because some level of exclusivity for the products you are selling is very good for your business.
Finding these distributors usually happens from existing relationships or from attending industry conventions and events where these distributors tend to gather.
Buying email lists of distributors is a shortcut that many people take, but always keep in mind that if you were able to find or buy that list, there is a good chance that dozens if not thousands of other people have that same list.
Like most things in life, extra effort and hard work to make your business special can be the difference between having a successful dropshipping business or a failed dropshipping business.
And now the 1 eCommerce Business Model That Sucks (which happens to be perhaps the most popular one right now)
I know, I know… we just covered dropshipping on the list as the #9 best eCommerce business model. So how is it also on the list as the one eCommerce business model that sucks?
Unfortunately, most people trying to start a dropshipping business today are doing it completely wrong and are wasting their valuable time and money.
There has been a significant increase in new dropshipping businesses over the last couple of years, primarily due to three reasons…
- “Zero barrier to entry”, meaning that absolutely anyone can set up one of these businesses literally in a matter of minutes for nearly no cost or upfront investment.
- The popularity and simplicity of sourcing products on sites such as AliExpress and Oberlo (owned by eCommerce platform Shopify)
- Marketing efforts from people we mockingly call eCommerce “gurus” with their pictures of fancy cars and rented mansions. The people selling ‘How to Dropship’ training and courses that mislead people into thinking dropshipping is a get rich quick scheme that is a good business model.
This may indeed be a good business model – for the person selling the “guru coaching” to these would-be store owners for thousands of dollars.
Many of you have likely tried and discovered for yourself, that dropshipping is not a good and sustainable business model, and are even discouraged about eCommerce in general because of that previous experience.
I can assure you that I will NEVER recommend anyone create a dropshipping site using products found on AliExpress or Oberlo.
And I can all but promise you that anyone who does recommend this as a potential business model is either inexperienced overall in the 9 other types of eCommerce described above, or simply doesn’t have your best interests in mind.
Dropshipping on AliExpress and Oberlo is the snake oil scam of the modern day, with these coaches promising quick riches with their “secrets” to selecting “winning products”.
As I said before, you’re really better off trying to select “winning numbers” and buying a lottery ticket. Sure, some people may win the lottery, and some have success dropshipping cheap, poor quality products from China – but most do not.
I will share all of the many reasons why this form of dropshipping is so terrible in our next article and podcast episode, and also will share stories from some people who were incredibly successful in dropshipping this way for many years – before losing everything – and why that model doesn’t really work anymore.
Be sure to sign up for our newsletter list here so that you don’t miss that article or any others as soon as they are published.
I’ll be addressing dropshipping – the good and the bad – probably one time ever on this site, in the next article. After that, if you aren’t convinced that it is the worst of all eCommerce business models and still want to pursue it as a business, you will have to look elsewhere for your eCommerce information.
Here, I’ll only be sharing the tried and true eCommerce best practices that I’ve learned over 20+ years doing this, sharing absolutely everything that you could ever want to know – tips, advice, and best practices for building a large, profitable, sustainable and successful eCommerce business.
If you have any questions about any of these eCommerce business models, feel free to drop a line in the comments below. I’m always around and will always respond to any questions that you may have when you post it in the comments section below.
Be sure to subscribe to the Ultimate eComm podcast to listen to these episodes each and every week. If you’ve learned anything, we always appreciate the 5-star review you might leave as appreciation, just as any small business would.
And if for some reason you don’t feel you could give it a 5-star review, I’d love to have you reach out to me directly to let me know what I can do differently to make you happy enough to give it 5 stars next time.
I’m excited to have you here. As the saying goes, “The best time to plant a tree was 20 years ago. The second best time is now.” The same goes for starting a business, so let’s do this thing!Tags: Beginner Dropshipping eCommerce eCommerce Business Models Featured Training