There’s no denying it that we live in the eCommerce era. People no longer need to go to a physical store to get what they require. We pay for music and videos on the internet. Millions of individuals are shopping online right now.
The extraordinary circumstances (especially, after the pandemic) have changed the way we shop today. It appears to be the ideal time to start an eCommerce business.
A successful eCommerce firm results from industry knowledge, a solid business plan, and extensive research on eCommerce business models. There are numerous business models available, which all potential eCommerce business owners should know. We’ll explain various models in this article so you can pick the one that’s appropriate for you. But first, let us define a few important terms.
What is an eCommerce Business?
eCommerce or electronic commerce refers to selling, buying, or completing a transaction in the digital marketplace through the internet. Digital signage systems are coupled with a secure payment gateway to facilitate product purchase and financial transactions, and the products or services are presented through a website or mobile application.
Thanks to technological developments, widespread internet access, and social media networks, the eCommerce sector has grown at a breakneck pace over the last two decades. Let’s explore the eCommerce business classifications.
Business Classifications for Ecommerce
All online marketplaces that connect buyers and sellers are considered electronic commerce. All electronic transactions are processed through the internet.
The first consideration is the type of business transaction you want to make. When you consider the business you want to start, who do you envision yourself selling to? Are you a B2B, B2C, C2C, or C2B company?
Do you have an eCommerce business concept that you’ve considered for a while? Are those abbreviations making your head spin? Let’s look at the most frequent methods for doing online transactions.
Business to Business (B2B)
A B2B model focuses on selling products from one company to another. While many firms in this sector are service providers, this category includes software companies, office furniture and supply companies, document hosting companies, and various other eCommerce business models.
Business to Consumer (B2C)
B2C eCommerce sales are the traditional retail paradigm in which a company sells to individuals over the internet rather than at a physical store. When most people think of an eCommerce firm, they think of the B2C market. This is the most liquid market, and many of the names you’ll see here are also well-known offline.
Consumer to Consumer (C2C)
Customers can trade, buy, and sell products in exchange for a small fee given to the site, thanks to the expansion of the eCommerce sector and increased consumer confidence in online business. A C2C site requires meticulous preparation.
Consumer to Business eCommerce (C2B)
C2B is another model that most people aren’t familiar with, but it’s becoming more popular. This internet commerce firm is similar to a single proprietorship serving a larger corporation in that it allows consumers to sell goods or services to enterprises.
Now, let’s separate the eCommerce business models according to their revenue models.
eCommerce Revenue Models
Revenues reflect the entire amount of money the company obtains after trading its products or services with its clients. The eCommerce revenue model is often considered when defining an eCommerce business. Advertising, affiliate marketing, and other revenue-generating methods are all possibilities.
The industry never prohibits the introduction of innovative revenue-generating methods. However, we’ll limit ourselves to explaining the five main eCommerce revenue models and their variations.
Advertising Revenue Model
Advertisers are typically charged a commission to place their adverts on a well-known online marketing platform. They make use of the large amount of traffic that visits the chosen platform regularly to shop, see the ad, and be redirected to the actual site. This is the standard operating procedure for businesses classified under the advertising revenue model.
This could be related to a method of increasing company leads. Payments to the hosting platform are made based on a fixed commission or the amount of traffic driven to the business.
Businesses based on advertising revenue have an indirect way of earning revenue using a digital platform. Traditional advertising techniques usually comprise display marketing, including super banners, wallpaper, skyscrapers, or rectangular ads. These are compensated according to the amount of traffic generated by the platform’s advertisements. The overall revenue structure is based on invoices raised against Cost per Click (CPC) or Cost per Action (CPA) campaigns. Aside from the traditional display marketing strategies, which attempt to reroute traffic from the eCommerce platform to the address where the advertising is linked, affiliate marketing and search engine marketing are two more well-known methods.
Subscription Revenue Model
You’ve probably heard of Netflix, Amazon Prime, YouTube Premium, and other services that indefinitely allow you to use their services. These eCommerce business models charge their users, or rather subscribers, for their services regularly (daily, monthly, or annually).
These firms’ service offerings typically include music, movies, TV channels, periodicals, special services, and other items available to customers for a fee to watch/listen or obtain the most recent edition. Let me now walk you through some simple subscription business model examples.
Many social networking and business sites, such as Xing, LinkedIn, stay friends, and others, offer premium memberships that give subscribers access to daily updates, newsletters, and brief alerts, among other things. These notifications and short updates are sent directly to their account.
Providers of internet access
We’re all familiar with internet service providers’ monthly and annual subscriptions, or rather, broadband connections that allow subscribers with limitless internet access.
Content providers and publishers
Netflix, the New York Times, Spiegel Online, and other well-known brands are familiar to you. These eCommerce business models charge monthly or annual subscription fees to access their content.
Every eCommerce firm, we all know, has one thing in common, its payment gateway. These are firms like Paypal and VeriSign, whose monthly fees are determined by the SSL certification and service period.
Transaction Revenue Model
The transaction fee revenue model involves an eCommerce company charging a fee to the sellers for each transaction done via them. The profit is usually made through enabling or performing transactions. They are payment gateway service providers for other eCommerce platforms.
The operator provides an eCommerce marketplace platform on which the transaction can occur. The next step is to register the vendor and the operator so that their identities are preserved if they are needed later for the business. The model is similar to the affiliate market but differs slightly.
Let’s use PayPal as an example to understand it better. Once the transaction is completed, the firm charges the product’s sellers a transaction fee. Similarly, whenever a consumer makes a stock transaction, eTrade receives a transaction fee. With the vendor, the amount paid to the operator is either determined by a percentage or a fixed amount. Another company that makes money from transaction fees is Amazon.
Sales Revenue Model
This is the most often used eCommerce business model, in which wholesalers and retailers offer their items online to reach a bigger target audience. More crucially, this paradigm offers customer convenience while also saving them time. Also, walking up to their physical store is a pain and there is an additional charge.
In comparison to the actual retail price, the prices are frequently comparable. Marketplaces are frequent entry points for businesses following the online sales model, allowing them to engage with various goods’ sellers and therefore build the marketplace and earn more.
In some circumstances, sales are immediately poured into the firm with no shared profit. Certain business functions are outsourced to third-party contractors, usually for logistics and supply chain, depending on the size of the company and the volume of sales.
All single shop companies selling their brand products over the internet through their online platforms are examples. This creates a focused approach to marketing and reaching out to many customers. Amazon, Otto, and other companies are examples of companies that use this concept for their online catalog-based businesses. Such marketplaces include Buy.com and Etsy.
Affiliate Revenue Model
The following revenue model is an affiliate revenue model, which deals with a commission-based business. Merchants and vendors collaborate with well-known eCommerce platforms to market and sell their items for a commission.
Affiliate marketing is a well-known method of attracting and converting quality leads into customers. The procedure essentially works as a hyperlinked and archived link on a host platform that receives frequent traffic. Any user who clicks on the affiliate link is taken to their website, listing the product or service. As a result, the affiliate or merchant pays the host operator, carrying the link for every traffic driven, an agreed-upon commission.
Amazon and Affilinet are two well-known examples of sites that allow you to affiliate your product links and generate traffic. You must pay Amazon or Affilinet a proportion of each lead generated on your website as a commission. Surprisingly, this results in a win-win situation for both the merchant and the affiliate who advertised or marketed their goods. Various forms of this eCommerce business model, such as pay-per-click, banner exchange, and income sharing schemes, drive traffic from one platform to another.
Since last year, the eCommerce industry has grown by an estimated 17 percent, potentially skyrocketing in the future. Numerous business ideas are currently being employed to profit from the online marketplaces. However, it’s only logical that eCommerce and digital marketing work together to achieve the corporate goal.
Choose a Model that Fits the Needs of Your Business
We looked at many classifications for eCommerce businesses, but there is no clear winner. The decision is based on what you wish to sell and how you want to establish your company plan.
Get in touch with us to get help with your business.