6 Ecommerce Business Types: Pros and Cons (2023)

When most people think about ecommerce, they probably picture visiting a website and making products. Ecommerce really has a wide range of applications. With its expansion, the ecommerce sector now offers a vast variety of business strategies and delivery options. One ecommerce business may seem different from another. (Ecommerce Business Types).

Knowing the different ecommerce types might help you choose the one that is best for your business.

Ecommerce Business Types

Ecommerce is, at its core, the act of a business selling products online. There are several ways to sell anything online, just as in the analog world:

• Business to Consumer (B2C). In B2C businesses, the online store's customers are distinct individuals, and the business sells or curates its own products. Classic examples of B2C businesses are Allbirds and Kylie Cosmetics. In ecommerce, the terms “B2C” and “Direct to Consumer” (DTC) are often used interchangeably. However, DTC is only one kind of B2C ecommerce.
• Business to Business (B2B). B2B ecommerce sells online business-to-business transactions. B2B sites often tailor their customers' purchasing experiences to substantially higher order quantities (think: 1000+ products instead of 1 or 10). They often also provide additional alternatives for bespoke orders and “white glove” customer service to a higher degree.
• Consumer to Consumer (C2C). An ancient concept is being given new life. Online marketplaces, known as C2C businesses, let consumers sell their own products to other consumers directly. The most well-known example of this is eBay. Due to the success of the main sites (like eBay and Etsy) and cost-free alternatives like Craigslist and Facebook Marketplace, there haven't been many C2C businesses for a long time. Poshmark and Grailed are two newer businesses that have shown the advantages of a new C2C experience.

Types of B2C ecommerce business models

There are several types of ecommerce business models available in the B2C market. The correct B2C business model is essential to your success as a store owner even if the customer may not always be aware of which sort of business they are purchasing from.

Direct to Consumer (DTC)

Using a direct-to-consumer (DTC) business model, your company produces its own products and sells them to customers. DU/ER and Gymshark are two examples.

• Advantages: DTC businesses often have healthy profit margins, excellent product quality control, and a competitive pricing point since they own their production process.
• Disadvantages: Possessing your own manufacturer might be a challenging endeavor. To create your products, you must set up a production line, factory, or kitchen.

Subscription DTC

The difference between subscription ecommerce businesses and standard DTC companies is that you can only purchase their products by subscribing to a subscription program. In contrast, this features a “Subscribe & Save” function, unlike a DTC business. You must demand that your consumer agrees to a recurring purchase if you want to be considered a legitimate subscription business. Consumable product categories including dietary supplements (BIOHME) and food are where subscription businesses are most prevalent (Sakara).

• Advantages: If subscription businesses are successful in keeping consumers, having recurring payments may lead to a high customer lifetime value (CLTV).
• Disadvantages: Many reusable product categories are not a good match for subscription businesses.

White label and private label

Some businesses desire to create a distinctive product but would prefer not to handle their own manufacturing. They use a white-label or private-label business model. In this model, the ecommerce business hires a supplier to create a product that meets its requirements. It is produced by the supplier, after which the ecommerce company adds its own branding and sells it under its own name. This is typical in highly specialized industries where the manufacturing needs specialist knowledge and the product demands a strong branding strategy. For instance, many skincare businesses operate under “white-label” agreements. Private labeling is when a supplier creates a product just for your business; white labeling is when it's not.

• Advantages: The operation of the ecommerce business is significantly simplified by the fact that a supplier handles the manufacturing, allowing the business owner to concentrate exclusively on branding.
• Disadvantages: When an ecommerce business doesn't own the supplier, they sometimes have lower margins and less quality control than if they produced the product themselves. Additionally, they must pay upfront for the supplier to develop and sample the products.

E-retail

E-retailers are the virtual counterpart of traditional grocery shops or shopping centers; they act as trusted curators and middlemen for the products of other brands. In this business model, the ecommerce company buys its goods at a discount from other manufacturers and then resells them to clients. They add value to the shopping experience and the selection of products in a customized way. Similar to their physical and mortar equivalents, this works best in industries like food and fashion where taste and variety are important. These businesses now include Goop, Culture Kings, and The Breakfast Pantry.

• Advantages: The company has the chance to provide a large range of products without having to create each one from scratch.
• Disadvantages: The product used to identify your brand is not hampered by your own products. Keeping track of the inventory of products bought in bulk may be difficult as well.

Dropshipping

What if you didn't have to worry about managing inventory or taking the chance of buying it in advance at all? The promise of dropshipping is that. You don't even store inventory in this business model, much less make your products. You just notify a third-party partner when orders arrive, and they take care of all the storage and fulfillment. Dropshipping is, technically speaking, a modified form of either white label or e-retail ecommerce businesses. While a “dropshipping” white label or marketplace ecommerce business does not maintain its own inventory, a “conventional” white label or marketplace ecommerce business does.

The client normally isn't aware that a product was dropshipped since dropshipping typically takes place behind the scenes. A major department store with a powerful ecommerce website, for instance, may not keep all of its inventory on hand, preferring to dropship products from smaller suppliers. In this case, the vendor will complete the order from their own warehouse stock after receiving the order and customer information straight from the department store.

• Advantages: This business model is the least capital- and logistics-intensive because inventory doesn't need to be purchased upfront. This makes it appealing to lots of new business owners.
• Disadvantages: Dropshippers typically have low-profit margins and depend on their supply partners to make sure their business is successful.

B2C wholesale

Although the phrase “B2C wholesale” may appear to be an oxymoron, it is not totally so. Many businesses, which in the past only catered to other businesses, realized that they could open their products to the general consumer through ecommerce. The features of a B2B website are frequently open on these sites (large volume, highly customizable orders, detailed product pages, large selection), but they also allow customers to place smaller orders. Alibaba, Swish, and ULINE are a few examples.

• Advantages: The operational efficiencies that come with large order sizes are advantageous to these businesses. Additionally, this model can offer diversification for already-existing, offline-focused B2B businesses.
• Disadvantages: Customers on B2C wholesale sites are extremely price-conscious, so businesses that thrive have a significant cost advantage (such as massive scale). 

How to choose an ecommerce business model

The sheer quantity of models may seem intimidating if you're considering starting your own ecommerce business. But selecting the ideal model is determined by a few straightforward questions.

What does your audience want?

Great businesses design their products with the audience's annoyances or want in mind from the very beginning. For instance, if you're enthusiastic about encouraging new moms to eat organic meals to keep healthy, locate a group of them and ask them the following questions:

• Do they prefer to buy in bulk?
• Do they value variety in their food or consistency?
• Are they willing to pay extra for a more premium product?
• Do they love shopping for food or do they just want to tick it off their list?
• Do they buy the same types of things over and over, or does it always change?

All of these questions will help inform whether you need a single product or a variety if you can use a subscription model and whether you can afford a lower-margin alternative like dropshipping or a marketplace.

What resources do you have?

New business owners could automatically adopt an upbeat perspective. But it's beneficial to be highly realistic and even suspicious when choosing your business model. DTC and private label are two examples of business models that need more cash upfront and longer operating times. Great supplier relationships are advantageous for other business models like marketplaces and dropshipping. You may choose the business model that's best for you by evaluating your connections with suppliers and the capital you have available to invest.

What are you best at?

In the end, this could be the most crucial element. A competitive edge is the foundation of great businesses, and it begins with the owner. Your competitive edge may be your finest abilities, which may inform how you model.

• DTC can be the best option if you are familiar with product development for your sector.
• A white or private label can be the best option if you are a branding or social media specialist.
• Dropshipping or marketplaces may be best for you if you excel in the consumer experience (from the ecommerce website to the unboxing).
• B2C wholesale might be the best option for you if you have a sustainable cost advantage.

Final thoughts

The ecommerce sector is currently a reasonably developed one with a wide range of distinct strategies. This indicates that there are a lot of established businesses to study. You may choose the best business model for you by researching other businesses, your audience, and your own talents.