Starting an E-commerce business is no walk in the park. As a new entrepreneur, you must take on the challenging feat of deciding what business model you will follow. This will dictate your store’s future performance, profit, and growth. That being said, choosing one of the E-commerce business models can be overwhelming, especially for those who have limited experience in the industry.
In this guide, we’ll break down everything you need to know about different business models so you can choose the best one for your E-commerce store.
What Is a Business Model?
A business model is a company’s plan to make a profit. It identifies the services and products a company wants to sell, its target market, and other expected expenses. In short, a business model refers to the company’s foundation and strategy on how to be profitable.
Business models are extremely important, especially for new businesses that want to grow steadily, as well as established businesses that want to scale.
A good business model not only helps with sales. It also does wonders in getting top-notch talent and lucrative investments. Furthermore, it also aids in motivating staff and management.
It’s worth noting that your business is not tied to the first business model you choose. As you expand, you can regularly update this to ensure it keeps up with trends and potential challenges.
Best E-Commerce Business Models in the Philippines
Here are some E-commerce business models you can follow if you’re looking to open your own online store.
Business-to-consumer is one of the most common types of business models in the E-commerce realm. Retailers follow the B2C model.
For this model, a business sells services or products to end users, not to manufacturers, or other businesses.
It’s worth noting that this business model is easy to start because your target market can be huge. That said, you should be prepared to deal with a massive amount of customers which can also mean constantly dealing with returns, complaints, and other issues.
Another challenge you may face with this business model is attracting new customers since it’s highly competitive. You’ll be dealing not only with local competition, but also established brands from around the world.
Business to Business E-commerce involves selling to other businesses. Whatever you are selling, whether it may be computers, uniforms, furniture, or food, your main target should be other businesses.
Many businesses that follow this model are also manufacturers who sell their products at wholesale prices to other businesses, such as retail stores.
One of the best things about this E-commerce business model is it has a huge potential for growth considering businesses buy in bulk and place massive orders compared to the B2C model. This means that every sale can be extremely profitable.
While it’s easy to get repeat customers when it comes to this model, expect fewer sales volume. There’s also a learning curve when it comes to this business model, especially if you have no existing business network or background in how businesses operate.
If you’ve bought from an E-commerce platform before such as Shopee, Lazada, Carousell, or Facebook Marketplace, then you’re already familiar with this model.
Consumer to Consumer business models involve sellers listing products they already have or sourced from other retailers. Also called Peer to Peer E-commerce, this model usually involves working with a platform that helps connect sellers to customers.
For this business model, companies heavily rely on consumers to not only use their products but also to give them value.
For instance, YouTube places ads on the videos of creators, and both parties generate profit from it. This business model is also widely used in affiliate marketing, where a brand enlists a person of influence to promote its product/s. If someone purchases a product through their link, the influencer gets a commission from the sale, and the business also makes money from it. Therefore, it’s a win/win situation.
Dropshipping is growing increasingly popular among E-commerce entrepreneurs. With this business model, a retailer does not need to hold any inventory for the products they sell. The supplier ships it directly to the customer.
Dropshipping is a low-maintenance business model since the seller doesn’t deal directly with order fulfillment. However, since this model is not direct, you may find it hard to build your brand’s reputation. There’s also a huge risk of losing money if your supplier goes out of business.
If you want to start a store that generates a lot of sales, then you should consider the private label business model. This model allows brands to sell their unique products made by a supplier. The supplier’s name will not be on the label. They will only be involved in the production process. As a business owner, you will decide what you want to sell, how it will look, its price, and other aspects.
If the last business model sounds like a good idea, but you don’t have the resources to create your own product from scratch, then you can try the white-label business model instead.
For this model, a supplier gives retailers pre-made products. The supplier focuses on the product production while the retailer is in charge of selling and marketing it. One supplier can have a few retailers selling the same white-label product.
With this model, you can have access to other brands’ designs without investing much money in product development. For example, if you’re selling clothing, you can choose to use other brands’ designs but put your own label on them.
Your main job is to promote, handle the marketing, and ship the product. As long as you work with reputable brands, this model can be very profitable.
In Wholesale E-commerce, businesses focus on serving other retailers and customers who buy in bulk. This business model usually comes with a Minimum Order Quantity or MOQ.
When it comes to this model, you should consider scalability. The more retailers buy your products, the more revenue you will generate. However, it comes with more responsibilities and higher risks.
Another E-commerce model that’s gaining popularity is the subscription model. When you sell subscriptions, you’re selling products and services on a regular basis to a customer. This means you’ll get a steady stream of profit.
For instance, if you own an organic food business, you could have a subscription package where a customer gets a weekly delivery of organic fruits and vegetables.
Some of the biggest companies in today’s world follow the subscription model. This can be seen in the tech industry as well. The most notable examples are companies like Netflix and Spotify. There are also companies that offer monthly subscriptions for magazines or books.
On-Demand Manufacturing (ie: Print-on-Demand)
Want to sell products before they are made? The best way to do it is by using the on-demand manufacturing business model.
This business model reduces the inventory costs businesses usually have to deal with. On-demand manufacturing allows businesses to make or print books, designs, photos, t-shirts, and other products right after an order is placed.
On-demand manufacturing is much more cost-efficient because it allows you to only produce what you need when you need it. If you’re an entrepreneur who can’t afford the upfront cost of inventory, make sure to consider this model.
Tips for Choosing the Best E-commerce Business Model
Still not sure which of these E-commerce business models to follow? We’ve compiled some useful tips for you below.
Decide if you want to cater to customers or businesses
The first thing you need to ask yourself is whether you want to focus on serving individual customers or businesses. This crucial decision will let you narrow down your options for your e-commerce business model.
Want to start a business that serves individual customers? You should consider business models like drop shipping, C2C, or private label. Want to sell to businesses? Your focus should be on wholesale or B2B.
Get to know your target market more
Knowing more about the target market is vital when it comes to deciding on your business model. You should not only know their demographic information but also their buying behavior. For instance, how often are they buying stuff online? Do they need your products or services often?
Decide whether or not you want to keep inventory
Once you have decided to whom you want to sell to, you need to figure out if you want to hold inventory.
If you have a big budget, then it would be a good idea to keep inventory since it eliminates the risks and added costs of constantly purchasing products from suppliers. However, you will deal with a lot of expenses like rent, which could be extremely draining especially if you’re self-funding your business.
Before choosing to not keep inventory, you should also consider the shipping and order fulfillment time of your suppliers.
If your suppliers can produce or ship products fast, not holding inventory may be a better choice. By following business models like drop shipping, you can focus more on customer service.
Assess how much control you want to have over your product development
Are you the kind of person who can design unique and marketable products? If you are, then you can go with the private label business model.
This way, you can have full control over your products and the image of your business. You will also have more freedom when it comes to making a profit.
But if your budget does not permit this, don’t worry. You can still follow the white-label business model where you simply re-brand other people’s designs or products.
Consider what you’re selling
Your business model of choice varies depending on what you are selling.
If you’re selling physical products, then follow business models like dropping shipping, white labeling, or wholesale. E-commerce stores that sell physical products usually have more choices.
If you’re selling digital products, then you can follow business models like C2C. Businesses that want to sell services can follow various models as well, although they typically do best in B2B, C2C, C2C, and Subscription.
Take your strengths and weaknesses into account
Business models are also dependent on your strengths and weaknesses. For instance, if you have an expansive business network, then you can do B2B or wholesale.
If you excel at creating things from scratch, private labeling will be perfect for you.
Understand your brand positioning
Before choosing a business model for your e-commerce business, you need to be clear about your brand positioning. This refers to how your business will be perceived by your target market.
Brand positioning is essential in determining your business model because different business models often have different brand positions.
You need to be able to showcase your business and products/services in a way that you can stand out from the crowd.
Having a powerful brand image that is aligned with your business model is the ultimate way to make people interested in your business and your products.
For instance, if you follow the B2B business model, having a corporate image will do wonders for you.
Meanwhile, if you follow the B2C business model and your target market is Gen Zers, then approaching things in a fun, friendly, and engaging way will give you an advantage.
Think about your plans for scalability
By thinking about scalability early on, you’ll be able to better determine what kind of business model to follow.
For instance, some E-commerce businesses like drop shipping are more easily scalable than others.
Private labeling is also good for scalability because entrepreneurs usually want to expand their product line, although it involves more work when it comes to product development.
Consider your budget
It’s important to know your financial limits and only choose business models that are within your means.
Keep in mind that it’s easy to lose control of your business and go broke if you manage your E-commerce store poorly.
If you don’t have much cash to start with, consider choosing a business model that won’t require you to keep a lot of inventory, like drop shipping or on-demand manufacturing, is recommended.
These are just some of the things that you should know about the different E-commerce business models. Once you know which model you want to go with, it’ll be easier to determine the other aspects of your business.
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