Insight into how Ecommerce works...... #68

Adrian Dionisio - business737 owner
Jun 6, 2022
6 min read

Updated: Mar 15, 2024

In this article you will learn

What is ecommerce
Why you may consider starting an Ecommerce business
Different ecommerce business models
How to start an Ecommerce business
How to boost ecommerce sales

1. What is ecommerce

Electronic commerce (ecommerce) involves businesses and individuals buying and selling goods and services over the Internet. Ecommerce is conducted over computers, tablets, smartphones, and other smart devices and involves the transfer of money and data to execute transactions.

There are four traditional types of ecommerce;

B2C (Business-to-Consumer)
B2B (Business-to-Business)
C2B (Consumer-to-Business)
C2C (Consumer-to-Consumer)

Ecommerce is popular because it is convenient and offers a wider selection of goods and service. However, there is more limited customer service, it lacks instant gratification and products can't been seen or handled until delivered.

There are many different types of Ecommerce Business Models

Why you may consider starting an Ecommerce business

Depending on your goals, it might make sense to start an e-commerce business. With E-commerce there is no need for a brick-and-mortar location. This offers greater business flexibility, affordability, and opportunity. There are many potential advantages;

Lower costs
High earning potential
Convenient marketing
Easy to set up and run
Markets are rapidly growing
Integrated fulfilment solutions
Independence
Larger customer base
Scalability
Customer data easily analysed
Monetise your passion

3. Different ecommerce business models

1. Drop Shipping

2. White & Private Labelling

3. Wholesale

4. Subscription

5.Makers

1. Drop Shipping

A very simple concept. Buy products from a wholesale or manufacturer and sell at a higher price. The difference, minus any expenses, is your profit.

Drop shipping is the least expensive business model
Low start up costs
Low barriers to entry
Minimal investment needed
Lower risk
No need to hold & manage inventory

Drop shipping suppliers will do the picking, packing, and shipping of your product.. This option provides convenience and efficiency. You can run your business from anywhere in the world.

Add products from a supplier like AliExpress and set the prices at a higher level. Target potential customers with digital marketing strategies. This is where you have to really stand out.

Drop Shipping Potential Problems

Drop shipping is easy to get into and because of this there is a lot of competition.

There are many people doing it
Low margins
Have to sell high volume to make a worthwhile profit

Inventory syncing (back orders) is another issue that many encounter. You rely on your supplier's inventory. At times the product may be sold out. This longer than normal delivery time can reflect badly on your business.

Drop shipping Success Formula

Select niche products
consistently present the best deals f
show the discount badges on all products
uses PPC ads
strategically place display ads
showcase premium deals and discounts.

2. White & Private Labelling

These business models are very similar because you sell made-to-order products that have your designs. Another company produces the product but you rebrand and distribute it.

A private label

The product is created by a manufacturer and sold under your business name. You control everything from what goes in the product, how it’s packaged, and what the labels look like. Private label is best for brands who want to create unique products.

A white label product

These products are created by one manufacturer and sold to various retailers under their own brand names. They are generic products that you can sell to wider customer segments.

There are many advantages to these 2 business models;

Low cost of entry into e commerce
Lower cost upfront
No need for inventory
Easy to add & remove products
Easy to test new business ideas
Easy to create products for niche markets.
Don't pay for a product until sale is made
Available funds can go to marketing and advertising.
Often printing, packing, shipping etc is handled by your business partner.
Can create products quickly
Can make the product and sell it in your online store in minutes.
Shipping and fulfilment is handled by your supplier.
Lowest cost per unit allowing greatest margins on your product.
Quality control. Unlike drop shipping or purchasing wholesale, when you manufacture your own product you’re in more control of the quality of your final result.

Potential Problems

Less control over shipping
Customisation depends on the vendor and the product.
You have to determine base costs, printing techniques, and available sizes
Reduced profit margins, depending on pricing strategy and customer acquisition costs.
Minimum order quantities.
Trouble with manufacturers.
Time to get up and running. Manufacturing can be a long process of prototyping, sampling, refining, and production. The difficulty of this process can be amplified, even extended, if you plan on using an overseas manufacturer, as language, distance, and cultural barriers can arise.

But it’s a good low-risk business model for those new to ecommerce or who want to test new revenue streams for their existing business.

3. Wholesale

Wholesaling is a business plan where an ecommerce store sells products in bulk and at a lower price than the general market prices. Alibaba is one of the biggest examples of this. Wholesaling provides a wide range of opportunities, as there are many products available for wholesale.

Selling established products
Typically lower risk
Dealing with already established and familiar brands
margins for wholesale are typically good compared to drop shipping,

Potential Problems

Hard to differentiate and convince potential customers
Some brands will enforce price controls to prevent you from discounting their products.
Inventory management. When purchasing wholesale you will likely have to purchase a minimum order of each product.
Minimum order will depend on the product and manufacturer
You have to stock and hold inventory as well as manage that inventory for re-order.
Dealing with multiple supply partners.
Requirements may vary from supplier to supplier.
Not as profitable as manufacturing.
Require the purchase of inventory with no guarantee that you can see it.
Greatest risk comes from figuring out how to differentiate yourself from the many other retailers selling the same products.

4. Subscription

Some businesses use a subscription model that delivers customers a box of products at regular, scheduled intervals. Subscription companies have relatively reliable income streams and can easily incentivise customers to purchase additional subscriptions or encourage their contacts to subscribe.

Many businesses “rent” online services for a monthly price.

Usually these are software-as-a-service businesses (SaaS). They offer access to a software product for a recurrent payment—often with a variety of subscription plans and different price ranges.

The SaaS industry has its own specific best practices, such as freemium plans, free trials, onboarding processes. They have different business model from an online store that sells t-shirts.

SaaS isn’t the only type of subscription-based business. Other businesses that offer premium newsletters, access to premium communities, or courses can also fall into this category.

5. Makers

Many people make their own products such as jewellery, fashion, natural beauty products etc. It allows control over quality and brand. This option is for the do-it-yourselfer, someone who has their own unique ideas, can physically produce the goods themselves, and has the resources available to do so. Making your own products is also for people that want to maintain full control over the product quality and their brand and who have the desire to keep start-up inventory costs low.

Pros

Low start-up costs
Brand control with no limitations.
Price control
Quality control
Agility. Making your own products can give you the greatest level of agility for your business, letting you adjust quality, features, and even the entire product on the fly.

Potential Problems

Time consuming.
Scalability
Limited product choices, depending on your skills and the resources you have available to you. This will vary from person to person.

4. How To Start an Ecommerce Business

Make sure you do your research before you start your business. Figure out what products and services you're going to sell by looking at the market, target audience, competition, and expected costs.

Choose a business structure and come up with a name. Decide on platforms to sell and get a website set up. Get the necessary documentation (taxpayer numbers, licenses, permits etc). Remember to keep everything simple at the beginning and make sure you use as many channels as you can to market your business so it can grow.

Ask yourself the following questions;

What will you sell and how much will you sell it for?

Will you sell a single product or want to sell a range of products?

Who is your product for? Who is the audience you want to sell to?

What would your audience/potential customers want? What will be their expectations?

Which factors will you compete on? (price, quality, selection, service, the value you add, or something else)

Answering the above set of questions and being clear on them will give you a clear idea of what ecommerce business model would work best for your online store.