B2B, B2C, C2B, C2C, DTC — that looks more like a bowl of alphabet soup than a list of business models, and we’ve just scratched the surface. Since there are so many different types of ecommerce businesses and many operate under a combination of business models, we thought it was time to clear up some of the confusion around those ubiquitous acronyms, and add a few more.
Let’s take a look at the different types of ecommerce business models out there, with some examples of each. Since we’re a 3PL fulfillment company that helps ecommerce businesses pack and deliver products to their customers, we’re going to focus mainly on product-based business models, rather than service-based models.
What is a Business Model?
A business model is basically a framework for how you’re going to set up your business for success. There are many business models to choose from, but you shouldn’t just draw one out of a hat. In most cases, your business model will spring naturally from your product(s), the type of customer you’re targeting, and your pricing strategy. When you know these three things, you’ll have your business model.
If you’re already running an ecommerce business, you probably know which business model you’re using. Perhaps you even created your own, since innovative entrepreneurs are creating new ecommerce business models all the time. Your business model can and should help define your ecommerce niche and set you apart in a competitive environment. But whether you’re just starting out or looking to expand an existing ecommerce business, a business model is just that — a model. What works for one product or one demographic might not work for another, and they can all be tweaked to fit your unique business.
Ecommerce Businesses Categories
There are four basic categories of ecommerce sales, defined by the type of seller and the type of customer they’re selling to. Most product-based businesses fall into one of these categories, and some fall into more than one.
1. Business-to-Consumer (B2C)
This category is most familiar to consumers. It includes brick-and-mortar retailers that sell any type of product or service, from groceries to haircuts, as well as ecommerce businesses that sell products to consumers online. The same B2C business may have multiple brick-and-mortar locations, as well as a website or shopping platform, and multiple other sales channels. It may sell many different products and brands, or multiple products under a single brand name.
2. Business-to-Business (B2B)
This category includes businesses, manufacturers, and wholesalers that sell products and services to other businesses. Suppliers of products such as car parts, office equipment, and raw materials are examples of B2B businesses. If your ecommerce business sells products that other businesses use or resell, you’re running a B2B ecommerce business.
3. Consumer-to-Consumer (C2C)
This category consists entirely of individual consumers selling products and services directly to other individual consumers. Websites and marketplaces such as eBay, Etsy, Poshmark, Craigslist, and Facebook Marketplace have revolutionized C2C sales, which used to rely on classified ads and craft fairs. Thanks to the internet, reselling used merchandise or unique, one-of-a-kind items is a popular side hustle for many.
4. Consumer-to-Business (C2B)
This category consists of individuals who provide a service to businesses, such as affiliate marketing, freelance design, writing, or photography, consulting, and paid testimonials. Ecommerce businesses that market to consumers via social media or other ecommerce channels can hire the services of a C2B professional to help build their websites and market their products.
Ecommerce Business Models
Within the basic categories above, there are many different business models that vary by their product selection, market, pricing strategy, sales channels, supply chain, fulfillment operations and more.
An ecommerce retailer is a B2C model that sells a variety of brands within one or more product categories, such as clothing, electronics, jewelry, etc. Just like a brick-and-mortar retailer, an ecommerce retailer (such as Fanatics.com or Nordstrom.com) purchases products from wholesalers or suppliers. It stores the inventory in a fulfillment center (preferably one that specializes in small-parcel direct-to-consumer (DTC) fulfillment), and resells the products online to consumers. The retailer looks for profitable, unique, or popular branded products to sell that fit the store’s image and will drive traffic to its website.
An ecommerce marketplace (like Amazon or eBay) is more like a B2C online shopping mall than an online retailer. Marketplaces not only purchase products wholesale and sell them directly to consumers like a retailer, but also welcome other sellers on their website to sell directly to consumers and charge them seller fees. The marketplace may or may not own the inventory and handle fulfillment and shipping — it depends on the selling plan.
Direct-to-Consumer (D2C) Manufacturer
D2C (or DTC) businesses are a subset of B2C businesses that manufacture their own products, and sell them directly to consumers without the middleman of a retail store. Warby Parker and Harry’s are examples of digitally native DTC brands, as are all of the ecommerce businesses ShipMonk serves. DTC brands own their own inventory, and must manage their own fulfillment and shipping unless they partner with a third-party logistics (3PL) company like ShipMonk.
A DTC manufacturer maintains its own, branded ecommerce storefront to sell to consumers, but the manufacturer may also sell the same products in bulk to retailers, or manufacture different products for retailers. A manufacturer may brand its products in one of three ways:
- Brand-label merchandise is packaged, labeled and sold (whether direct-to-consumer, or wholesale to retailer, or retailer to consumer) under the manufacturer’s brand name.
- Private-label merchandise is custom manufactured to a retailer’s specifications and sold in stores or online under the retailer’s private-label brand name. Whether the manufacturer or retailer handles the actual packaging and labeling, the important thing is that the product inside is unique, and only available through this retailer. Whole Foods, Target, and Trader Joe’s have large selections of private-label merchandise created just for their stores.
- White-label merchandise consists of generic products that are manufactured and sold to various retailers, who sell it under their own brand names. The manufacturer sells the retailer the product in a generic package, and the retailer adds their own branded label or repackages it.
An ecommerce wholesaler buys branded goods from manufacturers, stores the inventory in a warehouse or distribution center, and resells it in bulk to retailers. Ecommerce brands that manufacture their own goods and sell directly to consumers may also sell wholesale to retailers. These successful brands must utilize a tech-first 3PL that can integrate with retail systems and handle both small-parcel DTC fulfillment and bulk B2B fulfillment.
An ecommerce business that does not own or store the inventory it sells is considered a dropshipper. Dropshipping involves setting up an online storefront, like an online retailer would, but when a customer orders a product, the dropshipper sends the order to the manufacturer or supplier for fulfillment and shipping. The dropshipper collects payment for the purchase from the end customer, and keeps a pre-negotiated portion of the proceeds as payment for its services. The remainder goes to the supplier or manufacturer. While dropshipping is a low-cost, low-risk business model, margins are also quite low, and you have no control over the inventory you’re selling.
An ecommerce print-on-demand business sells generic merchandise such as t-shirts, playing cards, or water bottles, customized on demand with artwork or text. Depending on the business model, the ecommerce business might simply sell the designs, and purchase and print the generic merchandise to order, or they may own the merchandise as well as the designs, and partner with a printer for production. The customer pays for the artist’s design, the product it’s printed on, the custom printing process and shipping, but the print-on-demand business only collects on the designs or merchandise it owns. Business customers may also supply their own artwork, such as a logo to be printed on swag for an event. This is a low-cost business model for designers and creators if they don’t purchase the inventory until they get the customer’s order, and the production and shipping are handled by the printer.
An ecommerce subscription model is a business that charges a recurring fee, whether monthly or annually, for a product or service. Harry’s, mentioned earlier, is not only a D2C business that sells razors, blades and grooming products online, but its flagship product is its subscription service for razor blades. Blue Apron and Hello Fresh are meal delivery services that rely on a subscription business model. Newspapers, magazines, club memberships, and mobile apps also operate on a subscription model.
The razor-and-blades business model features two products that work together, like a razor and replacement razor blades, or a printer and its ink cartridges. The printer is a one-time, up-front purchase, but in order to hook the customer, the company might sell it at cost or a steep discount, knowing it can make up for the loss in sales of high-margin ink cartridges. Game consoles are another example.
The reverse razor-and-blades model also features a long-lasting product and a consumable dependent product that creates repeat customers. In the reverse model, however, the long-lasting product demands a high price, because the benefits of owning it include savings on high-demand consumables in the future. For example, customers are willing to pay a premium for an e-reader like Amazon’s Kindle, because they can purchase books at low cost, or read them for free with a Kindle Unlimited subscription plan.
Other Ecommerce Business Models
There are plenty of ecommerce businesses that don’t sell physical products. These business models include:
- Affiliate marketers earn money by managing a blog or website that promotes products for brands or retailers they partner with. Consumers or business customers who click on an ad or link on the affiliate’s page are sent to an online storefront to make a purchase. The affiliate receives a commission for each sale or referral.
- Digital products, such as Groupon, or HBO.
- Fee-for-service businesses, such as photography or dog walking.
- Brokerage models that connect a buyer and seller, such as insurance brokers, or financial services companies, like Charles Schwab or Fidelity.
- Freemiums offer consumers both a free and a paid version of their products, betting that the customer will upgrade to the paid version. Apps such as AllTrails, Spotify, and mobile games fall into this category.
How to Get Started
Whether you’re integrating a new business model into an existing business or starting from scratch, creating a business plan is the first step. This process will help you identify the problem that your product or business might solve, and target groups of customers or businesses that will benefit from it. You’ll need to estimate all your costs, and work out a pricing strategy that will cover those costs plus an adequate profit margin.
Don’t forget the physical side of your business, from manufacturing, to inventory storage, order fulfillment, and shipping. You’ll need warehouse space and staff to manage picking and packing orders. You’ll need tech integrations to manage orders and inventory, and if you’re operating a B2B model, you’ll need completely different tech integrations. You’ll need to build relationships and integrations with shipping carriers to reduce shipping costs.
It’s a lot of work, but you don’t have to manage it all yourself. Let the fulfillment experts at ShipMonk handle the tech integrations, powerful order and inventory management software, fulfillment, and shipping, so you can concentrate on rolling out your new business model and marketing your new product. Contact us today!