E-commerce business models
There are various e-commerce business models. Certain business models are very easy to start, while others are somehow complicated. Also, some of them are extremely profitable, and some are very hard to make money with
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So, what is the right e-commerce models to follow?
To answer this question, we are going to discuss the pros and cons of each business model to let decide yourself which one to pick.
Businesses shouldn’t be pursued because of how easy they are. Instead, make sure you consider other factors such as long-term sustainability and probability of success.
Model 1: Dropshipping with your personal website
Maybe it is the first time you hear about the term “Dropshipping”. Dropshipping is one of the popular e-commerce models. It is when you create a website to take orders online without possessing an inventory by sending orders over to your vendor who take responsibility for shipping them to your customers instead of fulfilling products yourself.
How is Dropshipping working?
- Contact wholesales directly and get approved as a retailer: This way, you will have access to hundreds of products that you can list in your shop
Therefore, dropshipping offers several advantages:
- Very simple to start: You just have to choose an e-commerce platform and it’s very straightforward
- No inventory: Because the third party (the vendor) is storing all goods
- No order fulfillment: The vendor is in charge of shipping the product to the end customer
- Low start-up costs: All you need is to start is to set up your personal e-commerce website that costs you very few dollars per month
However, dropshipping has also some disadvantages:
- Very low margins: Because the third party is storing the entire inventory and doing all the work for you. Typically, the profit margins for the dropship stores are between 10% and 30%
- Paying advertising is very challenging: Because a dropshipper doesn’t have a big margin to pay for traffic
- You are not in control of your product mix
- You cannot fix the customer’s issues: Because you are not in control of the fulfillment process and you heavily depend on your vendors, which can destroy your store reputation
- The vendor you are working with can cancel the arrangement anytime
Model 2: Dropshipping from Amazon to eBay (eBayAmazon Arbitrage)
How is Dropshipping from Amazon to eBay working?
First, you find products on Amazon and list them in eBay. Then, you take the images and the product copy from the Amazon product and list it in eBay with a significantly higher price. This model is working very well because there are people who are used to buy from eBay and don’t know that they can buy the same product from Amazon with a lower price.In other words, you are leveraging Amazon fulfillment and the cheap prices on Amazon plateform, to make more profit.
eBayAmazon Arbitrage business model has some attractive qualities:
- Zero overhead costs
- No website required
- You don’t need to find vendors: All you need is an e-bay account and an Amazon purchasing account
eBayAmazon Arbitrage e-commerce model has also disadvantages:
- The orders are usually delivered in Amazon packages which can confuse eBay customers
- Brand owners can complain about the image and copyright theft and eventually eBay shut you down because of the trademark infringement
- This business model is illegal and against eBay’s terms of service
- Very poor long-term business potential
Model 3: Retail Arbitrage
How is Retail Arbitrage working?
In the last couple of years, retail arbitrage has become an increasingly popular e-commerce model. Retail arbitrage is the process of buying products from your local retail stores and then selling those products in an online marketplace at higher prices for a profit margin
Benefits of retail arbitrage:
- Low start up costs: Except inventory costs
- Less efforts and less money to convince potential customers because the products you are selling products from known brands
Challenges of retail arbitrage:
- Marketplaces are preventing sellers from selling certain brands without express approval from the manufacturer
- The success of your business depends strongly on your ability to acquire inventory to resell
Model 4: Dropshipping on Amazon
How is Dropshipping on Amazon working?
Dropshipping in Amazon is very similar to dropshipping in your own website except the main difference that you are dropshipping the goods directly to Amazon customers
To start this e-commerce model, you first need to find distributors ready to dropship on your behalf. Then, list the items on Amazon and whenever you make a sell on Amazon; you contact the distributor to ship the product to the end customer
Advantages of Dropshipping on Amazon:
- No need for a website
- No start up costs
- 100s of products at your disposal
- A good profit potential
Disadvantages of Dropshipping on Amazon:
- Anyone can contact the exact same wholesaler and get access the exact same product
- Anytime an order is cancelled or delayed, there is a risk that you can get band from Amazon because of its very stringent requirements
- You are depending on a third party for you reputation
Model 5: Wholesale and warehousing
How is wholesale and warehousing model working?
Wholesale and warehousing model is when you buy a product from a manufacturer or supplier in bulk and have them stored in your warehouse, to sell them online to potential customers.
Advantages of wholesale and warehousing:
- Preservation and safety of your products
- Much better control of the inventory
- As a wholesaler, you can take advantage of dropshipping
- The possibility to expand into global markets is easier and faster
Disadvantages of wholesale and warehousing:
- You need a big capital to buy products
Some of these e-business models have low barriers to entry, lo costs and low overhead. Also, some of them are very competitive, require a decent sized up front investment, require inventory and a website
As a beginner in e-commerce, make sure that your business has the following features:
- Ease of getting started: A business that doesn’t require a technical knowledge or a big front investment
- Profit velocity: Think of how quickly you can make money
- Sustainability and risk: The long-term of your project to create sustainable income
- Level of competition: How hard it is to make money and if someone can easily launch an identical business