How to choose the right e-commerce business model to sell products online successfully
Looking to start a new business venture in 2021? Then you should consider starting an e-commerce business. Why? Because e-commerce sales have risen over 300% in the last ten years alone, and it's a business you can do from the comfort of your home.
As consumers, we spend more time online than ever before—especially because of the coronavirus pandemic. Rather than making a journey to a physical retailer, many people prefer to research, compare, and then buy online from e-commerce stores. This has created an immense demand for products to be sold online, so why not be a company that supplies them by starting your own e-commerce business?
If you’re thinking of getting started in e-commerce, you have plenty to consider. Any e-commerce checklist takes you through most of what you need to think about. Of course, you need to decide what you want to sell and how you will sell it, but you also have to think about the e-commerce business model you want to use.
Let’s go through the most common e-commerce models so that you can see the pros and cons of each.
Dropshipping is a convenient way to sell products
Dropshipping is one of the easiest ways to sell products online. You play no part in the design, manufacturing, storage, or shipping of products. Instead, you essentially become the middleman between buyers and manufacturers.
Your role is to create and market a platform where customers can purchase products. They visit your platform, place their orders, and pay. You inform and pay the manufacturer, who then fulfills those orders. In this model, you sell products that you never touch, see, or own.
This makes dropshipping one of the most convenient e-commerce business models at your disposal. You don’t have warehouse costs, manufacturing worries, or have to handle shipping.
This model comes with some cons, however. You have little control over many facets and have to bear the brunt from customers when things go wrong. You have no control over fulfilling orders, the quality of the products, or how quickly customers receive their orders. As the platform selling the products, customers contact you when issues arise.
Also, the profit margins are smaller than other e-commerce models. Add that to lots of competition from other sellers selling the same products, and you have to work harder to find and convert leads. That said, dropshipping is a great way to get into e-commerce as you don’t need to pay up front for products. All you need is a website, and those are easy to create with platforms like Wix. Just decide what kind of products you’d like to sell, and then you can start dropshipping on Wix quickly and hassle-free.
Here are a few reasons to love dropshipping.
- It’s an easy way to sell products.
- You don’t need to store any stock.
- It lets you set a price you are comfortable with.
- You can someone else’s stock for a profit.
- There are no shipping costs.
- You have no shipping responsibility.
White labeling lets you sell products with your branding
White labeling is another e-commerce business model that does not require you to manufacture your own products. This model involves selling a generic product produced elsewhere that has your branding and packaging. Pens, pencils, and stationery with company logos are an example of this. The company did not make these—it bought them in bulk and added its branding.
The main benefit when using this e-commerce model is that you can sell products that are already successful on their own and put your name on them. If you know the product is high quality, at the right price point, and able to sell, it becomes a straightforward decision.
The problem is that you really need to be sure that you can sell the product. That’s because you have to order it in bulk. If you aren’t able to sell the products, you’re left with the stock and a big financial loss. Therefore, this model is not recommended for anyone that lacks experience. You really need to know your market and have confidence your products will sell to be successful with this business model.
Manufacturing gives you the opportunity to sell your design
If you have a great new idea for a product and have the design plans and a prototype, the next logical step is to have a manufacturing company make it. You can then arrange for the manufacturer to ship to customers when you receive orders. Otherwise, you can store your own inventory and ship it yourself.
Of course, the success of this model depends on many factors. Is your product really as good as you think it is? Do you have the correct price point? Are you using the right manufacturer? To answer the last question, you could opt to manufacture your product cheaper in countries like China, but this comes with some disadvantages. While you save on manufacturing costs, you may experience a lower production quality.
A good example of businesses that use e-commerce to sell manufactured goods are plastic molding companies. These firms often bring in custom orders but also find ways to manufacture products from the waste plastic. For these companies, it is a free material that allows them to offer customers a better value.
Here are a few reasons to love manufacturing.
- It lets you sell your design on demand.
- You can use a manufacturing company to sell your design.
- You can manufacture overseas and sell domestically.
Wholesaling allows you to buy and sell products in bulk
Another e-commerce business model you could choose is wholesaling. This involves purchasing products from a manufacturer or wholesaler and then selling the products at a profit. The more you buy in bulk, the cheaper each item becomes. This often produces a conundrum, because there is a fine balance between buying too little at a higher price and buying too much that you struggle to sell.
Like all models, there are some downsides you should consider with wholesaling. You need plenty of space to store your stock and more starting capital than other models. If you plan to sell a variety of products, you may have to store more products than you have room for and pay for bulk orders up front.
Not successfully selling these items then compounds the problem. Additionally, you have to handle the shipping and track all orders.
However, if you can find a branded product sold via wholesale, that you know will sell, like Nike, Levi, or Pierre Cardin, this e-commerce business model could prove lucrative for you.
Here are a couple reasons to love wholesaling.
- You can sell well-known brand names.
- You can buy in bulk and sell for large profit margins.
Making your own products gives you more control
If you have a particular talent and can make your own products from home, you could simply sell them online via your e-commerce store. Of course, you are limited by how many you can make, but this method could be a good entry point into e-commerce. The best part is that you have full control over everything. You decide on everything from the product design right down to the final price. You also save on manufacturing costs.
Your success depends on the quality and value of your product as well as whether you can attract customers. If your product becomes popular, you also become time-limited and unable to match demand. At that point, you might consider having your product mass-produced using the manufacturing e-commerce business model.
Here are a couple reasons to love making your own products.
- You get to build a unique shop and brand.
- You sell products available through only your brand.
Online marketplaces make it easy to sell overseas
There are quite a few companies out there using online marketplaces that accept the SKU codes from their e-commerce platforms. If you use this setup, you allow other firms or entrepreneurs to sell your products overseas.
Effectively, the system connects your e-commerce store to a global e-commerce marketplace with a built-in payment system so other vendors can sell the products from the website worldwide. The platform breaks down cross-border barriers by allowing the people selling your products to resell and do their own marketing in their native language. It’s a relatively new system and opens new possibilities for e-commerce. And these platforms often come with shipping solutions that have no significant taxes.
Imagine a local Chinese entrepreneur using their social media, website, or mobile app to sell your product in China. For them, you are offering a dropshipping service of sorts as well as access to products they may not usually be able to get ahold of in China.
Here are some reasons to love online marketplaces.
- You can sell overseas with no effort.
- You get the chance to sell your product globally.
- People market your product in their native languages.
- It’s similar to dropshipping but in reverse.
Get started today
As you can see, there is a lot to think about when planning an e-commerce business. Aside from choosing the products you want to sell and how you will market and sell them, you have to choose the e-commerce business model that best suits you. Which one you select depends on your circumstances and the overall business strategy you want to use. The important thing to note is that some models do not require much capital, so you could—in effect—get started today.