You can get almost anything online—from clothes and shoes to food and cars. But even though people shop in similar ways, ecommerce businesses aren’t all the same.
In fact, several different types of ecommerce business models cater to specific needs. There are marketplaces, subscription services, dropshipping businesses, and more.
To figure out which ecommerce business model is right for you, it’s important to understand the different types that exist.
Here are six types of ecommerce business models to get you started.
A marketplace is an online platform where multiple sellers can list their products for sale. Amazon and eBay are two of the most popular marketplaces.
On a marketplace, customers can browse through different listings, compare prices, and buy the product they want from the seller of their choice.
Amazon, for example, offers millions of products in categories like books, electronics, and home goods. Listing your products on a marketplace can give you access to a large audience of potential customers.
The best way to get started with Amazon is to sign up for an account, find a product you’d like to sell, and use the company’s Fulfillment by Amazon (FBA) service to fulfill orders.
Amazon FBA lends a few benefits to beginning ecommerce entrepreneurs:
- You don’t need to worry about storing or shipping your products
- Customers trust Amazon, so they’re more likely to buy from you if you use their Fulfillment by Amazon (FBA) program
- You can take advantage of Amazon Prime, which gives you access to millions of potential customers who are already members
And since Amazon does the heavy lifting, you can focus on other aspects of your business, like marketing and customer service.
Even though the platform takes a massive fee for the service (usually around 15%), it’s still worth it for many sellers because of the sheer volume of customers you can reach.
eBay is another example of a marketplace. It’s a little different from Amazon, though, in that it focuses more on collectibles and one-of-a-kind items.
You can find just about anything on eBay—from vintage clothes to antique furniture—which is why the platform is so popular.
eBay products are sold by auction or at a set price, and the platform takes a percentage of each sale as a fee.
To get started selling on eBay, you’ll need to create an account and list your products. The good news is that there are no monthly fees, so you only have to pay when you make a sale.
The downside of eBay is that it can be more challenging to stand out since there are millions of other sellers competing for attention.
It’s also important to note that eBay tends to attract bargain shoppers, so you might not be able to sell your products at a high price point. Plus, if you don’t have a source of new products, your business will eventually plateau.
2. Subscription Services
A subscription service is a type of ecommerce business that delivers products on a regular basis, such as monthly or quarterly.
An example of a subscription service is Dollar Shave Club, which delivers razors and shaving accessories to its customers on a monthly basis.
Another example is Blue Apron, a meal delivery service that sends its subscribers all the ingredients they need to make a specific recipe, along with step-by-step instructions.
Subscription services are convenient for customers because they don’t have to remember to reorder products on their own. For example, Blue Apron customers know that they’ll get a new shipment of ingredients every week, so they don’t have to worry about running out of food. And because it saves them the hassle of going to the store and buying full quantities of ingredients just to cook one meal, it’s also more affordable in the long run.
This type of ecommerce business model can be extremely successful because it creates a recurring revenue stream. Once you’ve acquired a customer, there’s a good chance they’ll stay subscribed for a long time.
The key to a subscription service’s success is to offer essential products (such as razors or food) and/or provide significant value (like Blue Apron’s recipes and ingredients).
You also need to make it easy for customers to sign up and manage their subscriptions, or they’ll cancel.
3. Digital Products
Digital products are non-physical items that are delivered electronically. Examples of digital products include ebooks, online courses, software, and PDFs.
One advantage of selling digital products is that there are no production or shipping costs. Once you’ve created the product, you can sell it an unlimited number of times without incurring any additional costs.
This makes digital products an extremely profitable ecommerce business model—especially if you’re able to create products that can be sold over and over again.
Another advantage of digital products is that they can be delivered instantly, which is convenient for customers.
Let’s take ClickUp, for example. ClickUp is a project management software that helps businesses manage their projects and teamwork more effectively.
ClickUp sells its software as a digital product, and customers can access it immediately after purchase.
The key to this business model is selling a problem in a scalable way. You don’t have to be everything to everyone, but you need to be everything to someone.
ClickUp, for example, isn’t the best for managing small tasks, but it’s great for managing multiple projects with a team. For those who have heavy workloads and who have trouble monitoring everything, ClickUp is a lifesaver.
The challenge with digital products is that it can be difficult to stand out in a crowded marketplace. There are millions of ebooks and online courses available, for example, so it can be hard to get your product noticed.
The resale marketplace is enormous, and it can take a few different forms.
In this type of partnership, you sell products that are manufactured by another company. The Manufacturer produces the products and ships them to your customers on your behalf.
An example of a white-label partnership is when a supplement company manufactures vitamins that are sold under the name of a health food store. Companies with innovative software sometimes do this as well—they create the software and then allow other companies to sell it under their own brand name.
The advantage of this type of arrangement is that you don’t have to carry any inventory or fulfill any orders. The downside is that you’ll likely have less control over the quality of the products and the pricing.
Private Label Partnerships
In a private label partnership, you work with a manufacturer to produce products that are branded with your company’s name and logo. These products are usually manufactured to your specifications and might differ slightly from the manufacturer’s other products.
For example, a company might create a private-label line of dog food that is grain-free and organic. The food would be made in the same factory as the Manufacturer’s other pet foods, but it would be branded with the retailer’s name and logo.
The main difference between private label and white label products is that private label products are sold through one retailer only, while white label products can be sold by any retailer.
Dropshipping is a type of resale business where you sell products that are shipped directly from the supplier to the customer.
Like with a white-label partnership, you don’t have to carry any inventory or fulfill any orders. And because the supplier is responsible for shipping the products, it’s a very hands-off business model.
The drawback of dropshipping is that you have even less control over the quality of the products and the pricing than you do with a white-label partnership.
However, dropshipping can be a great way to get started in ecommerce without a massive upfront investment.
Honestly, don’t waste your time with this one. Retail arbitrage was popular a few years ago, but it’s since been largely replaced by dropshipping.
With retail arbitrage, you buy products from a retailer (usually at a discounted price) and then sell them online for a higher price.
The problem is that it’s very time-consuming to find good deals, and the profit margins are often quite slim. And if you have a customer service inquiry, you have to deal with it yourself because the retailer isn’t going to help you.
There’s a growing number of people who are obtaining reseller’s permits in order to sell things like electronics, furniture, and clothing on marketplace websites like Amazon and eBay.
The great thing about this business model is that there’s very little overhead—you don’t need to carry any inventory or fulfill any orders. You simply act as a middleman between the customer and the retailer. And since marketplace websites are so popular, it’s easy to find buyers for the products you’re selling. This is especially true for products from highly trusted brands.
But there are lots of hidden costs involved in this—the fees charged by marketplace websites, the cost of shipping, and the time it takes to list and manage your products.
5. Productized Services
If you have a service-based business, you’re probably used to thinking of ways to scale it. But what if you could take that service and turn it into a product?
It’s not as far-fetched as it sounds. Productizing your service is a great way to scale your business and make more money.
Let’s say you own a marketing agency that specializes in social media advertising. You could take your service—social media advertising—and productize it by creating an online course that teaches people how to do it themselves.
You could also bundle your services together and charge flat rates for different packages. For example, you could offer a social media package that includes profile set-up, ongoing content creation, and monthly reporting.
Productizing your services is a great way to scale your business without having to hire more staff. It also allows you to reach a wider audience because people all over the world can access your products.
Especially for companies like SEO agencies and PPC ad businesses—companies that offer repeatable services that can be done remotely—productizing your services is a great way to grow your business.
6. Physical Products
This is the most common type of ecommerce business, and it’s what most people think of when they think of “selling online.”
With a physical products business, you sell tangible goods that need to be shipped to the customer. This could be anything from clothes to coffee mugs to furniture.
Physical product businesses can be very profitable, but they also come with a lot of overhead costs. You have to worry about manufacturing, packaging, shipping, and inventory.
And if you’re selling products that are breakable or perishable, you have to be extra careful to make sure they arrive at the customer’s doorstep in one piece.
The two most common ways to sell physical products are creating a new, innovative product and making a product that already exists in some other form.
Creating a New Product
When creating a new product, there are a lot of moving parts. Most of the time, extensive R&D is required to construct it.
You also have to worry about things like patents, manufacturing, design, and sourcing. To design and manufacture a new product, you’ll likely need to work with a team of experts.
The most successful new products are usually quite unique and solve a problem that people didn’t even know they had. A few examples include the iPhone, the Tesla Model S, and the GoPro.
Creating a new product is a huge undertaking, but it can be very rewarding. If you’re able to pull it off, you could see your business explode overnight.
Making an Existing Product
The other option is to make an existing product. T-shirt businesses, for example, take an existing product—plain old t-shirts—and add their own designs or style.
The benefit of this approach is that you don’t have to worry about things like manufacturing or patents. And since the product already exists, there’s no need for extensive R&D.
The downside, however, is that it can be hard to stand out from the competition. If you’re selling t-shirts, there are a hundred other businesses doing the same thing.
You’ll need to find a way to make your t-shirts unique—whether that’s through design, branding, or customer service.