There's no doubt that eCommerce has grown exponentially and continues to grow every year. Today, we've reached an age in which a business without a website is at a severe disadvantage. But you shouldn't look at an eCommerce website as something you simply "need" to have in order to survive (although you do). Instead, look at it as a vast opportunity for your business to reach a level of growth and success that wouldn't have been possible before the advent of the internet.
A lot goes into eCommerce. Business owners have already needed to deal with products, sourcing, accounting, and other considerations, but today you also need to think about software, social media, and other essentials of doing business on the internet. There are hundreds of solutions available, and this presents an overwhelming amount of choice that can leave the uninitiated feeling confused as to what is the best option for their business at any given time.
If you're thinking that eCommerce overall sounds complicated, you're right — but it's not impossible to understand, by any means, even if you're completely new to the idea of running a business online. Your education in the workings of eCommerce can start now, by understanding the numerous different aspects to an online business. Even if you're already a bit knowledgeable about eCommerce, this is a good place to shore up your expertise.
So, what do we mean by "different aspects of eCommerce?"
We're talking about all the variables that can make one eCommerce business different from another. These variables all represent choices you need to make when planning to start your own eCommerce business. In brief, these aspects of eCommerce are as follows:
- Business model – Who are you and who are your customers?
- Revenue model – How do you generate revenue?
- Type of website – How many retailers are selling together?
- Type of eCommerce platform – What are the characteristics of the software that runs your website?
- Business details – What do you sell and to what market?
In this article, we'll discuss each of these aspects in detail to help you gain a greater understanding of eCommerce, including the best solutions for your own business, and some insight into the processes being followed by other businesses, including competitors in your niche. By learning these important details, you'll understand your available options as a business owner and how to make the best decisions for your business's success.
Types of eCommerce Business Models
The eCommerce business model is dependent on who is buying and who is selling. Customers are not necessarily individual consumers — they can be other businesses, or even government administrations. Likewise, a seller isn't necessarily a business, as consumers sell items to each other all the time through various means. It's also possible for some businesses to use more than one of these models simultaneously, for example, selling to consumers and other businesses at the same time. Of course, to do this successfully, certain considerations must be made to properly deal with both types of customers, and this largely depends on the eCommerce platform (which we'll cover later).
• B2C eCommerce
B2C stands for Business to Consumer. This is the most familiar business model, and involves a retailer selling products or services directly to end customers — individual people. B2C retail is the most common business model, both online and offline, and you engage it in yourself (on the customer side) every time you shop.
B2C business has grown alongside the overall growth of eCommerce. Businesses can build their own online stores, sell products on larger marketplaces, or both. Online shopping has also made it easier for local brands to grow their reach much farther than would have otherwise been possible. That means the potential to reach millions of customers.
This abundance is one of the greatest advantages of B2C eCommerce — there's room for almost any industry you can think of, provided you can extend knowledge of your brand to the right customers. That leads us to the main disadvantage, which is the need to accurately identify and target your ideal type of consumer. Without a thorough understanding of your customers and market, your brand will go unnoticed and fall beneath the competition.
• B2B eCommerce
B2B stands for Business to Business. As its name would suggest, a B2B seller provides products or services to other businesses. In many cases, B2B sellers supply products that end consumers would have no use for, like raw materials used in manufacturing. Other B2B eCommerce examples include wholesale suppliers that sell products to retailers, and suppliers of business supplies such as office materials or branded employee apparel.
The B2B sales model is also very common, but not as common as B2C, as one B2B business can supply any number of customer-facing retailers, limited only by the inventory it can produce and the relationships it can form. B2B commerce provides the largest revenue, and faces a market with a consistent need to resupply the offered products. The primary disadvantages of the B2B model are that the market is much smaller, and the larger scale means more complex operations.
A similar model is B2A, which stands for Business to Administration. A B2A business provides products or services not to another business, but to a government body. Examples include software that helps support constant consumer access to government services, and networks that help different agencies exchange information more efficiently.
• C2C eCommerce
C2C stands for Consumer to Consumer. This is the type of eCommerce that involves individuals selling products to each other directly. For an offline example, you could think of a garage sale. On the internet, large marketplaces like eBay streamline the C2C transaction process for millions of sellers.
C2C can be a "gateway" to an eCommerce business. Not only can consumers sell off unwanted items, they can also learn a great deal from eBay and other marketplaces — how to structure a product listing, how to direct it toward the right market, how to pack and ship a product once it's been sold, and more. A C2C seller can make some extra cash and determine if eCommerce is right for them. Many of today's growing eCommerce businesses owe their beginnings to a founder who discovered they simply had a knack for selling online.
The inherent disadvantage in C2C eCommerce is that it's not scalable — which is why successful C2C sellers so often start a business and transition to the B2C model to support their growth. Similarly, C2C sellers are subject to the rules and restrictions of the marketplaces on which they sell, including strict return and customer service policies that can be hard for certain sellers or industries to meet, plus listing or selling fees imposed by the platform. It's also near-impossible to build a brand selling only C2C, because you're not even presenting a brand: you're just an individual seller. While it's possible to gain a good reputation and some name recognition, that's no substitute for a business.
• C2B eCommerce
C2B stands for Consumer to Business. This is a business model in which an individual consumer provides products or services to an organization. Freelance artists, writers, designers, and software developers are good examples, as are lawyers and accountants who serve business needs. Bloggers who sell advertising space on their websites are also engaging in a C2B transaction.
C2B has a somewhat unreliable nature, due to the difficulty many freelancers have in finding enough work. C2B manufacturers, who provide a product to businesses, may struggle to offer the quantity of products their business customers would need. This is why most C2B commerce is service-based.
Similar is C2A, meaning Consumer to Administration. It's the same as C2B except the consumer is selling their product or service to a government agency.
• Mixed Business Models
The technological advancements of eCommerce have streamlined all types of business management tasks, for all business models. This has also made it easier for businesses to follow more than one model at a time, such as by combining B2C and B2B sales on a single website. It's possible today for an online store to present an end-consumer shopping experience for general customers, and yet still offer bulk wholesaling or other B2B-specific services in a different part of the website without confusing things for either set of customers. B2B customers can be given different pricing, different options, and even different products than B2C customers. Of course, capabilities like these depend on the functionality of the eCommerce software used by the seller.
Types of eCommerce Business Revenue Models
Who you're selling to is only one factor that defines your business. How you get and distribute your products is another. Your choices here have a huge impact on your revenue, which is why this decision should be an early one you make while planning your business.
Dropshipping is a type of fulfillment in which a business doesn't keep any inventory on hand. Instead, the business lists products for sale and forwards those orders to the supplier. The supplier then ships the products directly to the customer, with the seller keeping the difference between their own sale price and the supplier's price.
Setting up a business as a dropshipper requires a relationship with a manufacturer or wholesaler who is willing to provide dropshipping services. Some suppliers are willing to dropship if contacted directly by an interested seller, while others make themselves available through dropshipping apps or directories like Doba or AliExpress.
Dropshipping has some major benefits. With no need for inventory, a business doesn't need to invest in products and can also save money that would otherwise need to be spent on warehousing space. The costs of fulfillment are averted as well, including both the time and materials needed to pack and ship orders.
Dropshipping does have its challenges, though. Success depends strongly on the niche your business serves, so you don't end up competing against too many other businesses selling the same dropshipped products, potentially at a lower markup than yours. Depending on where your supplier is located, shipping can also take more time (and bear higher costs) than the customer is willing to deal with.
Wise dropshippers enter this business model with their eyes wide open and a good plan. Market research and niching down are very important, as are identifying any possible weaknesses of your suppliers. Many dropshippers order some of their own products to see how securely (and accurately) their orders are being shipped.
Wholesaling is pretty much the opposite of dropshipping: the business stocks inventory and fulfills orders itself. Wholesalers have more opportunity to form B2B relationships, as they can sell products in bulk for use or final sale by other businesses. Products that are going to be resold will be marked up by the purchasing business, which is why "wholesale pricing" has become a buzzword meaning lower-than-retail price. Selling at these prices directly to the public is likely to attract some very loyal customers.
Many wholesalers only engage in B2B transactions, and their business operations may be specifically designed only for the fulfillment of bulk orders. Others sell only B2C, whether at normal prices, discounted "wholesale" prices, or somewhere in between.
Some wholesalers do sell both B2B and B2C, but still offer their lowest pricing only for B2B bulk orders — if a B2B buyer can't get a lower price for buying in bulk, they're likely to look elsewhere unless the pricing is already attractive enough anyway.
• Manufacturing and Private Labeling
When you hear the word "manufacturing," you probably think of an assembly line in a factory, packed with workers and machines. While this can be an accurate impression, large-scale operations like those are just part of the story. Smaller manufacturers are much more common, and even include people who make handcrafted items or other products at home.
A manufacturer can also be a seller, whether it's a big manufacturer that sells wholesale B2B to distributors, or a hobbyist who sells knitted socks on the internet. If you want to make your own products, you're already interested in being a manufacturer.
However, not every business has the resources to invest in manufacturing its own products, and in that case, there's the option of finding a private label manufacturer to outsource to. A private label manufacturer makes products that can be exclusively branded and sold by a specific brand. These products are often cheaper than comparable products from well-known brands, and while in the past this was associated with inferior quality, the standards of private label manufacturing have much improved.
• White Labeling
White labeling is another type of manufacturing procedure aimed at businesses that want to brand their own products. A white label manufacturer creates a generic product that can be customized with the seller's branding. White label products are offered for sale to any number of businesses, which is what makes them different from exclusive private label products.
White labeling can be a good way to sell high-quality products with your own branding, without needing to devote resources to designing or manufacturing those products — just as long as the white label manufacturer offers high-quality products to begin with.
Some dropshipping suppliers also offer white label services, allowing you to brand the products your customers receive after ordering from your website. The products are still dropshipped by the supplier, but they carry your business name and branding. Some white label dropshippers offer custom packaging as well.
Setting up a subscription service is a great way of building up recurring revenue and customer loyalty. Unlike other revenue models, this one deals only with how you sell your products, and not how you source them.
Any product that requires replenishment on a regular basis has potential for a subscription service. Pet food, cat litter, kitchen supplies, toiletries, health supplements, diapers, disposable items, and many more products must be purchased repeatedly. Customers know this, but they also usually hate making these repeat purchases — they may need or even like these products, but it can be annoying to need to remember to buy them.
Subscription businesses offer automatic, recurring orders of products like these. If your eCommerce software supports it, you could offer configurable recurring order periods for some, if not all, of your products. This is convenient for customers, and profitable for you.
The "box" is another type of subscription, in which a business lets customers sign up for a regular delivery of a package containing special, curated, or surprise items following a theme. "Boxes" can be fun for customers and provide you with the opportunity to introduce your customers to new products. Birchbox is a good example; for $10 per month, customers receive a monthly box with a personalized selection of beauty product samples.
"Boxes" in particular are ripe for an "unboxing" experience to be shared on social media, great for increasing brand awareness. This is even more likely to happen if you put a lot of care into the presentation of your packaging, and even include some personal touches when you can.
Types of eCommerce Websites
We've covered business models and revenue models — now let's look at the different types of eCommerce websites that populate the ever-growing shopping world of the internet. Individual online stores of all sizes offer plenty of brands and choices for customers.
• Vendor-Specific - Single Seller
Vendor-specific eCommerce websites follow their own business models and sell their own products. Most online stores are of this type. A single-seller eCommerce website belongs completely to a single company, which uses it as an online storefront. Most businesses today, if they sell products at all, maintain a vendor-specific eCommerce website to let their customers shop remotely.
• Online Retailers - Selected Sellers
This type of eCommerce website may include products from a vendor who actually owns the site itself, but will also include products from other sellers that have been given permission to sell on the platform. Amazon is a great example of a selected-seller retail website — Amazon itself sells products, but also allows qualifying third-party sellers to participate. In fact, Amazon basically evolved from a single-seller website to a selected-seller website.
• Online Marketplace - Variety of Sellers
Everyone can be a seller on an online marketplace, from individuals to large companies. The best, most well-known example is eBay. Sellers don't need to go through any selection criteria; anyone can create an account and start using the marketplace right away. This means huge exposure to potential customers. Even businesses that have their own websites already, or sell on other websites, can benefit by placing their products for sale on a marketplace where customers are likely to find them.
Types of eCommerce Platforms
The eCommerce platform is the actual software that runs a business's website. Shopping cart functionality is the most obvious example of a feature to be found in an eCommerce platform. Other features can include useful tools for managing the various aspects of a business.
We're not going to get into an in-depth comparison of eCommerce features. Features are important, but they're not all there is to an eCommerce platform, and platforms differ along bigger lines than their feature sets. The foundational difference is the overall type of eCommerce platform, which describes details like its infrastructure and the procedures to set it up.
SaaS stands for Software as a Service, and refers to software that's made available for end users through the internet. Instead of residing on your own computer, the software is in the "cloud" and accessed through your web browser.
Some immediate benefits are obvious just from this quick description. To use SaaS, you don't need to download anything to your computer, install anything to a web server, or deal with typical software maintenance tasks like applying updates. Instead, you just need a good internet connection and you can log into your account with the SaaS eCommerce provider to run your business from anywhere. Everything on the technical side is handled by the SaaS provider as part of the service.
If SaaS sounds easy to use, that's because it is — in fact, it's the easiest way to build an online store. But this also might give you the impression that SaaS eCommerce platforms are lacking in capability. Some business owners expect to need to deal with cumbersome installation procedures or other issues, and assume anything that works simply by logging into a web browser must be inferior to software that's harder to use.
With SaaS eCommerce, this is impression is often false. While overly simplistic platforms do exist, so do versatile, flexible, and powerful SaaS eCommerce solutions, and being free of the technical responsibilities gives you more time to use those tools.
• Open Source
Open source software is a type of software which has its source code released for free public usage. This means any developer with sufficient knowledge can alter or improve it according to their own ideas. Because of this freedom, open source software is often available in many different versions (or "forks") from a variety of developers. Other developers may also create plugins or apps that can be added to the base software by the user.
There are several open source eCommerce platforms available today, and they have both advantages and disadvantages. The most attractive advantage is that open source software is free, which makes it appealing to business owners on a budget. It can be very flexible too, since developers can create their own versions without limitations. Open source eCommerce software can often be expanded far beyond the vision of its original developers.
However, the cons of open source eCommerce software are major — and stem from the same characteristics as its pros. While many open source platforms have an active community, support can be spotty. Often, the original developers don't provide any direct support at all, and you'll need to turn to the community for help with any issues you may encounter. Plus, if you're using a different version of the software or have any plugins installed, you'll need to get support for them individually, from their own developers. Any support you can get may come with a cost even though the software itself is free.
You'll also need to find a compatible web server to host the software and you're likely to have to install it yourself. Any plugins you decide to use will also need to be checked for compatibility with both the software itself and any other plugins you want to install. This can be incredibly time-consuming and will often require development knowledge to get everything working.
When software or plugin updates are released, it will be up to you to install those as well. The free and open nature of the source code means any security issues are visible to hackers who may seek to exploit vulnerabilities in the software. This means you can't afford to let any updates fall by the wayside; doing so makes your online store vulnerable to security breaches.
Licensed software is software that can be purchased for usage by your business. Essentially, you're purchasing a license to use the software, usually indefinitely. Licensed eCommerce software usually comes with access to updates for a limited time, usually a year, and sometimes a support package is included.
Licensed software works similarly in practice to open source software in the sense that you'll need to find hosting and perform the installation and updates yourself. The differences are that the source code isn't available and the software license carries a cost. Plugins may or may not be available, depending on the resources the software provider releases for use by developers.
The major disadvantages of licensed software are cost, time, and support. Cost comes into play immediately, with many licensed eCommerce platforms carrying price tags in the thousands of dollars. When your update period ends, you'll need to pay again to extend it so you can access future software updates to maintain the security of your online store. Support may be included for the same limited period or may need to be purchased as a separate package. Time is a factor because you'll need to handle hosting and installation (software, plugins, and updates to both).
Proprietary eCommerce software is developed by a business for its own use. Sometimes, businesses also control their own data center in which their online store's web servers reside.
While proprietary software can be built to meet the exact needs of a business, it's prohibitively expensive and even large retailers often choose another solution. The business will also be fully responsible for security, including PCI compliance, which is a comprehensive process required to accept credit cards online. With so many eCommerce platforms available today, it's not necessary to reinvent the wheel.
PaaS means Platform as a Service. Generally PaaS software is a platform on which your own software can be built and connected to other business systems. PaaS is an advanced option meant to handle very complex aspects of a large company, making it only suitable for larger B2B businesses that have sufficient resources to build on top of this infrastructure.
Which Type of eCommerce Platform Is Best for Me?
Small businesses don't have time or money to devote to running their infrastructure when they could be using their resources to build and grow instead. Web server costs, hosting, development, and design are just too much for most businesses to afford at the outset, and there's a smarter decision to be made in the long run.
That's why the vast majority of businesses are best off with an SaaS eCommerce platform. All the technical parts are handled by the eCommerce software provider, leaving you free to focus on your business. PCI compliance and support are often included too.
If you want to start a business quickly and with minimal expense, SaaS is the way to go.
Starting Your Own eCommerce Business
So, now that you have all this information, what are you going to do with it? Hopefully, you're feeling more confident in your knowledge of how eCommerce works and have taken another step toward getting your own business off the ground.
You'll need a few things to get started. It's essential to make a business plan, but in this article we're focusing on the more basic aspects which can be summed up in the following points.
What You Will Need to Start Your Business
It's true that eCommerce is quite complex — with an assortment of possible business models and other options as discussed earlier — but at its core, every eCommerce business is built on these three elements.
• A Product
Regardless of how you decide to source your products, you need to start by deciding exactly what you want to sell. What are you passionate about? Selling products in a niche in which you have a sincere interest will make your job easier in several ways. First off, you're more likely to enjoy what you do, and that will shine through to your customers.
You'll also gain authority faster in your niche because you'll have an easier time writing blogs and website content about your products and business. Plus, you'll be able to use your existing product knowledge to get an edge on the competition. If you have tons of expertise on the products you choose, your status as an expert can also be part of your unique value proposition — the special quality that makes your business stand out.
• A Website
Setting up an eCommerce website is easiest with SaaS. You'll have to compare some different eCommerce platforms to make the best decision, but at least you can narrow it down to only SaaS solutions. From there, look at pricing, available theme design, ease of use, availability of support, and especially features. Take some time to learn about eCommerce features and become familiar with the tools your ecommerce startup needs.
To sum up a few of the most important features for your eCommerce store, let's look at the needs of your customers:
- A smooth shopping experience
- Fast-loading web pages
- Easy checkout
- Great navigation of products and categories
- Detailed product information
- High-quality product photos
- Product reviews and ability to leave one
- Clearly-marked return, shipping, and privacy policies
- Ability to save their shopping cart for later
- And more…
Now let's look at the types of tasks you'll need to perform:
- Inventory management
- Order processing
- Maintaining customer and order records
- Providing customer service
- Handling returns with refunds, exchanges, or store credit
- Holding promotional discount events
- Sending automatic order status notifications
- Social media and email marketing
- Sales tax management
- And more…
These are all core components for your business, so you need an eCommerce platform that has tools and features for handling them as easily as possible — and preferably without having to pile a dozen extra-charge apps onto your monthly fee.
• Payment Systems
Your business will earn customers and grow faster if you give them the payment options they're looking for. Some types of payments, like Bitcoin, may only be of interest to businesses in specific industries — or even expected in those industries. Other types of payments, however, need to be present on all stores for best results.
Credit cards are still the most popular method for paying online, so you'll need credit card processing at the very least. You should also expand these options by offering alternate payment methods like PayPal. Several systems exist that allow customers to pay using their saved data from other platforms like Amazon and Google, so you may want to add Amazon Pay, Google Pay, and Apple Pay to your website. Other digital wallets like Masterpass and Visa Checkout are also preferred by credit card holders.
If you sell more expensive items, you should also consider offering a financing option such as Klarna, Bread, or Sezzle. Letting customers pay over time will encourage them to buy more and raise your average order value.
Earlier, we briefly discussed PCI compliance as a requirement for accepting credit cards online. Make sure this is built into your eCommerce platform so you don't need to deal with it yourself — it's a time-consuming and expensive process. Anti-fraud tools are also a necessity for protecting your business from lost inventory and chargebacks.
No matter what your idea is for your business, there's an appropriate business model, revenue model, and eCommerce platform out there to cover it. The eCommerce platform you use is a crucial decision that will affect your ability to follow your business plan, so choose carefully.
If you just want to skip the research and start as soon as possible, Shift4Shop is a powerful SaaS eCommerce solution that can support every type of eCommerce business mentioned in this article. It also includes all the tools and features you need to give your customers an ideal shopping experience and run your business smoothly. Best yet, if you use the built-in Shift4 Payments as your payment processor, the software itself is completely free.
If you have any questions, we're available 24 hours a day, every day, to help you learn more about the best eCommerce platform for starting your business.