In 2024, e-commerce retailers can no longer rely on one channel, product, or strategy for success. With rising competition and cost pressure, you need to engage your audience from multiple angles, meeting customers wherever they are with the quality products they need.
For some brands, this may mean setting up the right hybrid brick-and-mortar and DTC strategy, while others may be better suited to wholesale and marketplace channels for maximum growth.
Expansion in the modern e-commerce landscape takes many forms. In this article, we’ll explore a variety of e-commerce business models, and the leading brands and retailers getting it right.
E-commerce Business Models
Types of E-commerce Business Models
Before we dive into the various ways to adjust your business model for maximum growth, let’s take a look at the core types of e-commerce business classifications and how each one works.
In the business-to-consumer (B2C) e-commerce model, a business sells its products or services to individual customers. Not to be confused with direct-to-consumer (DTC), B2C includes sales that take place through retailers and e-commerce marketplaces.
A B2C sale isn’t defined by which channel(s) it’s sold through, but by the fact that the consumer is the end-user of your product or service.
The outlook for B2C business models is strong. Global B2C e-commerce revenue is expected to top $5 trillion worldwide by 2027, with a compound annual growth rate of over $14%. B2C is also arguably the easiest e-commerce business model to break into — virtually anyone can start an Amazon or Shopify store with relatively little capital or experience.
A business-to-business (B2B) e-commerce model involves selling products or services to other businesses via direct and wholesale channels.
In a business-to-government (B2G) model, an e-commerce business sells its products to local, state, and/or federal government agencies and institutions. E-commerce and other businesses typically land government contracts by searching and/or bidding on opportunities through a web portal like SAM.gov.
In the US, every federal government purchase between $10,000 and $250,000 is expected to come from a small business. Women-owned, disabled veteran-owned, and other special interest group-owned small businesses may qualify for priority access to federal contract opportunities.
Securing a B2G contract can require a lot of time and red tape, but deals can also be larger, more stable, and can lead to more contracts down the line.
In a consumer-to-consumer (C2C) business model, an e-commerce business provides a platform for customers to buy from or trade with one another. Examples include longstanding players like Craigslist, eBay, and Etsy, as well as niche and emerging contenders like Poshmark, Depop, and Mercari.
C2C marketplaces can be advantageous to customers, since they typically encourage very competitive pricing. However, they are more prone to scams, fraud, and quality control issues than other e-commerce models. On the upside, this resale model can also help reduce environmental impact, especially if they incorporate sustainable packaging and logistics.
The C2C market experienced significant growth during the pandemic, with the fashion and family category doubling in Europe in 2020 to reach €6 billion.
In a consumer-to-business (C2B) model, individuals sell their products or services to companies. This can include affiliate marketing services and influencer partnerships, as well as freelancers or contract-based workers as seen with platforms like Upwork or Fiverr.
In C2B, the consumer may have more control over pricing, while businesses compete for individuals’ goods or services. Individuals providing C2B services may connect with businesses through a matching platform or affiliate network, or companies may seek them out directly.
Consumer-to-Government (C2G) e-commerce is a sector in which consumers transact directly with the government, as with paying taxes or using government services online. A C2G e-commerce business is one that enables or provides a platform for these transactions.
For example, if a utility company enables consumers to pay for and receive government-sponsored resources like gas and electricity online, it could be considered a C2G e-commerce business.
The e-commerce opportunity for startups in C2G is mainly in developing the infrastructure that facilitates these transactions. Startups like Propel and Forage have seen some early success enabling online use and tracking of food stamps and other government benefits.
Examples of Successful E-commerce Business Models
A successful e-commerce business can incorporate any or all of the above business classifications. Here are some proven models that can help you grow your e-commerce business.
1. Marketplace Selling
Selling as a third-party merchant on a leading e-commerce marketplace like Amazon or Walmart is one of the most common e-commerce paths. In most cases, it’s also the simplest way to add a new channel if you’re already selling on your own site.
In this business model, you simply open or apply for a seller account, then list your products on the marketplace. Built-in fulfillment options — or in some cases, 3PLs — can handle storage, warehousing, logistics, packaging, and shipping for you. Marketplaces come with their own customer base built-in. As long as your product listings are optimized, it can be relatively easy for shoppers to find you.
Case Study: Anker
Electronics company Anker skyrocketed to success with its Amazon channel, using the low overhead of marketplace selling to undercut prices of major competitors like Apple. It consistently ranks as one of the top third-party merchants on the platform, due in large part to its strategy of incorporating feedback from thousands of Amazon customer reviews.
Tips for Success:
- Watch out for the competition: Marketplace selling is more cost effective than having a physical store, but with more sellers and looming changes to search functions, you may need to invest in sponsored ads or external marketing channels to drive traffic to your listings.
- Stay on top of rules and regulations: Marketplace policies on inventory, storage, and more tend to be strict. They can also change on a moment’s notice. Stay tuned into the latest alerts and policy updates to avoid getting de-badged or delisted.
- Listen to your users: Customer feedback is key to standing out in busy marketplaces. Use it to help plan your next big product launch, improve product quality, or structure a profitable marketing play.
2. Direct-to-Consumer (DTC)
In a Direct-to-Consumer (DTC) e-commerce model, you sell directly to customers through your own online store or branded apps. You can create your storefront using an e-commerce platform like Shopify or BigCommerce, or work with developers on a custom build. You also fulfill your own orders by contracting with a 3PL, or running your own storage and logistics network.
Since you’re responsible for everything from your storefront’s UX to your shipping, returns and customer service, a DTC model can give you more control over costs, pricing, and customer experience while reducing your overhead.
Case Study: Vuori
Apparel brand Vuori got its start selling its products through brick-and-mortar shops in fitness studios. But when the clothes weren’t selling, the brand quickly pivoted to a DTC e-commerce strategy. Like Anker, Vuori took advantage of customer reviews to get deeper insight into its product-market fit. The DTC model also enabled Vuori to establish its unique identity as a premium men’s activewear brand available only via select retail partners and online channels.
Tips for Success:
- Invest in discoverability: With a DTC model, you’ll need a strong social media presence and marketing strategy to drive traffic to your store.
- Make your checkout frictionless: Offer multiple payment options with trusted providers to make checkout seamless and avoid cart abandonment.
- Kill it on fulfillment: Partner with the right 3PL to offer the fastest, cheapest, most reliable shipping possible in order to stay competitive with top marketplaces and retailers.
Business-to-business (B2B) e-commerce looks more or less like running a DTC. You open an online storefront and fulfill orders as they come in through your site. However, your average order value is likely to be much higher in a B2B e-commerce business model, up to three times as much by some estimates.
That could translate to higher profit margins, if you have the capital to afford the inventory and the systems in place to manage it effectively.
Conversion rates for B2B also trend higher by as much as 10% versus around 3% for B2C. With the majority of B2B businesses now transacting digitally, B2B e-commerce is a strong and growing niche.
Case Study: Chocomize
Custom corporate gift brand Chocomize got its start tailoring chocolates to individual consumers, but dwindling sales led the company to pivot to a B2B model. It now fills bulk orders only and has since massively expanded its product offerings. The company’s sales have gradually increased from around $500,000 to $5 million annually utilizing the B2B business model.
Tips for Success:
- Stay flexible: Take feedback and be willing to change your approach. A B2C product with stagnant sales could be a huge moneymaker for B2B — or vice versa.
- Expand your SKUs: Even as a B2B business, you can’t afford to have a limited product line. Research the market and expand your portfolio just as you would in a B2C or DTC model.
- Secure necessary capital: The bulk volume required in a B2B model can mean significant upfront investments in inventory.
In a wholesale model, businesses sell products to retailers in bulk, at a lower cost than the retail price. The goods are then marketed and sold by those retailers via their own channels.
Many brands that see success with DTC move on to wholesale partnerships with retailers like Target, Nordstrom, or Whole Foods. This opens them up to many more new customers, even as they lose some control over product pricing and presentation.
Expanding to wholesale may bring more sales, wider reach, and greater brand awareness. Post-pandemic, in particular, more e-commerce sellers are looking at physical retail presence as the key to customer acquisition and expansion.
Case Study: Fly By Jing
Chinese condiment brand Fly By Jing got a hot start selling chili crisp sauce through its DTC e-commerce website in 2018. The sauce went viral in 2020 and within six months of launching on Amazon, became the best-selling hot sauce on the marketplace, outselling even Tabasco. In 2021, it launched its wholesale arm, eventually selling at stores like Target, Whole Foods, and Costco. Other retailers can source Fly By Jing through wholesale marketplace platforms like Mable and Faire.
Tips for Success:
- Run the numbers: Like B2B, becoming a wholesaler means handling volume. Make sure you have the right systems in place to manage the extra inventory and still turn a profit.
- Research the market: Figure out where your products are most likely to sell and reach out to retailers that seem like the right fit for your brand.
- Staff up: Consider the additional staffing and resources you’ll need in order to handle new business functions like wholesale customer service and sales.
5. Subscription Services
In a subscription-based model, a customer signs up for a delivery at preset intervals, like once a week, month, or every three months. The customer continues to receive regular deliveries of your products until the subscription period runs out or they cancel.
CPGs and consumables that need regular replenishment are ideal for subscription-based revenue models. But other categories, such as apparel and pet brands, also make this model work beautifully.
Subscription services can help brands drive strong customer loyalty and retention, and the repeat business can lower your overall customer acquisition costs. These models also provide predictable revenue and enable better forecasting. Each delivery can also present additional opportunities for upselling and cross-selling.
Case Study: BarkBox
One of the most well-known subscription-based e-commerce businesses is the popular pet toy service, BarkBox. Its exclusive products and boxes are customized to each dog’s individual needs. A carefully curated checkout encourages customers to increase shipping frequency and add additional premium items to their orders.
Tips for Success:
- Use data wisely: Subscription models give you access to deeper levels of customer data that you can then use to develop new products and create personalized experiences for shoppers.
- Offer upgrades: Never miss an opportunity to upsell or cross-sell at checkout. Prompt customers to add dessert with their dinner or a necklace to their outfit to complement their standard subscription.
- Throw in samples: Toss in a small sample of a new product you’re thinking of adding to your regular product lineup, and use customer feedback to make improvements or drive future sales.
6. White Labeling
In whitelabeling, retailers and brands put their own labeling and branding on products manufactured by a third party. In this model, brands can sell the same third-party products under their own labels.
Store brand products like Whole Foods’ 365 and ShopRite’s Bowl & Basket are examples of white labeling. We can’t say for certain, but some of these “store brand” items may actually be the same products from one store to another.
Private labeling works similarly to white labeling, except that in private labeling, products are customized for each manufacturer. Both practices have the same main advantage: a brand gets to sell high-quality products without investing the time and resources it would normally take to develop, produce, and market those products on their own.
Case Study: Wegmans’ & Trader Joe’s
Wegmans and Trader Joe’s are two grocers who have developed wildly successful white and private label strategies. Wegmans’ private label products, of which there are around 17,000, reportedly account for around half of its sales. Trader Joe’s allegedly has some (rather hush-hush) white- and/or private-label deals with companies like PepsiCo and Snyder’s-Lance.
Tips for Success
- Monitor product quality: Even though you aren’t making the product yourself, you’ll still face the consequences if customers aren’t satisfied with the quality.
- Watch out for intellectual property issues: Make sure you’re not inadvertently selling products that infringe on trademarks or copyrights. When in doubt, link arms with a legal specialist to make sure you’re protected.
- Find ways to differentiate: White label products limit you to selling products with only a small range of customizable options. You may find that you need distinctive branding or a stellar marketing strategy to succeed.
New Year, New Revenue Models
When it comes to growing your e-commerce sales, what works for one brand might not work for another. Take your time to explore your options and find the right mix for your business.
With a clear business plan and flexible funding to help execute it, you can find the revenue models that work best for you.