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What is an eCommerce Business?

4 November 2019 by Charlotte Greene

By definition, eCommerce is the activity of buying or selling products online. An eCommerce business is usually involved in the selling aspect, using their website as a virtual store through which consumers can purchase goods over the internet. So, whenever you’re involved in the buying or selling of goods over the web, you’re partaking in eCommerce.

The three main forms of online commerce

  1. What is eCommerce?Physical goods: This is your mainstream eCommerce store that sells a physical product. It is the type of eCommerce most of us engage with on a weekly or even daily basis. The retailer’s online platform showcases its products, then us consumers add the desired items to our virtual shopping basket, purchase our order via a payment gateway and have our products are delivered to us within a specified time frame. For example, according to Statista, 29% of Brits now purchase their weekly food shop over the internet.
  2. Service-based products: This involves the buying and selling of services online. Service-based eCommerce includes products such as online guides and consultations which may be available instantaneously through downloads or live chat software. Some services may require an order to be placed before they are available – for example, some server hosting companies produce a solution for you once your order has been placed, accessed and operated online. Physical services include website design or media agencies, which advertise wholly online but then require additional contact or consultations before the service is delivered.
  3. Digital products: This involves the buying or selling of digital goods such as eBooks or music files. With products such as stock photos, online courses, software, graphics and virtual goods now in high demand, the ‘e-goods’ market has become popular over the past decade or so. The sales of eBooks alone generated £653m of the UK’s publishing industry revenue in 2018.

Classifications of eCommerce businesses

You’ve decided what type of eCommerce you’re involved in, but who are you selling to? Are you targeting other businesses or consumers?

Knowing your audience is key to formulating successful business and marketing strategies. Here are some types of transaction to think about.

  • Business to business (B2B): B2B is the exchange of products, services or information between businesses online. For example, wholesalers selling to smaller shops which stock their products or hosting providers selling server space to online businesses.
  • Business to consumer (B2C): The exchange of goods between online stores and individual customers. There are many examples of this type of commerce, such as buying a new pair of jeans online.
  • Consumer to consumer (C2C): C2C eCommerce businesses allow consumers to buy and sell to each other in return for commission. This type of model has produced only a handful of really successful businesses as careful planning is required to ensure sustainability. Successful examples of this model include sites such as eBay and Etsy.
  • Consumer to business (C2B): The C2B model is less common than B2B or B2C. It involves consumers selling goods or services to a business or contributing monetary value, for example, through crowd funding. Affiliate marketing – where an affiliate earns commissions for marketing a business or product through their personal site or blog – is also a good example of C2B.

Types of eCommerce revenue models

There are several ways of generating revenue from your eCommerce store, and the one you choose depends totally on the needs of your own enterprise and customers.

Side note: Fulfilment is the process of receiving, packaging and shipping orders for goods.

Drop shipping

Drop shipping is a form of fulfilment where a store doesn’t keep the products it sells in stock. Instead, when you buy a product from the store, it purchases the item from a third party – usually a wholesaler or manufacturer – and has it shipped directly to you. As a result, the merchant never sees or handles the product.

This is one of the most flexible and scalable models, with no capital expenditure required to get started and much of the admin to track inventory and deliveries taken care of by the supplier. However this convenience comes at a price and the potential for supplier errors and low margins.

Wholesaling and warehousing

Buying your products in bulk from wholesalers and storing these in your warehouse is a great model if you’re planning to shift a large amount of products in a certain timeframe. Buying from large scale distributors allows you to buy bigger volumes of product at a reduced cost, increasing your margins. However, if you can’t sell all your stock, you risk spending capital which could be used elsewhere on storage fees and products.

This is a popular model, but requires careful consideration and may not suit smaller, more specialised businesses.

Private labelling and manufacturing

Companies with an idea for their own product, but who can’t invest in a factory, take advantage of this model.

Plans or prototypes are sent to a contracted manufacturer who produces the product to meet customer specifications. The products are then shipped directly to the consumer, the third party through which it’s being sold, or the company selling the final product.

On-demand manufacturing allows you to quickly change suppliers if needed and the startup costs are minimal which makes it excellent for testing new potential products.

White labelling

Similar to private labelling, white labelling enables you to choose a product that is already successfully sold by another company, but offers the option to sell the product with your own design of packaging and label.

This is common in the beauty and wellness industries but less so in other niche sectors. You must also consider the fact that your order is set and definite, regardless of what you sell, and many companies require a minimum order.

Subscription eCommerce

The final model to discuss is the subscription model. It has become commonplace in the eCommerce industry with brands like Graze, Birchbox and Spotify all reaping its rewards.

Subscription-based companies rely on customers signing up for regular deliveries of products, paying upfront for weeks or months at a time. It provides a reliable income stream and repeat custom.  And if this custom is retained you’re able to add to your customer base continuously, meaning you can grow fairly quickly and take advantage of a captive audience for additional subscription or products. However, picking the right products can be difficult and the types of products fall into categories such as food, beauty, health and fashion.

Conclusion

As a budding eCommerce business, getting the basics right is essential to build a solid foundation on which your business can thrive. Get to know your target market and choose the revenue model which suits the needs of you and your customers.

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