Types of e-commerce business models for success in 2021

Mikhail Nilov
Types of e-commerce business models - two women in loungewear on a large sofa sharing a tablet with interest

The last 18 months have seen new e-com startups in the UK reach unprecedented levels as many retailers switched to e-commerce to deal with the pandemic. Now the waters are calmer, let’s look at the different types of e-commerce business models and why you might want to use them if you are starting a new e-commerce business in 2021.

You may have scrambled into e-commerce entrepreneurship during the pandemic, or you may be looking to start your first e-commerce business now. Either way, you have many options of e-commerce business model; just one of the many choices you will need to make.

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Make and deliver

It may seem old-fashioned but there are still plenty of e-commerce businesses that manufacture their own products and ship to customers via their website.

Pros

  • You have complete control over your business’ customer journey from start to finish.
  • Once you have invested in the equipment and processes needed, you will keep profits in-house.
  • Complete price control

Cons

  • You will need to build an audience from scratch, which is tough to do with so much competition.
  • It will be very time-intensive until you have grown sufficiently to employ staff, who will then need to be factored in as a monthly expense.

Design and outsource

This model is based on the plentiful print-on-demand platforms available. You design a product and sell it through platforms such as Merch by Amazon, RedBubble, Printify etc. You can also hook Printify and similar services up to marketplaces such as Amazon FBA and Etsy, widening your reach without increasing the workload.

Pros

  • Quick and easy to set up with no manufacturing costs to consider as print-on-demand platforms deduct as a simple fee either on purchase or when you receive funds.
  • Zero funds are required to get started if you are happy to design your own products.
  • You can get many products up and running in extraordinarily little time and can add or pull products with ease.

Cons

  • Limited control over the quality of your products so make sure you do plenty of research to discover the best variants for your design.
  • It may seem beneficially passive but the lack of control in the customer journey can lead to poor reviews and returns that you pay the price for

Dropshipping

Dropshipping is immensely popular but again, can have its pitfalls. For every tale of an entrepreneur that went from 0 to £1 million, there are thousands who couldn’t establish themselves. It remains of the most popular types of e-commerce business model, however.

Pros

  • Similar to print-on-demand; you can often start with no funds, although some suppliers will require a set amount upfront.
  • It is quick and easy to add in product lines.
  • Low risk as you have minimal upfront expenditure.

Cons

  • You will often find an incredible number of people selling the exact same item which leaves you with a choice of finding a new platform or undercutting their price to get sales.
  • Quality control is again out of your hands.

 

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White labelling and private labelling

This is, again, an immensely popular type of e-commerce business model and is largely similar to dropshipping. White labelling involves using a manufacturer’s generic product and then simply paying to add your branding. You can see this on Amazon Marketplace, where identical fitness accessories or kitchen items are sold at different prices under different labels.

Pros

  • Your manufacturing costs stay low despite adding your branding.

Cons

  • Initial setup costs will apply, and you will often need to pay for a set amount to start with
  • White label goods are usually found in clusters. If you are using a product, it is likely countless other entrepreneurs have had the same idea.
  • You still have limited control over quality.

Private labelling is more expensive; your e-commerce business will pay the manufacturer to make either a unique product or a customised product with exclusive rights to it.

Pros

  • You can create something truly unique without shelling out to manufacture it yourself.
  • You can tweak a popular product with an improvement in order to get ahead of the competition.
  • You have the final say on the product so you can assess its quality before you launch.

Cons

  • Much more expensive and, as such, often not the initial path for e-commerce entrepreneurs
  • Once your competitors see what you’re selling, there is nothing to stop them from copying your design unless you have paid to have it trademarked and are willing to pursue it

Subscription selling

Subscription selling is one of the newest types of e-commerce business models but, in 2020, 40% of online shoppers made use of at least one subscription product. You may think that subscription selling doesn’t fit well with your product but you can get creative by selling consumable products on a regular delivery system or selling media products based on previous choices.

Pros

  • This model isn’t exclusive from the other types of e-commerce business models! You can sell print-on-demand items, items you have made yourself or white-label items on subscription.
  • Easy to set up on Shopify or WooCommerce through a variety of plugins.
  • A simple way to turn customers into repeat customers and repeat customers into advocates.

Cons

  • You will need to install the plugins and, if you are shipping yourself, make sure you have the inventory and the time to honour your orders.
  • Customers expect a discount in return for a subscription if it is something they purchase regularly, which could eat into your profits.
  • If you are selling a subscription box that isn’t an individual item, you will need plentiful and growing options for the customers to choose from

Next Steps

There is no right or wrong way to start your e-commerce journey and you can often transition as you grow. Those initial choices can seem overwhelming but, at Unicorn Accounting, our team of e-commerce specialist accountants can help you make those tough decisions to grow your business to its full potential. Get in touch and see how we can help.

The best time to act is now.

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