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How to find the right business model and start making money online
What eCommerce business model is best for you?
The most important two words in that question are: For you.
There’s a range of ways to structure an online business - dropshipping, Amazon FBA, your own online store, to name a few - but there is no best way to do it.
However, it’s highly likely that there is an eCommerce business model that’s best for you.
Best for your level of experience. Best for your budget. Best for the amount of time you have. Best for your risk tolerance.
Choosing the best eCommerce business model for you is the single most important factor in your long-term success.
You can choose a great product, source a reliable supplier, and use smart marketing tactics. But without the right foundation for your business, you’re going to face an uphill battle.
In this article, I’m going to cover all of the ways that you can set up your online store and share the pros and cons of each business model so that you can make an informed decision.
For an extra dose of inspiration, I’ve also included examples of real online businesses that have been highly successful using each of these models.
BONUS: I’ve also created a short quiz that will determine the best business model for you (Scroll to the bottom of the article)
In short, if you want to make money online and create a lucrative side hustle, or a way out of your full-time job, you need to start with the right business model.
The first step in building your business structure is identifying who your customers are.
Who are your customers?
It’s important to ask yourself this question as it will determine how you set up your business so you can look into the relevant business research topics.
Your customers will typically fall into one of two categories: Consumers or businesses. You’ve probably heard the acronyms B2C (Business-to-Consumer) and B2B (Business-to-Business).
If you’re setting up an online business then, unsurprisingly, you are considered to be a ‘business’.
Almost all eCommerce stores use a B2C or B2B model.
There are some exceptions, which I will get into, but usually you will fall into one of these two categories.
That means your customers are either consumers or other businesses. However, there can be crossover. Some B2B businesses also sell directly to consumers. It really depends on what your growth strategy is.
For example, a peanut butter business will sell its product to stockists, such as supermarkets (B2B), but might also have an online store where they sell to customers directly (B2C).
So this is the first thing you have to consider: Who are you selling to?
Ecommerce business classifications: Pros and cons
B2C Ecommerce (the traditional model)
Business-to-Consumer eCommerce means you’re selling to individual customers - everyday people who shop online.
It’s the most traditional retail model and probably the easiest for someone who’s new to eCommerce.
B2C eCommerce is experiencing rapid growth as more customers choose to shop online, rather than visiting brick and mortar retail stores.
There are all sorts of eCommerce growth predictions, but all anticipate that online sales will increase dramatically over the next few years. Many companies are really focusing on their growth strategy for the next few years.
B2C Ecommerce Pros
- Low Set-up Costs: You can technically start a B2C eCommerce business for almost nothing using dropshipping. It’s very affordable to get started.
- High Sales Volumes: It’s possible to make regular sales that keeps the cash flowing and provides you with a steady income stream.
- “Passive” Income: While B2C eCommerce is not strictly passive you have the potential to make sales 24/7, which means making money while you sleep.
B2C Ecommerce Cons
- Highly Competitive: You’re competing against multinational corporations, established brands, and other online sellers just like you. It’s a crowded marketplace.
- Customer Service: Consumers have high expectations when it comes to eCommerce these days. You have to deal with orders, questions, complaints, and returns.
B2B Ecommerce
Business-to-Business eCommerce means you’re selling to other businesses.
If you’re selling products such as office supplies, business software, computers and electronics, you might want to consider targeting other businesses as your primary customers.
Also, if you create and manufacture your own product, you may choose to sell wholesale to other businesses, such as traditional retail stores.
B2B eCommerce is said to be experiencing strong growth and is expected to be worth up to $6.6 trillion by 2020, which is much more than the B2C market.
B2B Ecommerce Pros
- Bulk orders: Businesses are more likely to buy in bulk and place large orders than B2C customers, meaning each sale is typically worth more money to you.
- High buyer intent: Businesses are more likely to be ready to buy when they are searching for a product whereas B2C customers tend to browse before buying.
- Strong growth: The B2B market is growing rapidly, which means there’s money to be made by tapping into this business model.
B2B Ecommerce Cons
- Fewer sales: While you’re orders are likely to be worth more money, the time between each sale is typically longer - the downside of selling in bulk.
- Steep learning curve: Selling to other businesses can be tough for a beginner. It helps to have a deep understanding of how businesses operate.
- Price competition: B2B customers are always hustling for the best deal and buying in bulk means they have more leverage to negotiate - all of this eats into your bottom line.
There are other eCommerce business classifications such as C2C (Consumer-to-Consumer). Selling household items via auctions on eBay is an example of C2C.
C2B (Consumer-to-Businesses) has also emerged as a possible business model. An example of this is an Instagram influencer selling their “influence” to businesses.
However, the most common eCommerce business models are definitely B2C and B2B.
Which model does your business fit into?
What are the best eCommerce business models?
Now that you know who your customers are you can start thinking about how you want to structure your business.
You would have heard of eBay, Amazon and Shopify, and you’ve probably heard of dropshipping.
But how do you know which business model and online marketplace is best for you?
I know it can seem overwhelming. That’s why I’m going to focus on the FIVE best eCommerce business models. That way, you will have all of the information to choose the best one for you.
By “best”, I mean the business models that are consistently leading to successful businesses.
These are the business models that smart sellers are using to build and grow online businesses that are financially viable.
There are always people promising shortcuts and hacks online, but this is real advice for people who want to build a real business.
So let’s look at the SIX best eCommerce business models....
1. Dropshipping via online store
Dropshipping is one of the most popular business models if you’re just getting started with eCommerce.
Why? Because the cost of getting started is so low. You don’t need to buy stock in bulk. You don’t have to pay for a storage facility. And your supplier can take care of the shipping.
So what do you have to do?
You will need to invest in setting up your own online store. It is possible to dropship via Amazon, eBay, or any other marketplace, but the amount of competition and fees makes it extremely hard to turn a decent profit.
You can go down that route if you wish, but I recommend starting with your own online store and really working on your growth strategy to grow your eCommerce business.
You can use a platform like Shopify, WooCommerce, or SaleHoo Stores to easily set up an eCommerce store.
It doesn’t have to cost a lot of money and it means you have your own platform independent from the crowded online marketplaces.
See our full guide to starting an online storeHow does this eCommerce business model work?
- Set up an online store and list your products for sale
- Drive traffic to your website and make sales
- Your supplier is notified when you make a sale
- You pay the supplier
- Your supplier ships item to your customer
- You handle customer service
Who should use this eCommerce business model?
Dropshipping via an online store is a good option for people who:
- Don’t have money to invest up-front
- Want to build their own brand
- Are selling small, lightweight, durable products
- Are new to eCommerce
- Have a low tolerance for risk
Business model example: Curren
Curren is an online watch store that uses the dropshipping model and attracts thousands of visitors every day.
2. Amazon FBA with your own branded product
The next eCommerce business model I recommend is creating a private label product and selling it via Amazon FBA (Fulfilled by Amazon).
The reason I recommend selling your own branded product on Amazon is because it’s becoming much harder to sell generic products without engaging in prohibitive price competition.
What is a private label product?
A private label (or branded) product is a product that carries your own brand. You can simply source a generic product from a supplier and ask them to print your brand on it. Or you can work with a manufacturer to create a unique product. Private label products typically sell for more than generic products as they have a point of difference. A brand inherently adds value.
See our full guide to private labellingWhat is Amazon FBA?
Fulfilled by Amazon is Amazon’s fulfillment service. For a fee, you can store your products in Amazon's fulfillment centers, and they will pack, ship, and provide customer service for these products on your behalf. It means you have less responsibilities and more time to work on other areas of your business, such as sales and marketing.
There are more costs involved in this business model. You have to create a brand and, potentially, manufacture a product. It’s also best to purchase products in bulk to get the best price. And you also have to pay for the Amazon FBA service, as well as any seller fees on Amazon.
While it costs more money, there are definite benefits to creating a branded product and selling on Amazon. You can sell your product for more money while building your own brand. And you gain access to Amazon’s massive customer base.
See our beginner’s guide to Amazon FBAHow does this eCommerce business model work?
- Create a private label product
- Purchase product in bulk from supplier
- Send products to Amazon for FBA service
- List products for sale on Amazon
- Make sales and let FBA take care of the rest
Who should use this eCommerce business model?
Selling a branded product via Amazon FBA is best for people who:
- Have money to invest in their business
- Want to create their own product/brand
- Want to outsource storage/shipping/customer service
- Have some experience with eCommerce
- Have a moderate tolerance for risk
Amazon inventory management systems become even more crucial if you are selling using Fulfillment by Amazon (FBA). Amazon FBA provides sellers access to Amazon's expansive distribution network.
3. Wholesale sourcing and selling via eBay or Amazon
This eCommerce business model is for sellers who don’t want to launch a branded product, but do want to make good profit margins on an established online marketplace like eBay, Amazon, Etsy, Rakuten etc.
Wholesale sourcing means you negotiate with suppliers to purchase products in bulk. This means you have to have enough money to place a large order - and you’ll need to be confident that you can sell all the stock.
It also means you’ll be able to negotiate a better purchase price, which means your profit margin for each sale will be higher.
You’ll also have to arrange for a place to store the bulk stock, unless you opt to use Amazon FBA (see above).
While this business model requires significant investment upfront, you’ll be in a better position to make more money in the long run.
So while I didn’t recommend using dropshipping via Amazon or eBay above, I do think established marketplaces are a good option if you’re sourcing wholesale products.
The extra profit margin you will make will help to pay the fees to whichever eCommerce platform you choose to use.
The other benefit of buying stock in bulk is you can take advantage of faster shipping times.
Most online sellers tend to use suppliers in China, or other countries that have lower production costs, but this means shipping can take several days.
If you’re living in the United States and you’re keeping bulk stock in your garage, you can offer same-day or overnight delivery to your customers, which is a massive selling point.
See our guide to sourcing from wholesale suppliersHow does this eCommerce business model work?
- Source a great product from a reliable supplier
- Negotiate a win-win wholesale price
- Find a place to store your stock
- List products on your chosen online marketplace
- You handle shipping and customer service
Who should use this eCommerce business model?
Sourcing wholesale products and selling via an online marketplace is best for people who:
- Have money to invest in buying bulk stock
- Have the ability to store products
- Can confidently negotiate with suppliers
- Have some eCommerce experience
- Have a moderate-high risk tolerance
4. Wholesale sourcing and selling via your own website
This eCommerce business model is for sellers that are serious about investing time and money into building an online business.
It’s used by many major retail and eCommerce companies that make millions of dollars a year.
It’s essentially the same as business model #3, except you sell your products via your own online store.
This means you’re sourcing products at the cheapest possible price and selling them for the highest possible amount - without having to pay extra fees to Amazon or eBay.
Earning more money is a major benefit of this business model.
However, you need to be fully invested in making your business successful. Not only do you need the cash to buy products in bulk. You also need to build your own online store and have the know-how to drive enough traffic to your site. Many entrepreneurs find it essential to build an eCommerce website that is user-friendly and optimized for conversions. Then you need to know how to convert the visitors to your site and make sales - consistently.
It’s riskier than the other business models as if you can’t convert enough customers, you’ll be stuck with excess stock.
But if you have the ability to make sales, the payoff is big!
How does this eCommerce business model work?
- Negotiate bulk purchase price with supplier
- Find a place to store your stock
- Build your own online store
- Drive traffic to your store and convert customers
- You handle shipping, customer service, inventory etc
Who should use this eCommerce business model?
Sourcing wholesale products and selling via your own online store is best for people who:
- Have significant capital to invest upfront
- Know how to build and run an online store
- Want full control of your business
- Want to make significant profit
- Have high risk tolerance and lots of time
5. Selling a private label product via your own online store
In my opinion, this is the gold standard eCommerce business model which can be a huge turning point in your growth strategy. This is the road you take if you’re serious about building a brand and a business that makes serious money.
But it’s also the business model that requires the most money, time, and work. As the saying goes, success is on the other side of hard work.
This business model requires you to create your own brand and private label product (see above) and to then launch and sell it on your own platform.
It’s the most independent business model, which means you real all the rewards. You also take on all of the responsibility.
You need to find a reliable supplier/manufacturer who can produce your branded product and negotiate a fair price for purchasing stock in bulk.
You also need to build your own website using an eCommerce platform like Shopify, WooCommerce or SaleHoo Stores.
You have full control over the design and branding of your store, which is better than being restricted by the strict listing policies of established marketplaces.
However, it’s completely up to you to attract customers to your website and make sales, which is easier said than done.
Selling a branded product on your own store gives you maximum control of branding, marketing, website design, and sales.
Done right, you can build a successful brand and business on your own platform, independent from the powers that be at Amazon, eBay and other marketplaces.
How does this eCommerce business model work?
- Work with supplier to create private label/branded product
- Organize storage space for bulk stock
- Build your own online store and list product on it
- Drive traffic to your website and make sales
- You handle shipping and customer service
Who should use this eCommerce business model?
Selling a private label/branded product via your own online store is best for people who:
- Have significant capital to invest upfront
- Know how to build and run an online store
- Want complete control over their business
- Are experienced with eCommerce
- Are serious about building a successful business
Business model example: Sky Organics
Sky Organics is natural lifestyle products brand that has been featured on major media companies such as Men’s Health, BuzzFeed and the Today Show.
6. Selling products via subscription
A business model that has had a rapid rise in recent years is selling products via subscription.
You’ve probably heard of success stories such as Dollar Shave Club (razors), Blue Apron (food ingredients/meals), and Birchbox (makeup).
With this business model, you need to identify a product that consumers want or need on a regular basis - usually monthly - and then convince them to sign up to a subscription.
I’ve seen this done with everything from underwear, to chocolate, to toothbrushes, socks, dog products and more.
The key with the subscription model is that the product is perishable or usable - meaning it’s not going to last forever.
The main benefit of the subscription model is that it provides you with a predictable, regular income. Converting one customer can result in ongoing monthly income.
The challenge is in finding the right product and then convincing customers that they want it delivered to their door every month.
You will need to build your own website and have a means of collecting scheduled payments from customers.
Subscriptions are becoming increasingly popular and can be highly profitable with clever marketing and sales tactics.
One jaw-dropping examples: Dollar Shave Club was bought by Unilever in 2016 for $1 billion.
How does this eCommerce business model work?
- Identify a product that people need/want regularly
- Source product from reliable supplier
- Negotiate lowest possible bulk order price
- Build website and implement marketing strategy
- Convince customers to sign up for subscription
Who should use this eCommerce business model
Selling products via subscription is best for people who:
- Have capital to buy bulk products
- Want regular, predictable income
- Have flair for creative marketing and sales
- Have some business experience (more complex than single-item sales)
- Want to work on the business full-time
Business model example: Toothcrush
Toothcrush is an eco-friendly toothbrush subscription business that sends bamboo toothbrushes to customers on a regular basis. It has thousands of subscribers in New Zealand, Australia and the USA.
What product model should you use?
Choosing the best eCommerce business model for you is the most important hurdle to get over at this stage of your business journey. It's important to choose one now in case you hire any ecommerce development services in the future.
But you also should give some thought to your “product model”.
While your product model can change as your business evolves, it’s an important part of your overall structure when starting out.
Single-product business
A single-product eCommerce businesses simply focuses on selling one product. You’re essentially hedging all your bets and going all-in on your flagship offering.
This is a common way for people to test the market. It’s low-cost and low-risk and allows you to focus all of your efforts on sourcing and selling one product.
If you are successful with one product, you can always expand your offering.
If you fail, you’ve got nothing to fall back on and need to start again.
This model is best for people who are new to eCommerce and those who have invested in creating a new product that they really believe in.
It’s minimal, it’s simple, and it can be highly effective.
Multi-product, single-category business
A single-category eCommerce business sells a range of different products in one niche.
It might start as a single-product business and then expand the range of products it has.
For example, if you were to start selling a revolutionary new travel coffee maker, you might also dropship coffee products like grinders, mugs, coffee beans, and more.
Your single category would be “coffee products” and your store could stock a range of items that fall into that category.
This model is more complex than the single-product approach as you have to source a range of items, potentially from a variety of suppliers.
Your budget for marketing, product photography and inventory is also stretched thinner the more products you have.
However, it also means you’re not relying on one product to bring customers and money in.
If one product is not selling well, hopefully you’ve got something else that is flying off the shelves to keep the cash flowing.
While it’s best for beginners to limit their product range, the single-category model is a good option for beginners and pros alike.
Multi-category business
A multi-category eCommerce business sells a range of products across a range of different categories.
A big name store like Walmart is the perfect example of a multi-category business as it sells almost everything you can think of.
A one-person, eCommerce start-up is unlikely to use the multi-category model as it requires a lot of money, time and work to run.
However, a single-category business could slowly evolve into a multi-category one.
If we use the travel coffee maker example from above, just think how that store could expand into selling other travel-related items like car chargers, travel pillows, passport holders, cosmetics kits, and clothing.
Before long, that single-product business could be a multi-category business.
This model is best for those who have considerable experience in eCommerce.
However, it can also be used for those who are using dropshipping (low investment) to test a range of products to find the ones that work. A lot of people dropshipping via Amazon and eBay will technically be multi-category businesses.
However, I recommend starting small and targeted and growing your way into this category.
Starting on solid foundations
I hope you now have a clear idea of the best business and product models for your eCommerce business.
It’s really important to get this part right. Building the structure of your business on solid foundations will help you to get through the hard times and be successful.
If you want some extra help with choosing the right business model, take this short, simple quiz below.
Based on your answers, the quiz will determine which business model is best suited to your experience, budget, and risk tolerance.
Now that you have the structure of your eCommerce business sorted, you’re already leaps and bounds ahead of those who just dive right in without thinking.
Trust me, it’s much better to think about these things now than to find yourself getting confused and overwhelmed later.
Ecommerce Business Models Comparison Table
| Business Model | Starting Costs | Experience Required | Time Investment | Risk Tolerance | Growth Potential |
|---|---|---|---|---|---|
| Dropshipping via online store | Low: Less than $100 a month | Beginner | Low | Low | High |
| Amazon FBA with branded product | Moderate: $1000-$5000 + Amazon FBA fees | Intermediate | Low | Moderate | Moderate |
| Wholesale sourcing and selling on eBay or Amazon | Moderate: $500-$3000 + eBay or Amazon fees | Intermediate | Moderate | Moderate | Moderate to Low |
| Wholesale sourcing and selling via online store | Moderate: $500-$3000 + ≈$100 a month | Advanced | High | High | Moderate |
| Selling private label product via online store | High: $1000-$5000 + ≈$100 a month | Advanced | High | High | High |
| Selling products via subscription | High: $2000-$10,000 + ≈$300 a month | Advanced | High | Moderate | High |
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