Every time I publish an article that talks about eCommerce, I seem to be on a very thin line. When I emphasize the enormous amount of work needed to launch a business, people move away from starting a business. When some things seem simple, people have unrealistic expectations and expect to get rich from day one.
The questions I receive are always the same …
- Do I have to start selling online?
- Can I sell on Amazon?
- How to sell wholesale?
- How do you earn fast?
- How much does it cost to start selling online?
8 Business Models For Online Business
I would like to present the pros and cons of 8 business models on eCommerce with these caveats …
- When I use the term eCommerce I refer to the sale of physical products online and not to the sale of digital products.
- Do not pursue a business by taking as one parameter what seems easy to start.
- Consider long-term sustainability and the probability of success as decisive factors.
- Some of these business models have low costs and low barriers to entry. It does not mean that they are easy and that the gain is substantial.
- Some of these business models are super competitive. Nobody gives you anything.
- Other models require an initial investment at least decent. The money to start must be yours, if you do not have money do not start.
- Some require an inventory of goods. The goods are bought and paid for and goods that do not sell immediately, ZERO is valid immediately.
1) Dropshipping with your website
Dropshipping is when you put a website online and instead of directly selling the goods in your inventory, you send the orders to your supplier who in turn sends it to the end customer.
Dropshipping has these advantages
- No inventory – Your supplier has the goods and you do not have the goods. You sell, he sends.
- No shipping to do – Your supplier is responsible for shipping the product to the final customer
- Low start-up costs – All you need is an e-commerce site.
- Simple to start – If you use a platform like Storeden, it’s easy to launch a website.
How dropshipping works
You must find a wholesaler or a manufacturer that you approve of selling their goods and accepting them to send.
Not simple and not easy, because it must be someone who instead of selling to pallets, to pre-ordered packages, accepts that you sell one by one and agrees to send them one by one, changing its internal logistics.
From here you immediately understand that the downside of drosphipping is the super low margins, because someone else is managing the inventory and organizing the shipment in your place and its higher costs have to be repaid.
Typically, profit margins for dropship stores are anywhere from 10 to 30%
- Paid advertising becomes difficult because you do not have sufficient profit margins to pay for the acquisition of traffic. If you’re OK, you’ll be campaigning on Google Shopping.
- You are competing with online stores that have physically available inventory of goods and which can be more flexible with in prices.
- You are selling other goods and you do not have control of your product mix. Suppose the manufacturer stops producing your best seller? What happens?
- Customer support can be a pain because it does not control the delivery process.
- The complaints and recesses of the customer are your problem. Legally you are the seller, even if technically it is not your fault the delay or the error.
- A badly chosen supplier destroys your reputation.
- You can have inventory management problems. The goods available today, tomorrow or in a few hours, may no longer be available.
- Search engine optimization is a huge factor for your success. You have to fight against duplicate content, poor pages, you have to invest a lot of time. And time is money.
- It is easy to launch a store in dropshipping.
- Margins are not enough to pay the majority of advertising
- Sustainability is always at risk because you are at the mercy of suppliers and Google. Sellers on Amazon exert downward pressure on your products’ prices.
- Low margins and competition from other sellers challenge you to keep profits.
2) Dropshipping from Amazon to eBay
I do not know many sellers who apply this online sales system, but it does exist and it works.
How does it work
First, look for a series of products on Amazon that sell well on eBay. Then he steals the images and product descriptions on Amazon and postal on the eBay listing.
The reason this business model works is that there are people who buy on eBay and do not buy on Amazon and for an inexplicable reason they do not try to buy the same product at a lower price elsewhere. As soon as you sell the product on eBay, buy it now on Amazon and send it to the eBay buyer. In other words, you rely on Amazon fulfillment, the lowest prices on Amazon to take a small margin on eBay.
Personally I hate this business model, but there are some interesting qualities
- Zero overheads. It is a performance sale.
- No website is needed.
- You do not have to look for suppliers.
Maybe the eBay customer receives the goods in an Amazon package and is baffled …
You must be aware that
- Brands hate these trades;
- You must always be looking for new products on Amazon;
- Risks closing the eBay account for copyright infringement and image rights;
- It is a model with little long-term potentiality;
- Do not add any value to anything or anyone.
- It is a very easy sales model to launch.
- The margins are very low.
- You are completely at the mercy and at the mercy of Amazon and eBay
- It is a challenge to keep the profits that are played on the volumes.
- However somewhere there is definitely someone who will sell you a course on this model of eCommerce.
3) Online sales on Amazon of products bought in stock
This is an increasingly popular and used sales model
How does it work
At the end of the sales season (and now throughout the year) there are products at bargain prices that are far below the Amazon retail prices. It is about buying all the goods in liquidation from individual shops, wholesalers, distribution chains and profit from the sale of these goods on Amazon at much higher prices. This model works because many consumers are always looking for the lowest price and are willing to buy on Amazon.
This model works because
- You do not need a website
- You can take advantage of Amazon’s huge market for immediate sale
- It’s a performance sale.
The disadvantages are
- Stock goods must be paid immediately;
- You must take the time to put them back in order and ready to be resold;
- You always have to find new products to support your sales;
- Your business is 100% on Amazon.
- It is a very difficult system to climb because you will spend most of your time hunting for good deals.
But there is also something else to keep in mind
Amazon is introducing new rules to strongly discourage this business model for the future. Amazon may prevent you from selling certain brands without the manufacturer’s approval, as Amazon is introducing fees into the US to sell brand products. Carefully evaluate the risk involved with this eCommerce model.
- It’s a very easy sales model to launch, all you need is an Amazon account.
- Margins can be very high.
- However, it calculates that the time between the purchase of goods, their immediate payment, reconditioning, sale and realization, is a very high cost that you have to consider. In other words, you have to have a lot of money always available.
- Sustainability is difficult if Amazon’s new policies put this business model at risk. There is always competition from other sellers that erodes profits.
4) Dropshipping on Amazon
Dropshipping on Amazon is very similar to dropshipping on your website. The main difference, of course, is that you are selling dropshipping directly to Amazon customers.
How does it work
To start you must find distributors willing to sell in dropship in your name. Then open a seller account on Amazon. Every time you make a sale on Amazon, you contact the distributor who will deliver the product to the final customer.
It is important to note that this business model does not use FBA – Amazon logistics; you are solely responsible for the timely delivery of the order.
This model is interesting because
- There are no start-up costs
- You do not need a website
- You can instantly have hundreds of products available for sale on Amazon
Now the problem with this business model is that anyone can contact the same identical wholesaler, or the exact same manufacturer and access the exact same product mix. The other very dangerous thing about this business model is that Amazon has very stringent requirements on seller quality and on-time shipments.
Suppose you sell so many products on a particular occasion. But when you contact the distributor, all of a sudden it tells you that the item is out of stock due to a technical inventory problem.
Guess what happens? It is likely that Amazon will close your account. Every time a shipment is canceled or delayed, there is a risk that it will be forbidden to sell again.
Overall, it’s really easy to start a dropshipping business on Amazon and the potential profit is good enough, but this business model is just too risky because your reputation on Amazon is linked to someone else’s behavior.
- Easy to launch, it is a model of eCommerce that only needs a supplier in drosphip.
- You can sell immediately even if at low margins.
- Long-term sustainability is at risk because an inventory error or a technical problem can have major repercussions.
- Profits are hard to keep when margins are low.
Continue Reading: The personalized product recommendations for your eCommerce
5) Online sale of products in private label on Amazon
You can sell products that you produce or buy yourself, with your own label. To make this sales model work you need to find a manufacturer that will supply you with the products in bulk, and then brand them with your brand and label them correctly.
How does it work
Typically these suppliers are located in the Far East, China. Buy the products, branded with your brand, labeled according to the laws in force, you can bring the goods on Amazon’s logistics and take advantage of the huge marketplace of the marketplace to sell your products.
You are buying products in bulk, you must be aware that you will have a much larger initial cost than buying a few goods at a time. Also you have to find a reliable seller and be sure of what you do.
- Apparently there are few barriers to entry.
- You do not need a website to sell.
- You do not have to generate traffic, because you leverage marketplaces.
- You own your brand and margins can be high.
- You can also cash in very quickly.
- You are dependent on Amazon in all respects.
- If your private label is successful it can easily be copied, imitated and your potential buyers diverted to a similar product.
- You must constantly monitor products for negative feedback, problems and product quality. Artifact may be comments to damage your business and Amazon may prohibit the sale of your products at any time.
- You are investing a large sum of money up front on the sale to get the products available and you cannot risk being unsaleable.
- You can meet many unscrupulous sellers. I assure you that they exist and are really despicable.
All this considered, selling a private label product on Amazon is by far the most sustainable way to sell and cash on Amazon of any of the other models presented in this article.
- It is an easy model to launch. You need to find a manufacturer and invest a good amount of money on stocks.
- You can get to make good business.
- You must have enough money to get started. There is no such thing to put up this sales model without having money available.
- Manage your brand, but you have to do a lot of attention to the competition and you have to take appropriate precautions, tactics and strategies, so as not to risk being knocked out.
6) Online sales of various products on Amazon
Another business model that is closely related to the sale of private label products on Amazon is selling wholesale products with FBA, Amazon’s logistics.
How does it work
To sell wholesale products on Amazon, you first need to find distributors that offer a variety of products for sale. You buy the products and go on sale on Amazon, using logistics and margins could be substantial.
- There are no barriers to entry.
- We need good research to find products, manufacturers and wholesalers.
- It is advisable to sign supply contracts and make commitments, which can be burdensome.
- Commitments and contracts. It is not easy to find the right supplier and you need to know how to deal and sell.
- The sale of widespread products quickly leads to the erosion of sales prices.
- It is only a matter of time for the source, the product, the sales system to be discovered and prices to sink.
- This eCommerce model is easy to launch.
- Difficult to find the right products.
- You can make sales immediately. You do not need a website.
- Before or after selling prices will fall.
7) Online sales of various products on its website
Selling on your website and managing your own inventory is what most people think is (or should be) the traditional business model brought in online sales.
How does it work
You sell with your own website, you manage your inventory, and you can use an external logistics company. The best part is that you have control of your brand store, but you are always competing with other stores that sell the same item. Achieving good business and good profit will be challenging.
It is not as easy as it seems to build, launch and prosper this traditional eCommerce model. You must pay for traffic, manage ad campaigns, find interested customers. You must have a margin that allows you to invest in these activities. You are responsible for your brand, sales, customer satisfaction, but you are under the pressure of the prices of many competitors, including competitors who are present on marketplaces. It’s hard to find a unique value proposition, you have to distinguish yourself from everyone else.
8) Online sale of products in private label on its website
This is the eCommerce model with the highest long-term potential.
- Sell your products and you need to drive traffic to your website.
- The minimum turnover per employee is between 250 thousand and 300 thousand per employee. It means that you pay a regular salary for every 250 thousand of sales.
- You must have an initial capital and a capital to support you, as well as a capital to invest in goods.
These numbers, this minimum turnover, applies to every sales activity and if you think you can live with smaller volumes of business you can always try to make it.
- You must have an initial capital to build the website, buy the initial merchandise, sustain the business over time while waiting for it to become profitable. Not a little money: economic activities always need capital to get started.
- You have to produce your traffic: this is also a cost and an investment.
- You are solely responsible for your site, inventory and customer satisfaction.
- If you want to have full control, you must find a unique value proposition and invest appropriately.
Put the different models together
Now that you have an overview of the different e-commerce business models, it is important to note that there is nothing that excludes you from combining the different models.
Just because I put my site online does not mean it cannot sell on Amazon. Just because I sell my private label products does not mean I cannot add a couple of dropship products to my site. And just because I sell private label products on Amazon does not mean that I cannot always sell wholesale products on Amazon.
The key thing to remember is that the more effort you place on your business, the more your business will be defensible. If you are tempted to do something quick and easy, it is likely that it will not be sustainable.
One of the main reasons I like building an online store that sells private label products is that entry barriers are getting higher and higher. Finding products, establishing long-term relationships with suppliers, having a large financial endowment, achieving very substantial business volumes, is not an easy task and is not managed without adequate organization.
But trade is also a mimesis of war, it is not to be underestimated because we always act in the presence of fixed costs that always increase, high density of circulating capital and erratic clients. And always, making this equation with profit is a very risky business.