Pros and Cons of Common Ecommerce Business Models

Thinking about launching your own online business? Learn about the pros and cons of these common ecommerce business models.

Traditional retail models no longer apply today. Businesses that want to succeed today can no longer open a brick and mortar store and expect a captive audience.

New tools allow businesses to streamline and automate. If you’re an Amazon seller, check out our list of apps and tools to see if any can help your business.

Use a combination of these different business models to maximize your revenue!

Drop Shipping

world map with packages and different shipping

With this model, you sell products and have another business fulfill the order. This can be a wholesaler or a manufacturer. Many sellers use online marketplaces like Alibaba to fulfill orders, but long ship times may deter some customers.

For instance, you’d set up an ecommerce store or list an item on a marketplace like Amazon. When someone purchases from you, you’d send the shipping information to the business, who would then pack, ship, and provide you with the tracking number.

Pros

  • Low startup cost because you don’t have to purchase, store, and ship products
  • Lower risk because you don’t have to worry about having old or dead stock due to changing trends or updated models
  • Add products to your ecommerce store quickly
  • Sell a variety of products across diverse categories since you don’t need to warehouse products (food, toys, fashion, or other perishables)
  • No need to handle shipping logistics

Cons

  • You’ll have to rely on the other business to pack and ship the correct products in a timely manner
  • You’ll have to sell the products, effectively providing marketing and advertising for other brands in addition to your store
  • A lot of competition because of the ease of entry and low startup cost
  • No control over order fulfillment (stock, packaging, tracking, etc.) and stock on hand
  • Less control over customer service since you rely on information provided by another business
  • Generally lower profit margins than other business models since you’re not buying in bulk

Wholesaling

products in an aisle in a wholesale store

With this model, you’d sell mainly to other businesses instead of the end consumer.

Some wholesalers may sell to customers. Businesses like Costco and Sams Club sell using both business to business and business to consumer models.

You’d need to contact the manufacturer or distributor to open an account. Requirements will vary. For instance, some may require physical storefronts while others may want a website. Others may have a minimum order quantity.

Pros

  • Larger volume of sales since you’re selling to other businesses
  • Recurring sales to businesses since they’ll want to restock
  • Other businesses or retailers will advertise your products
  • Set minimum order quantities so you don’t have to deal with a lot of individual orders
  • Businesses will seek out your products once you’re established
  • There’s usually less competition because of the high initial capital investment required
  • Established customers may be able to purchase on terms like NET30

Cons

  • Requires large warehouse to store inventory
  • Need a large capital investment so you can get good prices
  • Requires employees to handle warehousing and support
  • Selling on credit introduces its own risk

White Labeling (or Private Labeling)

White labeling is the practice of rebranding or relabeling another company’s products with your own label. The white label usually includes some minor changes, though this may not always be the case.

You may be able to find domestic suppliers in the US willing to put your label on their products.

Having a white label today is much easier than it was even a decade ago. The relative ease and low cost of getting products manufactured in China and shipped to the United States make white labeling popular for many businesses.

Amazon sellers may be more familiar with the term Private Labeling, which is a similar practice.

Pros

  • You have control over distribution and pricing of your products
  • You can add value to the product by bundling it with other products
  • Your marketing efforts will nurture your brand
  • Cheaper and easier to white label than to develop a new product that requires research, design, and factory retooling
  • Less risk than manufacturing and marketing a new product since you’re selling a product that already has a proven demand
  • Can quickly expand your product catalog to offer complementary products
  • Higher profit margins than dropshipping

Cons

  • Low cost of entry means anyone with access to more capital can compete with his own private label product
  • You depend on the manufacturer to deliver products as ordered (miscommunication and quality control)
  • Potential to have long lead times, missed deadlines, and other issues related to shipping and customs
  • Need to develop a brand: logo, marketing, website, and packaging
  • More policing of your brand and products on different marketplaces
  • Supplier may sell your product to other private labelers if you’re not careful
  • You’ll be competing against established brands in your niche
  • Be careful of intellectual property infringement

Manufacturing

manufacturing process

Manufacturers create the products to sell, generally to distributors and wholesalers.

Many manufacturers are now based outside of the USA because of the lower cost of doing business. Domestic and foreign manufacturing each have their own challenges.

Many of the advantages are similar to distributors, like recurring sales, marketing, and minimum order quantities.

Many people also manufacture or produce in small batches and sell direct to consumers via marketplaces like Etsy and Amazon.

Pros

  • Generally larger volume of sales to wholesalers and distributors
  • Set your own price for products and implement MAP
  • Less competition since the cost of entry is so high
  • Control over quality assurance
  • You have control over the supply of products

Cons

  • Requires large capital investment for building, machines, and employees
  • Higher operational expenses
  • Changes in trends or consumer demands may lead to high retooling costs if products are specialized
  • May have to deal with MAP/UPP enforcement

Online Marketplaces

The growth and popularity of online shopping have changed how people buy and sell.

Many businesses have now moved to online sales, forgoing traditional brick and mortar stores. Lower operating costs and a larger online audience make ecommerce more appealing.

Many third-party sellers on Amazon, Walmart, or other marketplaces now use a hybrid business model. Businesses may sell as a third party through one marketplace while doing wholesale on another. Check out these popular marketplaces and the fees they charge sellers to see if one is a fit for you.

Some ecommerce sellers are able to use third-party services to do anything from sourcing, fulfilling, and providing customer service. These services free businesses from costly warehouse space and employees.

The fierce competition amongst marketplaces today means that businesses need to be flexible to succeed. And using only one business model may mean losing out on potential revenue streams.

Here are some other models online retailers use:

  • Sell as a vendor through Amazon Vendor Central and as a third-party seller on Amazon or another marketplace
  • Resell using a combination of online and retail arbitrage
  • Benefit from reverse logistics (refurbishing, liquidations, thrift stores)
  • Establish an ecommerce store for Private Label, drop shipping, and distributing
  • Sell handmade products on platforms like Etsy
  • Offer subscription-based businesses that offer both service or consumer goods
  • Sell artistic designs through print-on-demand websites like Amazon, Teespring, or Threadless
  • …and other combinations!

As new technologies are developed, new opportunities will arise for people with entrepreneurial spirits. The explosive growth of Shopify and similar ecommerce solutions have simplified starting an online business. Or start selling on marketplaces like Amazon and eBay without the need for a storefront.

If you want to start an online store for free, there are a few free ecommerce solutions that you can try. Or sign up for a marketplace like Amazon or eBay for free to start selling today.

The ease of starting a business has only made competition tougher, requiring businesses to automate, streamline, and cut costs. The result is that customers have access to a wider variety of products, better prices, and improved customer support.

Check out these related articles:

Proactive Steps to Grow your Ecommerce Business

Your ecommerce storefront up and running, and sales are starting to come in. You’re now likely wondering what the next step should be. It would be a mistake to sit by and hope business picks up. You have to be proactive!

To give you a few ideas for what you can do next, we’ve brought together a few great tips to improve your sales.

Actively Seek Out New Business

Take steps to draw in new customers. Don’t expect them to just happen upon your website without you putting any effort in!

Whether you set up a referral program to gain some free marketing from your current customers or establish and maintain a presence on social media, there are many ways to get new customers.

Here are some other ways you can increase sales:

  • Advertise on social media platforms like Instagram, Facebook, or Pinterest using shoppable ads
  • Send emails to your current customers regarding sales or new products
  • Provide content like videos or articles to describe or demonstrate your products
  • Advertise using PPC

Offer Incentives To Buy More

Another great way to improve your ecommerce business is to sell to your loyal customers.

Giving your current customers incentives for placing larger or more frequent orders can be a great way to increase profits, with no cost or little effort spent on your part!

One great way of doing this is by offering discounts on products where production costs are low. You may be able to increase production, reduce costs, and still maintain the same profit margin even after discounts!

You can set up a customer loyalty program to reward your best customers. Offer them free products, services or discounts after they’ve purchased a certain amount.

There is a reason you find many businesses these days offering rewards programs: they work!

Avoid Lost Sales and Abandoned Shopping Carts

Empty shopping cart

A common problem many ecommerce businesses face is customers leaving their site without completing their order.

In fact, between 60 and 70 percent of visitors do just that! This results in a large loss of potential revenue.

Identify what is causing customers to change their minds. Typically, customers will abandon their shopping carts due to additional fees such as shipping costs or taxes, which is a sign that your price is not competitive.

They may seek out alternative marketplaces. If they find it cheaper elsewhere, they are going to end up buying from your competition!

There are several techniques you can employ to take these missed opportunities and turn them into sales. One of the most effective methods is by sending follow up emails.

Most ecommerce platforms offer this feature, and by setting up a steady trickle of follow up emails, you may entice your would-be customer into placing their order!

To make the most of this strategy, here are a few tips:

  • Send out a reminder to the customer, showing them what was left in their shopping cart
  • Be attention grabbing! Create enticing headlines and copy, as well as photos, to draw them back to your product
  • Offer discounts

Upgrade Your Website’s Content

Take a look at your product descriptions and ad copy to find ways to improve. Try adding some great videos or photos to your product listings to make them more appealing.

Look at your website from a consumer’s perspective. Use visually stunning images, invest in professional product photographs, and avoid stock images that look cobbled together from free clip art.

Take this opportunity to do a little SEO optimization. Identify and add new keywords and meta tags to your pages, pictures, and articles.

Proofread and revise your content. Give relevant information and avoid being too wordy, as blocks of text turn away customers.

Increase Your Prices, Within Reason

Your customers might not like it, but increasing the prices on some of your products by a small amount is another great way to increase sales.

If you currently offer free shipping, consider charging for it, or increase the minimum amount for free shipping.

Many people associate quality with the price: the higher the price, the better the perceived quality. Many brands rely on this perception when determining a price.

The opposite is true. If you see a brand name product sold at low prices, you’ll question its authenticity.

But you don’t want to increase your price so much that it’s beyond your customer’s range, nor do you want to charge so much that you drive your customers away.

Coming up with the right price can be difficult, but with a little trial and error, you’ll be able to find the right price.

Offer Occasional Discounts and Price Drops

Limited Time Offer Post It

Everyone loves a bargain! Offering your customers discount codes or advertising price drops are some great ways to draw attention to your website!

However, you’ll want to avoid offering too steep of a discount, as this can end up scaring customers away. Constant sales may give your customers the impression that your product is cheap.

Worse, they’ll see your sale price as the new “normal” price, making it more difficult to complete sales in the future.

By offering up single-use promo codes or short-term sales on your most popular products, customers who were on the fence about buying may be pushed over the edge, resulting in increased sales!

Temporary sales are another great way to take the more frugal shoppers amongst your customers. They’ll then be advocates for your brand.

Bargain hunters love finding a good deal and are more likely to share their findings with their friends via social media, resulting in some free advertising for your business.

Diversify Your Offerings

Even if you’ve been successful by focusing on one channel, branching out into other potential channels is in your best interest. By adding additional options to your product line, exporting or importing your own products, or establishing yourself as an expert in your chosen field, you’ll open up new avenues for profit!

Many sellers may rely on one marketplace like Amazon, but when their account is suspended, their sales may completely stop while they’re frantically trying to correct the issue. In the meantime, they still have expenses.

By diversifying, merchants can reduce the impact of one marketplace having an issue while they work to resolve problems.

Offer Upgraded Items and Complementary Products

After finding products that your customers enjoy, don’t sit by and let them do all the heavy lifting! Upselling, or enticing your customers into buying upgraded items or complementary products, is a great way to grow your business.

Offering your customers a larger variety of products to choose from will increase the likelihood of them buying from your storefront, and a larger catalog will make your products appear all the more attractive.

Growing Your Business Doesn’t Have to be Difficult

Whether you’ve been running your ecommerce business for days or years, you’ll likely be looking for ways to grow your business. After reading through this article, you should have some better ideas on what techniques you can employ to accomplish this task.

Whether you end up acting on a few, or all, of these great tips, you’ll likely find that your sales start to pick up once you’ve started being more proactive about the growth of your business!

Project Management Software like Trello for Businesses

Check out these cloud-based project management applications to help you collaborate, manage, and organize your projects. Move those post-its and to-do lists online! Declutter your workstation and become more productive with these project management apps.

Regardless of what kind of business you own or how many employees you have, you can streamline and manage your projects better with some kind of system.

We’ll list whether or not there’s a free option for businesses that only need a basic or simple solution. Also included are bullet points of the features listed by the service.

Scroll through this article to see a survey of the popular project management apps you can start using today to become more organized!

Most, if not all of these services, have mobile apps, so you’re not limited to a desktop or laptop. Don’t let the presence or absence of bullet points scare you away from the services. All of the services offer similar features, though the labels or descriptions may not necessarily reflect the same feature.

Asana

Asana home

Their most basic plan is the Premium plan, and that’s $9.99 per user per month, billed annually.

Project management

  • List view projects
  • Board view projects
  • Assignee and due dates
  • Start dates
  • Task dependencies
  • Timeline

Views and reporting

  • Calendar view
  • Status updates
  • Custom fields
  • Advanced search and reporting
  • Progress view
  • Portfolios
  • Lock custom fields
  • Resource management (coming soon)

Support and control

  • Priority support
  • Google SSO
  • Customer success
  • SAML
  • User provisioning and deprovisioning
  • Data deletion
  • Custom branding
  • Cross-regional backups
  • Service accounts

Basecamp

Basecamp home

Basecamp has one simple price of $99 per month that includes unlimited users and access to all features.

  • To-do lists
  • Message boards
  • Schedules
  • Documents and file storage
  • Real-time group chat
  • Check-in questions
  • Client access
  • Hill charts
  • Direct messages
  • Email forwards
  • Reports
  • Notifications
  • Search
  • …and more!

Freedcamp – includes free plan

Freedcamp home

Freedcamp has a free plan. The most basic plan, Minimalist, costs $1.49 per active user per month billed annually, or $2.49 per active user per month billed monthly. However, not all features are available with the Minimalist plan.

Core features included in every plan

  • Tasks
  • Calendars
  • Files
  • Discussions
  • Milestones
  • Time
  • Wall
  • Passwords

Premium features and add-ons

  • Wiki
  • Issue Tracker
  • Invoices+
  • CRM
  • Project Templates
  • Reports
  • Email-in
  • Google Drive, Dropbox, OneDrive

Enterprise benefits

  • Overview
  • White Label
  • Fast support
  • Daily backups
  • Private cloud
  • 2FA

Jira

Jira home

The most basic plan begins at $10 per month for up to 10 users. There’s a 7-day free trial with no credit card required. Jira has both a cloud-hosted service and a self-hosted service.

  • Scrum boards
  • Kanban boards
  • Agile reporting
  • Roadmaps
  • Custom filters
  • Developer tool integrations
  • 3,000+ apps
  • Customizable workflows
  • Mobile apps
  • APIs

Monday

Monday home

Monday charges by the number of users. At the most basic plan with 5 users, it’s $25 per month, billed annually. Every tier includes all of the features of the tiers below.

Basic

  • Over 20 column types
  • Kanban view
  • Embedded forms
  • Basic activity logs
  • 5GB storage

Standard

  • Timeline, calendar, and map view
  • Unlimited activity log
  • Share board with guests
  • Forms customization
  • Advanced search
  • Create templates
  • Email and external integrations
  • API
  • 50GB storage

Pro

  • Formula column
  • Time tracking
  • Chart view
  • Custom tags
  • Unlimited guests
  • Private board
  • Google authentication
  • Unlimited storage

Enterprise

  • Higher API rate limit
  • VIP support
  • One-on-one training
  • Session management
  • Audit log
  • 99.9% uptime
  • Single sign-on
  • 24/7 priority support with under 30-minute response time

Podio – includes free plan

Podio home

Podio has a free plan that allows up to 5 users. The next plan is the Basic plan, and it’s $9 per user per month.

  • Task management
  • Apps and workspaces
  • User management
  • Unlimited external users
  • Light user role
  • Automated workflows
  • Read-only access
  • Visual reports
  • Contact sync
  • Interactive sales dashboards
  • Advanced workflow orhestration

Redbooth – includes free plan

Redbooth home

The free plan gives you access to 2 users and very limited access to the available features. Their next Business plan starts at $15 per month billed annually.

  • Kanban boards
  • Task transparency
  • Dashboards
  • Project timelines
  • Detailed productivity reports
  • HD video meetings
  • Organize tasks with tags
  • Workplace templates
  • Store and share files
  • Comments and conversations

Taskworld

Taskworld home

 

Taskworld has two plans: a Professional plan and an Enterprise plan. The professional plan starts at $10.99 per user per month, billed annually.

Task management

  • Workspace
  • Tasklists
  • Tasks
  • Checklists
  • Repeating tasks
  • Tasks in multiple locations
  • Tags and labels
  • Followers
  • Task points
  • Attachments
  • Image previews
  • Seen by
  • Task by email
  • Activity log
  • Multiple asignees

Project planning

  • Projects
  • Project groups
  • Project template
  • Timeline
  • Calendar
  • Privacy settings

Team communication

  • Task comments
  • Direct messaging
  • Public/private channels
  • Project chat
  • @mentions
  • Email replies
  • Text editor
  • Emojis
  • Chat heads
  • Performance reviews

Analytics

  • Interactive dashboard
  • Advanced filters
  • Tasklist overview
  • Burndown charts
  • Burnup charts
  • Progress bar
  • Performance reviews

Security

  • Amazon Web Services
  • Regular backup
  • On-premise/VPC options
  • Advanced privacy settings
  • Encryption
  • Privacy shield
  • GDPR

Others

  • Custom background
  • Multiple languages
  • File management
  • Admin rights
  • People page
  • Workspace guests

Teamwork – includes free plan

Teamwork home

The free plan allows up to two users and 2 active projects, along with a set of limited features. If you like the service and want to upgrade to a paid plan, then the Pro plan is $9 per user per month, with a minimum of 5 users. That’ll be a minimum of $45 per month for the Pro plan.

  • Projects
  • Tasks
  • Milestones
  • Messages
  • Files
  • Time tracking
  • Billing
  • Notebooks
  • People
  • Calendar
  • Apps and Add-ons
  • Security
  • …and more features!

Trello – includes free plan

Trello home

The free plan allows users access to a good number of Trello’s features, but attachments are limited to 10MB. If you like the service, the Business Class plan starts at $9.99 per user per month when billed annually.

  • Trello boards (list of cards)
  • Cards (add attachments, comments, due dates, checklists, and more)
  • Teams
  • Unlimited invites to boards
  • Notification system
  • Search and filtering
  • Works through email
  • Private and secure data
  • API available

Wrike – includes free plan

Wrike home

Wrike has a free plan for up to 5 users to use a simple, shared task list. The next paid plan is the Professional plan, which includes more features. It starts at $9.80 per user per month.

  • Create
    • Core building blocks of work
    • Request forms and automation
    • Live editing and file management
  • Plan
    • Gantt chart
    • Resource management
    • Time and budget tracking
    • Templates
  • Collaborate
    • Communication
    • Calendars
    • Proofing and approval
    • Live activity stream
    • Mobile
    • Email and calendar synchronization
  • Report
    • Project and team reporting
  • Customize
    • Status and workflows
    • Custom fields
    • User groups
    • Dashboards
  • Integrate
    • Numerous integrations
  • Security
    • Strong authentication
    • Role-based access
    • Data center security
    • Data protection
  • Support
    • Email, phone, chat
    • 7 languages

Looking for other solutions for your ecommerce business? Check out these other articles.