When you’re starting a business online, you have a lot of choices to make. Outside of the product you choose to sell, one of your biggest decisions is what business model to pursue. Show
In this article, we’ll share a high-level breakdown on the eight major choices to consider when starting your business, so you can make the best decisions possible right from the beginning. It’s important to understand each of these methods in order to make the right choice for your small business. There are pros and cons to each of the methods and, depending on your product, market, and cost structure, one may be more suitable for you and your business than the others. What is a business model?The term “business model” refers to a company’s core framework for operating profitably and providing value for customers. The features of a good business model explain the customer value proposition and pricing strategy. It identifies the products and services a company offers, its target market, and future expenses. Business models are essential for both new and established businesses. They help companies understand their customers, keep employees motivated, attract investment, and provide a sustainable competitive advantage by identifying opportunities to grow. Think of your business model as a live asset for your company. It’s healthy to update it regularly to stay on top of trends and obstacles ahead. If you’re planning to raise capital or partner with someone, active business model innovation shows stakeholders you can adapt and meet changing market demands. The brand attracted thousands of bubble tea fans from the area by giving people a unique selection of products at a fair price. It’s also done a great job at building awareness on social media to share user-generated content and appeal to customers with any budget. Resources:
Free Webinar: How to Get Started with Dropshipping in 2020 Learn how to find high-margin products, add them into your store, and start selling — fast. MakersMaking your product is a common approach for many hobbyists. Whether it be jewelry, fashion, or natural beauty products, making new products yourself allows for precise control over quality and your brand but comes at the cost of limitations, time, and scalability. The primary costs associated with making your own products include the purchasing of raw materials, the storage of inventory, and labor. The most important thing to note here though is that not all products can be made by hand. Your product choices are limited to your skills and available resources. This option is for the do-it-yourselfer, someone who has their own unique ideas, can physically produce the goods themselves, and has the resources available to do so. Making your own products is also for people that want to maintain full control over the product quality and their brand and who have the desire to keep startup inventory costs low. Pros
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A maker success storyOld World Kitchen began as a family-owned business selling door-to-door in its local area. It went through a period of growth where Etsy was the best move for getting the business online. The brand, which specializes in handcrafted kitchen utensils, wanted to expand further, but to do that, it needed full control over pricing, branding, and quality control—things Etsy couldn’t offer. After moving from Etsy to Shopify, the brand saw a sharp increase in online conversions. It was also able to partner with relevant brands and increase its prices, all while staying true to selling goods made by hand. Resources:
ManufacturingManufacturing your product is good for those people with a unique idea or a variation of a currently existing idea. It's also for people that have validated the market for their product and are fairly confident that it will sell. This is important, as manufacturing will require the greatest financial investment upfront. You can look at manufacturing through two lenses: private label and white label. A private label product is created by a manufacturer and sold under the businesses name. The business controls everything from what goes in the product, how it’s packaged, and what the labels look like. Private label is best for brands who want to create unique products. A white label product is created by one manufacturer and sold to various retailers under their own brand names. They are generic products that you can sell to wider customer segments. Pros
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When you manufacture your product, your margins can vary greatly based on the particular product, the manufacturer, and order quantity. Usually however, manufacturing your own product gives you the greatest margin potential over other methods, like purchasing wholesale and dropshipping. Resources:
WholesalePurchasing products wholesale is a good option if you want to get up and running quickly or if you want to sell a variety of products and brands. Wholesaling provides a wide range of opportunities, as there are many products available for wholesale. Pros
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The margins for wholesale are typically good compared to dropshipping, which we’ll cover later on, but not as profitable as manufacturing. Wholesale might be considered a safe middle ground between manufacturing and dropshipping. Although each case is unique, it’s typical to see a 50% margin on wholesale goods resold at retail pricing. Buying wholesale still carries risk. Wholesaling will require the purchase of inventory with no guarantee that you can see it. Perhaps the greatest risk comes from figuring out how to differentiate yourself from the many other retailers selling the same products. A wholesale success storyPernell Cezar Jr. and Rod Johnson founded BLK & Bold with the goal of helping local communities through selling coffee. The company pledges 5% of all profits to programs that assist youth programs, improve workforce development, and eliminate youth homelessness. BLK & Bold leverages wholesale and direct-to-consumer channels to drive sales. The majority of its wholesale partners include coffee shops, restaurants, offices and co-working spaces, and hospitality providers such as boutique hotels, Airbnbs, and classic bed and breakfasts. Partners can offer various in-house roasted blends, organic speciality coffees, and seasonal teas, and can request a custom coffee and tea experience for their customers. Resources:
Print on demandPrint on demand is a way to sell made-to-order products that feature your designs. You simply make the design and, when a customer orders a product with the design, a third-party printing service creates, packs, and ships the order. Similar to dropshipping, this model reduces the cost of entry into selling online. You don’t have to pay for a product until you make the sale, so there is little upfront investment. This frees up funds you can put toward your marketing and advertising strategies. When using print on demand, everything from printing to packing to shipping is handled by your printing partner. Pros
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Print on demand is also a great business model for creatives because the offerings are endless. You can sell products like:
On-demand products typically yield thinner profit margins, depending on your pricing strategy and customer acquisition costs. But it’s a good low-risk business model for those new to ecommerce or who want to test new revenue streams for their existing business. A print-on-demand success storyLiz Bertorelli, founder of Passionfruit, really wanted a French bulldog. In 2013, she set a goal for herself: if she could make an extra $5,000, she would get one. Even though she had a full-time job at the time, she started Passionfruit, an online print-on-demand t-shirt company, to meet her goal quickly. Fortunately, Liz reached that goal in a matter of months. Eight years, one dog, and a full rebrand later, her LGBTQ+ apparel brand and ecommerce store are alive and well. And, her “Protect Trans Kids”' t-shirt sales surged after one just like it was featured on Saturday Night Live. Resources:
Free Webinar: How to quickly start a profitable print-on-demand store In our free 40-minute video workshop, we'll get you from product idea, to setting up an online store, to getting your first print-on-demand sale. Digital productsA digital product is a nonphysical asset or media type that can be sold and distributed online, repeatedly, without restocking inventory. These products often come in the form of downloadable, streamable, or transferrable digital files, such as MP3s, PDFs, NFTs, videos, plug-ins, and templates. The upfront costs of creating a digital product can be high, but the variable costs of selling them is comparatively low. Once an asset is made, it’s incredibly cheap to deliver to customers. Pros
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Because your income doesn’t depend on owning physical assets, you don’t need any large-scale upfront investment for a digital product business. It also means you can charge lower prices than physical competitors. Moreover, there is no recurring cost of goods and services, which means you retain most of the profits. Resources:
Direct-to-consumer (DTC)The direct-to-consumer business model means you sell products directly to consumers, without wholesalers, middlemen, or third-party retailers like Amazon. It's a new business model gaining traction as the multichannel retailer model slows down. Think about the latest trending brands: Warby Parker, Barkbox, Bonobos, Casper. What do they all have in common? A DTC business model. Even brands like Apple and Tesla are leveraging mobile commerce as a main channel for DTC sales. These brands eliminate the hassle of researching and choosing from hundreds of competing brands, making the entire shopping experience easier for customers. Pros
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By interacting with your customers directly, you retain control of your products and their performance. While it may take time and money to establish reliable distribution channels, selling direct is a smart business model for building a loyal customer base and improving profitability over time. A DTC success storyHandcrafted leather shoes and “Made in Italy” go hand in hand. Consumers who wear this type of footwear have traditionally accepted its high price tag—thanks to an industry flooded with distributors, agents, resellers, and retailers. It wasn’t until Velasca, a Milanese footwear startup, stepped into the scene in 2013, with a goal to disrupt the industry by connecting consumers directly to shoemakers. Velasca was born out of a casual conversation between co-founders Enrico Casati and Jacopo Sebastio in the back of a taxi. It has since grown into a blossoming DTC brand, selling hundreds of thousands of shoes in over 30 countries. Resources:
The brand offers a Sock of the Month Club where John, the founder of the company, will pick his favorite high-quality socks for subscribers each month. Every package gets a thank-you note from John, some candy, and discount cards for future orders. Moreover, 5% of each subscription goes to support the Special Olympics. Resources:
Finding a successful business modelMost products will fall into one of these core business models. Depending on your product or niche, you may not have the option of which ecommerce business model you choose. Much depends on the type of product you plan to sell. Some products will naturally fall under certain categories. However, the model you end up selling under will partially define and shape your entire business plan going forward. Use the different business models above as a launchpad to building a foundation you can rely on. Then, continue to innovate how you deliver value to your customers. You’ll soon start to see the impact of a good business model first hand, avoid one of many common business mistakes, and kick off your path to entrepreneurship the right way. Illustration by Pete Ryan Ready to create your first business? Start your free 3-day trial of Shopify—no credit card required.Business models FAQWhat are examples of business models?
What are the 4 types of business models?
What is a good business model?A good business model is the building block for a successful business strategy. It will answer critical questions about your business and create a strong vision for the future. Key components of a strong business model include your target customers and market, your company’s strengths and weaknesses, pricing strategy, core element of your products, and how you’ll sell them. How do I choose a business model?
What is the business model that applies to customers offering goods and services to each other over the internet?Business-to-consumer refers to the process of businesses selling products and services directly to consumers, with no middle person. B2C typically refers to online retailers who sell products and services to consumers through the internet.
What is the ebusiness model that applies to customers offering goods?What is the ebusiness model that applies to customers offering goods and services to each other over the Internet? Brick-and-click, brick-and-mortar, brick-and-virtual.
What is the ebusiness model that applies to customers offering goods and services to each other over the internet C2C C2B B2B B2C?In the C2C model, a consumer – not a business – sells goods or services to another consumer. Today, the C2C business model is typically associated with e-commerce and online selling platforms like Craigslist or Etsy. Some C2C platforms, including OfferUp, prioritize mobile commerce via apps.
What are the 4 E business models?There are six major eCommerce business models:. Business to Consumer (B2C). Business to Business (B2B). Business to Government (B2G). Business to Business to Consumer (B2B2C). Consumer to Consumer (C2C). Consumer to Business (C2B). |