- Doing It Solo: The Maker Model
- Putting Your Spin on Manufactured Products: Private Labels
- Taking the Convenience Route: Dropshipping
- Buddying Up With Big-Time Brands: Wholesale
- Securing Recurring Revenue: Subscriptions
- Make Your Grand Entrance to Ecommerce
With global ecommerce sales expected to rise to $8 trillion by 20261, you’ll find no better time to open an online shop. But how do you choose the right ecommerce business model? It should fit your time, budget, and creative energy – otherwise you risk burning out or giving up.
Do you want to spend hours crafting homemade jewelry or producing other items, for example? Or invest thousands of dollars in someone else’s products to resell? Are you looking to earn revenue quickly or just share your art with others as a side income?
To answer these questions, explore the ecommerce business models below so you can build a profitable business that also makes you happy.
Doing It Solo: The Maker Model
Consider this ecommerce business model if you want to design, create, store, and ship your products from your home.
Maker models allow you to control your pricing, product quality, and brand representation. Other models might restrict these factors since you must cooperate with suppliers or shippers.
- Earn a commensurate return for your time and labor. As a maker, you decide how much to charge, not a third party, which helps maximize your return on investment.
- Complete quality checks to build a trustworthy reputation. As a maker, you have control over the manufacturing process and can ensure each item meets your standards.
- Infuse your personality into your brand to build rapport with customers. The more customers see the person behind the products they buy, the closer they feel to you.
- Improve your products following customer feedback. You’re free to enhance or alter your product line to cater to customers’ tastes.
Maker models demand a lot of your time and energy. If you can’t keep up with demand, customers will become frustrated with you. Also, the more time you spend on making and shopping, the less you spend on marketing your ecommerce business.
- It’s harder to scale. One person can only work so fast and fulfill so many orders, making it difficult to grow a maker’s ecommerce business.
- Raw materials can be expensive. Maker startup costs will vary depending on the type of product you create. Some raw materials, like precious metals and stones, will eat into your budget.
- You need storage space. Your home can overflow with excess material, fulfilled orders waiting to be shipped, and other equipment for crafting your product.
A Successful Maker: Andrew Buehler of Urban Smokehouse
Andrew Buehler slow roasts and grills meat to sell on his ecommerce site. He handles all of the cooking, fulfills orders, and sends finished packages to a partnered shipping company that delivers perishables. With just two months under his belt, Andrew’s already earned more than $40,000 in revenue for his delicious, pre-cooked meat.
Putting Your Spin on Manufactured Products: Private Labels
Want to sell sweatshirts or tote bags? You can design and prototype a product and partner with a manufacturer to produce it. While they handle mass production, you manage everything else: sales, storage, fulfillment, and shipping.
Using a private label lets you expand your shop options and sell products that you can’t easily make at home. Makers are limited by what they’re physically able to produce, but private labels allow you to design and outsource production to manufacturers.
- You retain creative freedom. Although your partner manufactures the product, you design and describe it, working with partners to produce the best possible version.
- Products are cheaper to manufacture. Since manufacturers can crank out inventory in bulk, you pay a lower cost per unit and increase your margins.
- Your business is more resilient. If one manufacturer fails, others can save you from stalling order fulfillment. Multiple suppliers also allow you to scale faster.
Finding the right supply partner takes time. Once you find a good fit, expect weeks or months to refine and finalize your product. Samples and prototypes take time to perfect, especially if your manufacturer is overseas (many founders visit manufacturers to speed up the process).
- Prepare for high initial startup costs. While the cost per unit is low, most manufacturers require a minimum order quantity. You can easily drop thousands of dollars on hundreds of items that aren’t guaranteed to sell.
- You need to store and ship bulk products. While some manufacturers will ship products for you, others will send them back to you to ship. This can work in your favor if you want to personalize your packaging. But that also means squeezing boxes of finished products into your home office or garage to ship later. And since most products arrive in bulk, you’ll have more on hand than a maker would.
- Competition is fierce. More shoppers have heard of Lululemon than your new fitness apparel ecommerce shop. You have to amp up your marketing game to make your brand and products stand out against the competition.
A Successful Private Labeler: Roee Dunkelman of Cockuterie Boards
Roee Dunkelman spent months designing and prototyping penis-shaped charcuterie boards. His manufacturer supplies the board, which Roee customizes and engraves with the Cockuterie Boards logo. He became a social media hit for his creative product and unique branding.
Taking the Convenience Route: Dropshipping
When you dropship, orders from your store go straight to manufacturers who produce the order, store it, and ship it to customers. Sounds nice, right? It can be – but only if you’re prepared to make up that time and energy with more marketing and customer service work.
Convenience is a huge draw to the dropshipping ecommerce business model. You hand off most of the physical labor to manufacturers and focus on attracting customers instead.
- All you need is a website and a partner. While other founders waste months planning production and shipping logistics, you skip straight to marketing.
- It’s faster to monetize. Since you don’t stock inventory, you save thousands of dollars on that initial investment. Manufacturers only produce items as orders arrive, so the customer’s money lands in your account before the product reaches them.
- You can operate globally. Global shipping prices skyrocket when you work out of one manufacturing location. But with dropshipping, you can send customers’ orders to the closest supplier and decrease shipping time and costs.
Since dropshipping is an easy entrance to the ecommerce space, you’re competing against thousands of companies offering similar products. One way to stand out from competitors is to create a compelling brand or excel in customer service.
- Product problems are your problems. Customers will hold you responsible for anything that goes wrong. Take accountability for the mistake, even if it was out of your control. Customers see you as the face of the brand, so they expect you to fix the problem.
- You have less control over the manufacturing and supply chain. Maybe a machine breaks, delivery trucks run behind schedule, or storage spaces fill up. You’re entrusting all of this to manufacturers, so prepare to troubleshoot these issues when they arise.
- Margins are lower. Convenience doesn’t come cheap. Manufacturers will charge a hefty price, and customers will only support so much extra. This results in slim margins, usually around 20 percent2.
A Successful Dropshipper: Austin Coker of Comfort Plants
When plant sales started skyrocketing during the pandemic, Austin Coker and a friend partnered with suppliers to send plants directly to customers. Austin sold the business last year in a five-figure deal on Acquire.
Buddying Up With Big-Time Brands: Wholesale
Wholesalers buy products in bulk and resell them for profit. Working with established brands and market-validated products elevates your business as customers recognize their favorite items in your shop.
While private labels and makers struggle to spread awareness about their businesses, wholesalers cater to an existing market.
- You can sell a variety of wholesale products. Build your ecommerce shop around a concept and purchase different wholesale products in bulk to match that concept.
- Earn the cachet of well-known brands. The more you tie your brands together, the likelier customers will explore other items in your shop, trusting your taste.
- Make bigger margins when bulk buying. Manufacturers will send you bulk orders for a lower price per unit – whatever you add on top should cover costs and a bit of profit.
The biggest concern for wholesalers is not letting inventory go to waste. You’ve already paid for them in bulk, and they’ll occupy space in your warehouse or garage unless you sell them.
- You need to invest in marketing. Your top suppliers sell to as many competing retailers as they can. You’ll need strong marketing and branding to outshine them.
- Startup costs are high. Wholesale prices might be a good deal, but you’re still investing cash to Acquire inventory. You have no revenue to compensate for this investment, so selling as much as possible at launch is crucial.
- Online marketplaces compete with your business model. Manufacturers are just as likely to sell their products through online marketplaces as a wholesaler. Seek suppliers who don’t have the time or energy to sell their products. Market yourself as someone who can flip products quickly.
A Successful Wholesaler: Takaski
Takaski4 is a wholesale company that only stocks Japanese products. It partners with popular brands including Shiseido, Muji, Suntory, and Kao.
Securing Recurring Revenue: Subscriptions
Within the last year, the subscription ecommerce market has increased by 65 percent3. How does it work? Customers pay a monthly or yearly fee to receive products regularly.
With subscriptions, you can budget a little easier since revenue tends to be more predictable.
- You develop closer relationships with returning customers. The longer people stay subscribed, the more they value and appreciate your brand. Such warm leads are relatively easy to upsell or cross-sell opportunities to grow revenue.
- You can service a niche market. Subscription boxes allow you to capture a specific audience. Take BirchBox, for example, a wildly popular makeup company that sends four to five new beauty products to subscribers each month. The company curates these items for an audience that loves luxury and top-of-the-line items.
- Adjust your pricing to grow revenue. Use your knowledge of longtime subscribers to study their buying habits. See what products or services customers love most and raise the price incrementally to earn more revenue. If that specific tier is popular and valued enough, subscribers will pay a little bit more each month to continue receiving its benefits.
With subscriptions, prepare to battle churn. You have to update your subscription offering regularly so customers don’t grow tired of getting the same thing. Keeping their interest and engagement will be a top priority.
- You must offer something new regularly. Listen to customer feedback so you include in-demand products or services.
- Your product must “run out”. Not everyone uses products at the same rate, so expect cancelations and skipped months while some customers catch up.
- You’re reliant on third parties. Most subscription ecommerce businesses work with manufacturers and shippers to send out their products. If one of those third parties fails, it could affect your entire batch of orders for that month. Alert your customers of any issues and take accountability for delays or mistakes.
A Successful Subscription: FairyLoot
FairyLoot5 is a UK-based book box subscription. Subscribers receive a monthly box filled with bookish goodies and special edition young adult books. In the last year, the company has also launched an adult and a book-only box for a smaller price. FairyLoot cross-sells each subscription type and sells special edition books in their online store year-round.
Make Your Grand Entrance to Ecommerce
Now that you know the advantages and disadvantages of each ecommerce business model, decide which one fits your expertise and lifestyle. Consider what each model requires from you and if you’re prepared to spend it – whether it’s time, money, or effort.
Still unsure about entering the ecommerce space? Consider acquiring an ecommerce business on Acquire and working with a head start.
The content on this site is not intended to provide legal, financial or M&A advice. It is for information purposes only, and any links provided are for your convenience. Please seek the services of an M&A professional before entering into any M&A transaction. It is not Acquire’s intention to solicit or interfere with any established relationship you may have with any M&A professional.