Are you just starting in the ecommerce world? If so, you may wonder what business model type to choose for your new venture.
In this article, we'll compare the six most popular ecommerce models: dropshipping, private labeling, print on demand, third-party fulfillment, in-house fulfillment, and drop servicing.
We'll explain what each model is and how it works, as well as its pros and cons.
Let's get started!
6 Popular types of ecommerce business models
Let's start discussing some important types of ecommerce business models.
The most popular ecommerce business model types are:
- Private labeling
- Print on demand
- Third-party fulfillment
- In-house fulfillment
- Drop servicing
Let's check them out one by one!
Dropshipping is an ecommerce business model in which you sell products without carrying any inventory. These products are sold at your own dropshipping store.
So, whenever you receive an order from a customer, you simply place that same order with your supplier, who ships the product(s) directly to the customer.
One of the key benefits of dropshipping is that it allows you to offer a wide range of dropshipping products without having to invest in inventory.
So, you can test many product ideas without any upfront costs!
As such, dropshipping is a popular option for people who are just starting, as it's a relatively low-risk and low-cost way to launch a new ecommerce business.
Let's check out the pros and cons of dropshipping:
|Low startup costs.||The dropshipping mindset.|
|Quickly test products without buying in bulk.||High competition.|
|Your supplier handles shipping and logistics.||Less control over shipping and product quality.|
|Starting a new store doesn't take long.||Profit margins can be slim.|
|Refunds can be complicated.|
|Difficult to build a brand identity.|
Overall, dropshipping is an excellent option for those looking for an easy way to get started in ecommerce.
Yes, dropshipping, in general, has more cons than pros. However, there are always methods to deal with those cons and make them less apparent! (You can find more about these methods here.)
If you are interested in starting a dropshipping store, you may want to sign up for our free 7-day challenge. It's a step-by-step guide that will help you create a dropshipping store in just seven days.
Alternatively, you can also check out our dropshipping checklist here.
Dropshipping with local suppliers
You may know that most dropshippers, especially in the early days, use Chinese dropshipping suppliers.
One of the more popular ones is AliExpress.
That's why local dropshipping suppliers have become very popular lately.
Local suppliers manage warehouses in the country of your customers, so you can offer them much faster shipping times!
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However, if you are interested in suppliers from a specific region, you can find them here:
- Best suppliers in Australia
- Best suppliers in Canada
- Best suppliers in China
- Best suppliers in Europe
- Best suppliers in New Zealand
- Best suppliers in the United Kingdom
- Best suppliers in the United States
Dropshipping with private agents
If you don't mind your delivery times being a bit longer and you still want access to cheap products, then there is also a third option that may be suited for you; dropshipping with private agents.
A private dropshipping agent is a middleman between you and your dropshipping supplier. They will source, store, pack, and ship your dropshipping products. Furthermore, they ensure you get the best price, quality, and delivery times for your product.
For example, a dropshipping agent can
- Do quality checks for your product.
- Support you with branding, private labeling, and white labeling.
- Select the best shipping methods for your target country.
- Provide help in case of shipping delays or broken products.
- Update you on the latest product and shipping trends.
Sounds pretty good, right?
Here's an infographic of six reasons to use a private dropshipping agent:
2. Private or white labeling
One of the cons of dropshipping is that it's challenging to build a genuine, long-term brand. That's because you're not in control of the manufacturing and shipping process, so putting your logos on the product and packaging is tricky.
White labeling and private labeling allow you to sell products linked to your brand. You can give your product a branded name, print your logos on it, create custom packaging, and include a branded invoice.
White label products are generic products that are rebranded for multiple companies. In contrast, private label products are also branded, but no other companies are allowed to sell that exact same product.
Private or white labeling can be combined with dropshipping or any other fulfillment method to enhance the branded feel of your company.
In general, private or white labeled products have a higher perceived value, making it easier to sell them at a higher price point!
|The perceived value of your products increases.||Finding the right suppliers and designing your products and packaging takes more effort.|
|The competition is less of a worry since no one sells the exact same product.||Non-branded products are cheaper to buy.|
|Your product's branding will positively affect your business' customer loyalty.||Many white or private label products require a minimum order quantity.|
Want to know more about white labeling or private labeling? If so, these articles will help you:
- 11 Great White Label Product Examples to Sell Online in 2023
- How to Get Started With Private Label Dropshipping (5 Steps)
3. Print on demand
Print on demand is a business model that involves designing your own graphics that can be printed on products like T-shirts, hoodies, or mugs. Once you receive an order on your POD store, you forward it to your POD supplier, who prints your graphics on the product and ships it directly to the customer.
Here is an infographic on how it works:
Products sold in POD stores are often apparel such as shirts and hoodies. But you can also sell products like mugs, towels, art prints, phone cases, and even notebooks or mousepads!
|A POD store is as easy and low-risk to set up as a dropshipping store.||POD businesses generally struggle with tight profit margins.|
|Ability to (partly) design products yourself.||It can be more challenging to deal with returns as the product is custom-made.|
|You will never have to deal with any leftover inventory.||Your store is only as good as your designs.|
|Often, you don't have complete control over the product's look.|
When comparing print on demand to dropshipping, we see the following:
The main difference between dropshipping and print on demand is that with dropshipping, your supplier doesn’t make any changes to the product, and the shipping time can be faster, while with print on demand, your supplier creates the product according to your custom design, and the shipping time can be longer.
Here's an infographic that summarizes all differences:
If you are an artist or graphic designer and would like to learn more about the print on demand business model, take a look at the following articles:
- Is Print on Demand Still Profitable Today in 2023?
- How to Start a Print on Demand Business in 2023 (8 Steps)
4. Third-party fulfillment
Let's continue with the fourth ecommerce business model type on today's list: third-party fulfillment.
Third-party fulfillment is a business model that involves using a separate company to store, pick, pack, and ship your orders. However, unlike dropshipping, this separate company is not your supplier. So, you buy your products in bulk and send them to your fulfillment partner before you get any orders.
Fulfillment by Amazon (FBA) is one of the most popular third-party fulfillment services. With FBA, you store your products in Amazon's fulfillment centers, and they pick, pack, and ship your orders:
By using third-party fulfillment services, it's much easier to control your product and packaging design, and you will certainly get faster shipping times than when you’re dropshipping from China.
Here is an overview of the pros and cons of this ecommerce business model:
|Increased efficiency due to the scale benefits of your fulfillment service provider.||The third-party service can charge storage and handling fees for your product.|
|Focus on all other aspects of your business.||Little control over the fulfillment process.|
|Peace of mind that your orders are fulfilled by experts.||You have to buy your products in bulk beforehand.|
|Increased flexibility, for example, when expecting a spike in sales.||You must ensure that your inventory won't go out of stock at the fulfillment center.|
|Your product costs are lower as you buy them in bulk.|
5. In-house fulfillment
If you missed a feeling of control over the fulfillment process of your ecommerce business, then the in-house fulfillment model may be the right business model type for you.
So far, all ecommerce business model types involve some kind of third party that ships your product to the customers.
For example, when dropshipping, you depend on a supplier that manages the storing, packing, and shipping part of the fulfillment process:
By choosing the in-house fulfillment model for your ecommerce store, you are responsible for those tasks. This means that you must ensure that you keep enough inventory and that once you get an order, you can pack and ship those products to your customer.
As the name of in-house fulfillment implies, you can literally do this by keeping an inventory in your own house.
Here are some pros and cons of this business model:
|You have full control over the fulfillment process. No more sudden delays or out-of-stock items!||Taking care of the fulfillment process yourself takes a lot of time.|
|In-house fulfillment is an excellent opportunity to use custom packaging.||In-house fulfillment can distract you from other important tasks like marketing and customer service.|
|You can learn more about the whole fulfillment process of an ecommerce store.||If something goes wrong with your store's fulfillment, you are responsible.|
When comparing this business model to third-party fulfillment, we see that the main difference is that in-house fulfillment gives you more control but takes more time and effort, while third-party fulfillment gives you less control but allows you to focus on other parts of your business.
6. Drop servicing
Last on this list; drop servicing!
Drop servicing is an online business model that involves selling a service to a client of yours and then hiring someone else to do that service for your client at a lower price.
Yes, although you don't sell any physical products, drop servicing also falls under the category of ecommerce business model types. After all, ecommerce also entails selling services, as you can see in the definition below:
Electronic commerce (ecommerce) refers to companies and individuals that buy and sell goods and services over the Internet.Investopedia
Here's an infographic of the drop servicing model:
Once the freelancer is finished, you can deliver the logo to your initial client and keep the $30 difference as a profit!
Besides creating logos, drop servicing can be done with services like social media management, virtual agent services, video production, copywriting, and more!
|As you don't spend time on the service yourself, drop servicing allows you to scale your business more easily.||You don't have complete control over the quality of the service as you don't do it yourself.|
|Like a dropshipping store, a drop-servicing business is not hard or expensive to set up.||You should ask yourself if it's ethical to do drop-servicing if your client thinks you are doing the service yourself.|
|It may be hard to get your first clients as you won't have any reviews at the start.|
For more information about drop servicing, check out this dropshipping vs. drop servicing comparison guide!
4 Tips for success when starting an ecommerce business
When you decide to take the leap and start with any of the six ecommerce business model types we just discussed, you should never forget a couple of things.
If you can manage to live by the following four tips, your chances of creating a successful ecommerce business will increase significantly!
1. Know that any ecommerce business is still a real business
One of the first things you should do is treat your ecommerce business as a real business. (Because it is!)
You will spend a lot of time optimizing everything, managing your cashflows, and creating marketing strategies. All of this is required to ensure a fantastic experience for your store visitors!
The thing is that an ecommerce business is typically easy to start (especially one like dropshipping), but it's thereby also straightforward to quit.
Therefore, it's tempting to simply stop if you don't see the results you initially expected.
An online business is often very easy to start, but it's thereby also very easy to quit.
So, remember to stay consistent, treat it like a real business, and you will see that things will get better!
2. You can find all information you need online for free
When you think about or start one of the business models outlined above, you may be targeted by so-called ‘gurus‘ who claim they can teach you the ‘secrets' of the business model and guarantee you success.
The truth is, most of the information in paid courses is recycled from another course or any blogs or YouTube videos on the internet.
People selling these courses lure you in with the things like their fancy cars, saying that it will be easy, showing their (un)biased reviews, or even fake income screenshots.
Purchasing a dropshipping course is like purchasing a second-hand book with a 10x markup (meaning: it is sold at 10 times the original price).
Just take your time with the research, and you will see that you can find everything you need online for free!
3. Be prepared to learn from your mistakes
This one is straightforward. Not only will you have to accept that you will make mistakes, but you also need to be prepared to learn from them.
There are many mistakes you could make. For example, you could mess up the inventory settings on your ecommerce platform, which causes your product to be ‘virtually' out of stock:
It’s great to make mistakes because you learn from them. And if you don’t take it from us, take it from this amazing quote:
I hope that in this year to come, you make mistakes.
Because if you are making mistakes, then you are making new things, trying new things, learning, living, pushing yourself, changing your world. You’re doing things you’ve never done before, and more importantly, you’re doing something.NEIL GAIMAN
4. Don't expect to get rich quick
Last but not least, don't expect to get rich quickly.
In the beginning, the progress of your online business is likely to be pretty slow as you are learning new things. As mentioned above, you are likely to make mistakes and won't earn much money (it's actually common to lose money in this period).
Let's take dropshipping as an example. Dropshipping isn't some magic way to earn thousands of dollars online.
It's just a business model that allows companies to sell products without purchasing them in bulk for their inventories.
This is great if you are not sure yet if your product will sell. But it doesn't mean that you will get rich quickly with it!
FAQs about ecommerce business models
Here are some FAQs about ecommerce business models!
What is the most popular ecommerce business model type?
The most popular ecommerce business model type is likely to be third-party fulfillment, with the most popular type being Amazon FBA. Also, dropshipping is a pretty popular business model.
Which type of ecommerce model is Amazon?
Amazon itself falls into the model of in-house fulfillment because it manages its own order fulfillment process. Third-party sellers on Amazon fall under the model of third-party fulfillment, as they rely on Fulfillment by Amazon.
Before we go to the final verdict, we've created a quick summary of this article for you, so you can easily remember it:
- The six most popular types of ecommerce business models are dropshipping, private labeling, print on demand, third-party fulfillment, in-house fulfillment, and drop servicing.
- For beginners, we recommend starting a dropshipping or print on demand store.
- If you're more experienced with ecommerce, private labeling or third-party fulfillment may allow you to build a brand and bring you more success in the long term.
- When starting an ecommerce business, remember that it's always a real business, and don't expect to get rich quickly.
The ecommerce landscape is constantly evolving, and new business models are emerging all the time. While it can be challenging to keep up with the latest trends, a few ecommerce models have stood the test of time.
We hope this article helped you understand these popular ecommerce business model types and their differences.
If you still have any questions left, remember that you can always drop them in the comments below.
Have a great rest of your day!
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