The advent of the online store changed the face of the retail industry forever. This disruption has become even more marked during the coronavirus pandemic, during which more people than ever elected to shop online as they were on lockdown.
Entrepreneurs are starting to see how much value there is in having an online business that sells goods or services. For many, it allows them to escape the confines of traditional employment, allowing them to work flexible hours and create a better work-life balance.
Given that many online stores are showing a significant ROI (return on investment), investors have started pumping funds into them, giving the owner’s capital to expand their product ranges and operations.
In some cases, owners elect to sell their online stores to buyers if they plan to leave the market or move on to a new project. This perpetuates the online store phenomenon, where it seems that the only limit on what can be sold are its owners and investors’ imaginations.
If you are thinking about starting an ecommerce business, here are some successful online store business models to consider:
Private labeling and manufacturing
For anyone with a great product idea but lacking resources to manufacture it themselves, private labeling and production might be the ideal solution. It is also perfect for determining the potential success of a product without committing to a significant infrastructure investment.
The process starts with designing your product, which will either be done by yourself or a designer you contract to make it. Thereafter, upon selecting a manufacturer, the company produces a prototype according to the design specifications. Once you approve the product, you can contract them to manufacture an agreed-upon number of units to be sold in your online store.
You have several options at this juncture. The manufacturer can deliver to customers directly on your behalf, or ship the products to a third-party distributor. A final alternative is having the goods delivered to yourself and then shipping them to buyers.
An advantage of this business model is your ability to move between suppliers if sub-par manufacturing quality becomes an issue. For people interested in buying a profitable online business, wait until its first owner gets through the initial teething problems of manufacture and supply before making a purchase offer.
White labeling
A white label ecommerce store relies on a fully supported product made by a company that relies on others, such as your store, to sell them. You buy goods without branding, leaving you free to customize it with your logo and business identity.
Buyers associate the product with the seller, not the manufacturer. This option allows both parties to focus on what they do best, which for the producer is supplying goods and the ecommerce store owner marketing them.
White labeling is versatile and works with several categories of products. However, it imposes limitations related to demand. Most suppliers work on a minimum production quantity, and you will have dead stock on your hands if it cannot be moved through the online store.
Dropshipping
Regarded as an elementary form of ecommerce, dropshipping is an easy to implement business model. After setting up your store, you receive payments from customers who purchase goods. The supplier is responsible for everything from there, including keeping stock and delivering it to buyers.
The advantage of opting for dropshipping is that it is simple to set up an operation. However, there are a few downsides you should consider.
First, if products are of poor quality, are not what the manufacturer describes, or deliveries are not made on time, your reputation suffers. Customers will complain on your storefront’s page and leave you with poor reviews and little power to rectify what has gone wrong as you have no control over these factors.
Second, margins on selling other people’s goods are relatively slim, meaning that you need to move huge volumes of goods to profit from dropshipping. However, with the right marketing and an excellent online presence for your site, it is possible to make dropshipping a lucrative business model for your ecommerce store.
Wholesaling and warehousing
This is a complex online store business model and requires careful planning and a significant financial investment. It involves sourcing huge volumes of products, storing them in a warehouse, and shipping them to retailers or individual customers.
Generally, prices differ according to quantities purchased, making for a balanced approach to moving products while still generating a healthy profit. Many wholesale ecommerce stores opt to use third-party sites to sell their products. These vast platforms allow store owners to reach many customers and move their stock before it starts costing a lot of money to warehouse and maintain.
Others rely on storage and logistics solutions companies who take over warehousing and delivery functions on their behalf. The costs involved in the price packages these businesses offer may be less than private warehousing rental and delivery prices. In such cases, it makes sense to outsource this business function.
Subscriptions
This is a relatively new business model that shows great potential for growth. Some subscription stores work on a local level, such as those selling fresh produce. Others operate on the national and international levels.
The subscription model works well because it generates a recurring income for the store owner. Customers subscribe to your store to receive a box of products at scheduled intervals. As the owner, you are free to network with other businesses to include their products in your subscription boxes. This is a useful marketing tool for companies with new products.
The store owner can offer different box packages using the subscription, with more expensive ones containing more products. This could incentivize a customer to upgrade and spend more money.
Other sites offer customers discounts and freebies for getting referrals. The limitation is that subscription boxes tend to work only in certain niche markets, such as grooming and fashion. However, that does not mean there are not other markets that can get a successful subscription box store running.
