To build a sustainable online business and ensure a competitive advantage, you need to choose a profitable business model. This guide shows you the different types of ecommerce business models along with their revenue streams and operational dynamics, so you can decide which is best for your small business.
Types of Ecommerce Business Models + Examples
A business model specifies how a company delivers value to its customers, generates revenue, and manages its operations. It’s not just about whom you sell to, but also how you sell, what you sell, and how you sustain profitability. There are several business models that can work for ecommerce businesses. By defining your business model, you can help position your business in the market and reach your target customers easily.
Here are some types of ecommerce businesses according to business models, along with examples.
In a business-to-business (B2B) model, a business sells its products or services to another business. In short, it refers to any commerce between two businesses. The end user is a buyer that, more often than not, resells the products to consumers.
A B2B business model is characterized by:
- Longer sales cycles
- Higher order values
- More recurring purchases
Examples: Manufacturers to wholesalers; wholesalers to retailers
Did you know? The face of B2B ecommerce is transforming, with millennials and Gen Zers representing nearly 65% of B2B buyers in 2023; this figure is expected to exceed 70% in 2024. This new breed of B2B buyers is replacing catalogs and order sheets with ecommerce storefronts, integrated EDI (Electronic Data Interchange) for streamlined digital transactions, and improved targeting in niche markets.
From phone calls and manual orders, B2B ecommerce businesses are implementing cost-effective and accessible selling opportunities with their personalized sales portals, mobile ordering, self-service functionality, and augmented reality tours.
In a business-to-consumer (B2C) model, a company sells a service or product directly to a consumer. In this model, individual consumers are the end users of a product or service. Low startup costs, compared to opening a brick-and-mortar store, give most small businesses the encouragement to go the B2C ecommerce route—which is why, if you go this way, you can expect to encounter tough competition.
A B2C business model is characterized by:
- Shorter sales cycles
- High transaction volume
- Low average transaction value
Examples of B2C ecommerce models:
- Direct sellers: These are retail sites or online stores where consumers purchase directly from the seller—small online businesses and large businesses like Microsoft and Apple that sell exclusively in-house products.
- Online intermediaries: These are businesses that act as “go-betweens.” These are usually platforms, marketplaces, or ecommerce sites that put buyers and sellers together for selling transactions. They profit by charging a fee for every sale from the buyers (vendors). Amazon, eBay, and Etsy are perfect examples.
- Advertising-based B2C: These are businesses that profit from selling advertising space and sellers that generate revenue based on lead conversion. YouTube and Reddit are examples of this B2C model.
- Community-based B2C: These are businesses that use online communities to market their products directly to community members or users. They leverage the shared interests of the community by doing targeted advertising. For example, a diaper company buys advertising space on a parenting portal or forum.
- Fee-based B2C: These are businesses that have their users pay recurring fees to be able to access their content, product, or service. Spotify, Netflix, Hulu, and other streaming platforms are great examples of fee-based B2C businesses.
The business-to-government (B2G) ecommerce model is where businesses sell products to government organizations or public administrations. This relies on the successful bidding of government contracts.
While this is a more secure ecommerce business model than others, the bureaucracy in government agencies makes business move at a very slow pace, which can limit potential revenue streams.
A B2G business model is characterized by:
- Very long sales cycles
- High transaction values
- Strict compliance requirements
Examples: Digital procurement marketplaces
In a consumer-to-business (C2B) business model, consumers are the ones selling goods and services to companies This covers a variety of interactions, including sole proprietors serving large businesses, freelancers offering specialized skills, and individuals engaging in affiliate marketing or creating user-generated content.
A C2B business model is characterized by:
- Competitive pricing where consumers can name their prices
- Transactions are usually based on the value they bring, not necessarily the price
Examples: Affiliate marketing, freelance marketplaces, influencer marketing platforms
A direct-to-consumer (D2C) business model eliminates the intermediaries often found in B2C models like wholesalers or third-party retailers, and often also excludes selling on third-party marketplaces like Amazon. B2C businesses sell their own products directly to consumers (end users). Essentially, it’s a fancy name for manufacturers that do B2C businesses as well.
A D2C business model is characterized by:
- Higher profits
- Increased customer lifetime value
- Potential high distribution costs
Example: Tesla, Apple, Nike
C2C (Consumer-to-consumer) or peer-to-peer (P2P)
The consumer-to-consumer (C2C) or peer-to-peer (P2P) ecommerce business model refers to a consumer selling his product or service to another consumer. These are often called online marketplaces.
A C2C business model is characterized by:
- Trade, buy, and sell between consumers in a platform
- Online platforms receiving a commission for every sale, or sells ad space to other businesses
- Less stable than B2B and B2C models
Example: Craigslist, eBay, OLX
5 Examples of Value Delivery Methods for Ecommerce Business Models
Aside from defining your business model, your ecommerce business needs to have a revenue model (how your business will make more money from customers using your products) or a value delivery method (how your product is designed so it can bring the most value to your end users—your customers).
Here are some popular value delivery methods or revenue models:
White labeling refers to when products are created by one manufacturer and sold to different retailers, which then sell these products under their own brands. White label products are usually generic products in heavily reproduced industries. Fashion apparel and cosmetic products are examples of common white label products.
Meanwhile, private labeling works with the manufacturer creating a product but the seller (the business) controls what goes in the product—from packaging, labels, and more.
- How to Private Label Products for Profit Successfully
- How to Sell Private Label Cosmetics in 6 Steps
Wholesale ecommerce is selling your products in bulk, often at a discount to other businesses. Wholesaling is acting as an intermediary between a manufacturer and a retailer or distributor.
Dropshipping is an ecommerce revenue model in which an ecommerce merchant sells physical products without keeping inventory in stock. Instead, when a customer places an order, the merchant purchases the item from a third party (usually a wholesaler or manufacturer) who then ships it directly to the customer. It is one of the most flexible business models.
- What Is Dropshipping & How Does it Work?
- How to Start a Dropshipping Business in 10 Steps
- 27 Dropshipping Statistics & Examples
- Alibaba vs AliExpress: Which Is Best for Importing & Dropshipping?
In a subscription revenue model, customers sign up to receive products at regular intervals. Subscriptions help businesses get recurring revenue and maintain longer customer relationships.
- What Is a Subscription Business Model & How Does It Work?
- How to Start a Subscription Box Business in 7 Steps
How to Create the Right Ecommerce Model for Your Business
Creating the right ecommerce model can be done even if your business idea came first or if you want to start a business with a model already in mind and would just like to work your way backward, finding a business idea that suits your preferred ecommerce model.
Remember, you can stick to a single business model or do a combination of models—it can work! Writing a business plan can help define your ecommerce business and revenue models. Ask yourself these questions:
- Who are your customers? You should know your audience. Know who you want to sell to.
- What are you selling? Decide whether you want to sell physical products, digital goods, or services.
- What problem do you want to solve? Your product must address your target audience’s need.
- How much control do you want over your business? If you want to be involved in production and quality control, certain revenue models like dropshipping won’t work for you. Conversely, if you don’t have the bandwidth or funds to keep stock inventory, dropshipping is a perfect fit.
Frequently Asked Questions (FAQs)
Click through the sections below to get answers to your frequently asked questions about ecommerce business models.
The main types of ecommerce business models are B2B (Business-to-business), B2C (Business-to-consumer), B2G (Business-to-government), C2B (Consumer-to-business), D2C (Direct-to-consumer), and C2C (Consumer-to-consumer) or peer-to-peer (P2P).
You can build a business model by writing a business plan. It will help determine which business model is right for your business.
Yes, you can have a B2B and B2C ecommerce store on one platform. Most ecommerce platforms have functionality that supports wholesale and retail selling.
Yes, all business models can create an ecommerce website made for online transactions.
The most common ecommerce business model is business-to-consumer (B2C) ecommerce.
Ecommerce statistics show that US ecommerce sales accounted for close to 15% of the country’s total retail sales in 2022, and are predicted to hit 23.6% of total retail sales by 2025. Clearly, the future of ecommerce is huge, and retail businesses should leverage this opportunity by creating business models to add to their revenue streams.
If you are just starting out, use the different business models we have outlined as launchpads in identifying good revenue models for your chosen business idea.