E-Commerce business models are evolving to be more complex as the industry grows. Choosing an e-commerce business model is difficult, especially for newcomers with little to no experience in the industry. For a startup owner, it is important to identify the products or services that should be delivered to its customer segments. Understanding the nuances of e-commerce business models will help the business take the right decisions and achieve its goals in a shorter span of time. In this context, selecting the right way of doing business with a correct business model is of huge importance to the startup. 

It will be useful to learn about the various aspects of the e-commerce business model, either for an entrepreneur or for a start-up company building an e-commerce business. In this article, we’ll provide a brief overview of how an e-commerce business works and discuss its pros and cons. Later, we’ll also cover different metrics related to the e-commerce business.

Understanding E-commerce Business Models

E-Commerce has emerged as a formidable force in the world of internet commerce. The easiest approach to describe an e-commerce business is to compare it to any other retail store that can be seen in a mall or shopping centre. The main distinction is that an e-commerce firm does not have a real “walk-in” presence and operates entirely online.

Entrepreneurs who run e-commerce businesses can sell almost anything, i.e., clothing, shoes, food, plants, stationery, novelty items, eyeglasses, etc. Clients will place an order, and after accepting the order the product is packaged and sent to the customer. The clients have the option of paying online throughout the purchase/checkout process or even collecting cash on delivery.

The best aspect is that e-commerce isn’t limited to tangible goods. Services can also be sold. Urban Company is an excellent example of a successful e-commerce platform selling professional services.

Let us go through some of the most common e-commerce business concepts in detail.

Types of e-commerce businesses

1. B2B Business model: A business-to-business website offers its items to an intermediary buyer, who then sells the product to the end client. For example, a wholesaler may place an order through a company’s website and, after receiving the consignment, sells the finished product to a final client who visits one of its retail shops. For example, taking advantage of the unlimited FDI provision for the B2B segment, Amazon has recently launched its dedicated portal: AmazonBusiness.in for small business owners and traders.
2. B2C Business model: A website that follows the B2C business model offers its items directly to the end consumer. A consumer can make an order for the items displayed on the website. A payment on delivery option might be available or they might use other payment options. Flipkart, an online e-commerce website, is a good example of a B2C business model.
3. C2C business model: A C2C business model website assists customers in selling their assets by publishing their details on the internet. The customer may or may not be charged for the website’s services. By reading the post/advertisement on the internet, another consumer may decide to purchase the initial customer’s merchandise. For example, an online platform where a person sells to another person, such as OLX.in, quikr.in, etc., fall under the C2C category.
4. C2B business model: In this paradigm, a consumer visits a website that displays numerous business organisations offering a specific service. The customer estimates how much he or she wants to pay for a specific service. Websites like fiver.com or Upwork.com can be put in the C2B category. In this case, the freelancer posts services accordingly and charges fees from the organizations.

The Pros & Cons of an e-commerce Model

The pros of building an e-commerce based business model are listed below:

1. Cost: One of the primary advantages of running an e-commerce business is that there are no typical retail expenditures. The firms cut the expense of the physical site, which may cost the business owner hundreds of dollars per month in rent alone. These firms also don’t need cashiers or clerks on staff, so payroll costs are very low, or even non-existent, since many e-commerce enterprises are fully owner-operated with no full-time employees.
2. Competitive Edge: Another advantage that most retail establishments cannot match is availability. Is there a retail store that is open 24 hours a day, seven days a week? Any firm may conduct business with anyone around the globe at any time thanks to the internet. Nothing prevents reaping the benefits of the late-night buyer if someone needs your goods at 1 a.m.
3. Diversification: However, there is a way to combine the benefits of drop shipping with the e-commerce business. By simply adding some drop shipping listings alongside regular e-commerce items, the firm can easily try out new product offers on the website. If any firm sells coffee, a firm might want to try selling coffee cups as well. There are literally hundreds of different varieties of coffee available.
4. Brand Recognition: Finally (and this is one of the most significant advantages of e-commerce enterprises), the firm can create its own brand. The brand has the potential to become something that people truly connect with. This is a significant advantage of pursuing the e-commerce path versus dropshipping or Amazon FBA.

Apart from the pros, there are some cons also that we are going to discuss here:

1. Competition: Unless the startup or any firm is in a very unusual niche, it will almost certainly face stiff competition when starting an e-commerce business. The firm must be able to distinguish itself from its competitors. One method to accomplish this is to develop a highly engaging brand while still providing superior items compared to its competitor.
2. Tech: Furthermore, there may be several technological challenges to conquer or resolve. This is especially true if a firm constructs its store on its own platform, such as Magento. Of course, it could avoid this by utilising a platform like Shopify, which is a terrific option. Just keep in mind that if the firm utilises someone else’s platform, it will have limited choices.
3. Logistics: Bottom line, if the firm wants to succeed in e-commerce, It will need to learn how to manage a lot of moving elements. Operating an e-commerce shop is similar to owning a physical store, i.e. it is liable for a plethora of things. The firm must locate the makers of items, establish a strong agreement, locate the best freight shipping provider, and locate a fulfillment warehouse solution to manage the logistics of actually getting the product to your clients.

Metrics Related to the e-commerce business model

1. Customer Lifetime Value (CLV) : Customer lifetime value is the total amount spent by users since their first purchase. The metric helps business owners understand the total worth of a customer to a business over the whole period of their relationship.
2. Customer Acquisition Cost (CAC): Customer acquisition cost calculates how much the owner spends to acquire a new customer. To achieve financial feasibility, the owner has to make sure that the company’s CAC is as low as possible. 
3. Customer Retention Rate (CRR): A customer retention rate shows how many customers leave repeated orders after the first purchase. Low CRR is a warning sign that could indicate poor quality of the product or customer service. By failing to retain customers, the firm loses the possibility of building a dedicated audience and increasing the company’s revenue.
4. Average order value (AOV): The average order value shows the owner the size of customers’ average cheques. It is a useful metric for getting to know the financial status of the target audience and understanding the buying patterns of different shoppers.
5. Refund and return rates (RrR): Product returns are common for e-commerce stores. Sometimes, a customer gets a product as an impulse purchase and, after giving it a second thought, returns it. There are cases, however, when shoppers are disappointed in the quality of the product and have no other way out than to return it. Lower the return rates, better the business is performing. If the refund rate is too high, the business should re-evaluate its product and supply chain and make necessary changes.  
6. Conversion rate: Conversion rate is a key performance metric for e-commerce stores, as it proves how well the owner or firm manages to convert website visitors into customers. 

Conclusion

With the advancement in technology and ease of access to relevant know-how, many startups are launching their own e-commerce businesses and performing at comparable benchmarks to most of the well-established e-commerce platforms. Many startups have shown that choosing the right e-commerce business model with niche products will ensure profitability and decent margins. Even after so many improvements, there is still a lot of scope for innovation in this domain. Startups building their own products can explore the scope of launching their own e-commerce business models and reap the benefits. 

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