Business Model

A business model is a strategy for successful business operations or the manner in which a company identifies revenue sources. Business models can also be referred to as the manner in which organizations sell products to clients.

Business models include:

• What you’re selling
• Who you’re selling to
• Where you source products from
• Where you sell products
• How you compete in the market
• How you earn revenue

There are different business model types that most ecommerce businesses can be defined by which include Making, Manufacturing, Wholesale, and Dropship.

The Types of Business Models Explained

• Make: Many businesses start out by making their products. There are many advantages to this business model including having low startup costs and a lot of brand control, but the disadvantages often include producing a limited amount of stock because of time and labor constraints as well as incurring scalability issues.
• Manufacture: This is the business model where raw materials are used to come up with finished products. Often, ecommerce merchants work with a factory or product manufacturer to create their products. The advantages of this business model include producing items at a low cost per unit and having total brand and product quality control. The disadvantages include needing to meet large MOQs.
• Wholesale: This is a business model where products are purchased from wholesale suppliers or distributors and resold to consumers. The main advantage of this business model is selling established and validated products that there is already consumer demand for plus lower upfront costs than manufacturing. The disadvantages include lacking brand and price control because you are selling someone else’s products and must adhere to their specifications.
• Dropship: Drop shipping is both a sourcing and fulfillment business model where the retailer (you) never actually owns the inventory you’re selling. Instead, you’re acting as a middleman that sells the goods on your own website and when you receive an order, you pass that order onto the drop shipping company for them to pick, pack, and fulfill. The main advantage is having virtually no startup costs and the main disadvantage to this business model is having a very slim profit margin.

To understand these business models in-depth, check out our article on the main types of online business models.