Ecommerce is allowing many small businesses to reach customers and complete sales in a way they never have before.
In this latest episode of Small Biz in :15, Steve Chou, the founder of, sits down with Small Business Trends Executive Editor and tells the truth about ecommerce and small business.
You can read a transcript of the discussion here:
Shawn Hessinger, When talking about ecommerce what type of business are we talking about specifically?
Steve Chou : Technically, ecommerce can be defined as the sale of physical products over the internet.
The Four Main Ecommerce Business Models
Chou will discuss 4 common business models for e-commerce.
Shawn Hessinger : There are many different types of ecommerce companies. What are some of the things you have seen?
Steve Chou: It’s a physical product that is being sold, but it’s sourcing. The delivery method will also change. Different models are available for this one.
Drop shipping is one option. Drop shipping occurs when you accept orders at your store and have an agreement with the vendor when an order is received. The supplier holds the inventory, and then ships it to the customer.
A good drop shipper includes your brand on the packaging, so it looks like they are coming from you. Drop shippers are really suppliers. This is the easiest way to start e-commerce, because you won’t need to worry about stock. You take the sale, and then you provide customer service.
This is the second type of store that people are most familiar with. You buy the product of someone else. If I wanted to carry iPhones and buy them at wholesale prices, which are usually 50%, I would do so. After that, I store the item.
I then deliver the product to my customer when there is a sale. This has a higher profit margin than drop-shipping. You are still responsible for the inventory and must deal with it.
Private label is the next business model. You can create your own brand of product. You’re working in a factory. You have to create something you can call your own. Then, you must buy large quantities and sell them.
This business model offers much higher margins, but you also have complete control over all aspects of the process including sales, customer support, and supply chain. Private labeling is a great way to build a business for the long term, as you are building your brand.
The final business model would be what I call selling on Amazon, or relying upon a marketplace. So, I classify it as Etsy.com, eBay.com, Amazon.com, Walmart.com, etc. All of them fall under this category. You’re outsourcing your entire customer base.
Right? So I list something on Amazon. Amazon has a lot of traffic. If I make a sale, Amazon takes a large cut. They’ll also handle the fulfillment of your orders.
These are the main four business models in e-commerce.