3 Ecommerce Business Models to Get You Started

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Reading Time: 8 minutes

 

Starting an ecommerce business is not as difficult as it used to be a decade or even half before. There are many ways you can source products for your online store and start an online business, depending on the capital you have.

You can start an ecommerce store while still in college, while you travel, as a part-time business, as a side-hustle while working full time, as your main business or take your existing retail business online.

“There is something for everyone in today’s digital age”.

The two big questions when starting an ecommerce business are, which ecommerce platform to use and what product to sell?

In this article talk about sourcing products for your ecommerce store.

Have you ever wondered how ecommerce businesses source products to sell online? There are different models to source products. You can choose what’s best for you depending on your budget, size of your business, or how neck-deep you want to go.

1. Reselling

Traditional retail is reselling. Unless you manufacture your product, every form of retail is reselling.

Starting an online reseller business is an excellent choice for fresh entrepreneurs. While it is easy to start reselling online, there is fierce competition in this industry. You are in direct competition with many other resellers selling the same or similar products on their ecommerce websites or on marketplaces like Amazon and eBay.

An easy way to distinguish yourself from other resellers is by offering value-added services along with the products. Value-added reselling is adding value to a product or service and then reselling it as a whole package.

The value addition can be IT services such as setup, installation of software programs, training service, etc., or in the form of hardware bundled with the software.

Different types of Reselling Models

The investment required to buy stock and store it is why many hesitate to start a business. But today’s digital age makes it possible to sell products online without keeping stock.

How is that?

Enter dropshipping!

  • The Dropship Model

Dropshipping provides a low-cost way to start an ecommerce business. It is a popular business model where the reseller doesn’t hold any inventory yet can take orders under their brand name.

As a reseller, you have to only pass the order to the supplier who then packs and ships it to the customer on your behalf.

The lower start-up cost is the most obvious benefit. You don’t have to keep stock, and hence, the question of investment in warehouse space does not arise.

The costs are often limited to hosting your ecommerce site and other additional setup fees. Dropshipping gives you the flexibility to work from anywhere. All you need is a laptop with a good internet connection!

Once you have decided which products to dropship, choose an appropriate dropship supplier or better still go for an ecommerce platform that facilitates dropshipping by connecting resellers with suppliers who directly ship products to customers.

This business model is great if you want to test the waters as you would not need high investment and can start selling online as a part-time gig.

Since you don’t pay upfront for inventory, you can easily test new products with less risk. You can temporarily dropship new products and check how your customers respond. In case the products are not performing well in terms of sales, you don’t have to worry about unsold inventory.

Also, dropshipping is inherently a scalable business model. You can expand your business to newer markets and geographical locations without every getting bothered about maintaining physical inventory.

VARStreet’s ecommerce platform is great if you want to build your ecommerce store and start selling online.

  • Distributor Connections

To connect with genuine distributors and source quality products for your ecommerce store, you need to be legit with a registered reseller business. You can still do this is a part-time gig, but involves a few more processes you need to take care of before a distributor approves you as a reseller.

You can take the dropship route here, where you connect with distributors who dropship your orders. This will free you from the responsibility of storing and shipping products to the customers. Get access to the distributor’s online catalog, sync it with your ecommerce store and start selling online.

VARStreet’s ecommerce platform is integrated with an aggregated catalog of product feed from 40+ IT distributors in the US and Canada, including Ingram Micro, Synnex, Tech Data, etc.

This will free you from the responsibility of storing and shipping products to the customers. Get access to the distributor’s online catalog, sync it with your ecommerce store and start selling.

Or you can buy products in bulk from the distributors and rent a warehouse to stock them.

  • Stocking your products

There are a couple of approaches to this model

a. Maintain Inventory

As a reseller, you might want to stock your own products. In such circumstances, it is imperative to invest in a decent storage facility to maintain your own inventory. You will also need to hire staff to handle inventory and package the deliveries.

Having your own storage space will enable you to better manage your inventory. Since you have purchased in bulk, you are no longer dependent on your distributor’s inventory level to fulfil orders. This helps you to avoid the risk of losing potential sales due to the unavailability of stock.

What if the products don’t sell? To lower this financial risk, take your time and effort to identify trending products that are in high demand.

With VARStreet’s custom catalog feature, you can source products outside our distribution network and sell them on your ecommerce store. You can add categories, sub-categories or manufacturer names to the custom products.

b. Hybrid Dropshipping

In hybrid dropshipping, resellers maintain some inventory while simultaneously sell products sourced from third-party vendors. As a reseller, you have control of some inventory but not all.

For instance, let’s assume you have a catalog of 5000 SKUs. While it might not be possible for you to store all the inventory at your warehouse, you can always keep an in-house stock of 50 top-selling products.

Hybrid dropshipping is a lesser-known approach that combines two different business models. Usually, heavy and expensive products are dropshipped while the cheaper ones are shipped from the reseller’s local warehouse.

You get the best of both worlds, a traditional business model plus dropshipping.

2. Private Labeling

  • What is a Private Label Product?

Private labeling is a popular business model in which a manufacturer does not sell products under their own brand name. Instead, the products are labeled and sold under another company’s brand name.

Though the products are not manufactured by the resellers, they can still sell those products under their brand name. As a reseller, you then have control over product quality, packaging, pricing, and branding.

  • What Are the Advantages of Private Labeling?

a. Profit Margin

Private label strategies can drive profits. As a private label reseller, you have to only add your brand logo on the manufacturer’s products. This way of doing business helps you to keep costs down, which automatically leads to higher profit margins.

b. Exclusivity

Private label products are unique as they are being sold by your store only. You have exclusive ownership of your products.

No other seller has the permission to sell under your brand name. This differentiates you from every other reseller selling on Amazon and eBay.

c. Marketing

You have no control over the marketing of branded products. However, when you sell private label products, you can market them the way you want and take all decisions related to promotions, pricing, etc.

You decide the price, the target audience, your social media strategy etc. You can even create an authentic brand story that helps to improve trust.

  • What Are the Disadvantages of Private Labelling?

a. Quality

A third-party manufacturer handles the product development process, and product quality will always be a risk if you are not connected with established manufacturers.

Delivering poor quality products, will tarnish your brand’s reputation and result in loss of customers.
Fraud companies are prevalent in the private labeling industry. For instance, manufacturers in China, where a large number of factory shutdowns were cited in 2015, aren’t financially strong. They change their names and addresses often, making them untraceable.

To safeguard yourself from scams, check out directories like ThomasNet that provide information of verified private label manufacturers.

b. Reliability

Behind every successful brand in the private label industry, stands a reliable manufacturer. Hence the reliability of your manufacturer is crucial.

What if the manufacturer doesn’t deliver products on time, jacks up their prices, changes their product range, goes out of business all of a sudden or even worse exists only on paper?

Late deliveries, inconsistent communication, unwillingness to provide the desired quality standard, etc., all point towards a lack of reliability.

A thorough background check of the manufacturers you are eyeing to buy from is recommended to avoid illegitimate manufacturers.

c. Liability

A private-label reseller is liable for the orders shipped under their brand name. Damaged, faulty or broken products will invite a spate of bad reviews or lawsuits against you and not the manufacturer.

Similarly, selling dangerous products is a major risk. Avoid selling products that are dangerous, such as flammable or combustible products, dietary supplements, etc.

Before selling private label products, take legal recourse and try to shift the liability to the manufacturer. This can help you to avoid liability issues in the long run.

d. Private Label Product Examples

Let’s say you are one of the many resellers that sell generic electronic products without a brand name shipped from China on online marketplaces like Amazon and eBay.

How would you differentiate yourself from the innumerable resellers selling similar products at similar prices?

Before you contact suppliers, brainstorm a catchy product name, decide a logo design as well as packaging elements like colors, typography, imagery, etc.

Once you finalize everything, make an arrangement with the manufacturer to print your brand name on the products and create a private label.

You can use the VARStreet ecommerce platform to sell your own private label products. VARStreet comes with a custom catalog feature that allows you to add your products and upload the necessary details on your ecommerce store.

3. Direct from Manufacturer

Sourcing products directly from the manufacturers helps save you money as there is no distribution channel to go through and no added costs at each level.

However, whether a manufacturer sells directly to a reseller without going through the regular distribution channel depends on a few factors.

  • The size of the manufacturer

Large established manufacturers have a high minimum order quantity (MOQ) as their business model depends on selling to large volume buyers, i.e. customers that buy in bulk.

If you’re starting a new ecommerce business, sourcing products for your store from a large manufacturer poses a huge risk of buying a huge inventory and sitting with dead stock that isn’t moving. A dropship model will not be effective either if you do not have a large volume of orders.

The way to go would be to identify small or local manufacturers who are looking for a distribution channel or ways to sell their products. Small manufacturers usually do not have any MOQ policy. You can source products for your ecommerce store from them, either by buying small amounts of inventory or working out a dropshipping deal with the manufacturer.

  • The size of the reseller

Small resellers cannot afford to buy in bulk and moreover don’t have the infrastructure to transport and store excess inventory.

In such a case, it is unwise to skip the distributor and go directly to the manufacturer. From packaging to shipping and tracking, distributors guarantee secure order fulfillment. They are great at servicing small accounts.

If you are a big business and already have your logistics in place then sourcing directly from the manufacturer may work to your advantage.

Conclusion

Reselling provides a new way of doing business. No matter what approach you follow to source your products for your ecommerce store, you can generate revenue and make a full-time living online.

Many entrepreneurs choose a combination of reselling models to drive profits. What reselling model you choose will depend on your business needs and the value you want to bring to your customers.

You can buy directly from the manufacturer and still use VARStreet’s ecommerce platform to sell your products online. VARStreet’s custom catalog will allow you to add the manufacturer’s products and sell online.

Whichever model you choose VARStreet has something for everyone.

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