So, you’ve had a brilliant idea for an ecommerce business. What’s next? There are lots of exciting things ahead, from branding your business and launching your store, to making your very first sale. But first, there are some important things to tick off on your to-do list.
One of the most crucial considerations before launching your new ecommerce venture is your business structure. This will inform important things like how and when you pay taxes, your personal liabilities, and even what tax relief is available to you.
We’ll guide you through all things ecommerce, including the different types of business structures you can choose from and how to decide on the best business model for you.
What is an ecommerce business?
An ecommerce (electronic commerce) business is one that sells products or services online. This can be anything from a small side hustle on an ecommerce platform like Etsy to a large business selling to hundreds of customers all over the world via its own website.
Basically, if you sell to customers on the internet, you have an ecommerce business. What you sell doesn’t matter. It could be physical products like clothes or candles, or digital products like online courses, music, or software.
One of the main benefits of starting an ecommerce business, in most cases, is the lower overheads and startup costs. Setting up a website or joining an ecommerce platform like Shopify, Wix or Squarespace, just to name a few, is typically cheaper than opening a bricks-and-mortar business because you don’t have the same location costs to think about. Plus, you don’t necessarily need to have set opening hours, either – so it can be much more flexible.
What are the different types of ecommerce business?
If you want to run your own ecommerce venture, you’ll need a clear idea of what type of business you want to be. This will be mostly dictated by what you sell, how you sell and who you sell to but it will also influence key things like your marketing strategy, outreach tactics and business plan.
Business-to-business (B2B)
A B2B ecommerce business is one that sells goods or services to other businesses online. A common example of this is a wholesaler selling products to a retailer. Another example could be a stationary brand selling printer paper and pens to a commercial office.
Business-to-customer (B2C)
A B2C ecommerce business sells directly to consumers. Gymshark and Nike are both examples of B2C brands as they sell their products to customers through their websites and online platforms. Netflix and Uber are other well-known electronic B2Cs. Amazon and Apple are examples of businesses that fit into both the B2B and B2C categories.
Customer-to-customer (C2C)
A C2C ecommerce business means that customers sell to other customers via a website or ecommerce platform. In the C2C model, customers are both the buyers and the sellers.
Popular C2C platforms you’ll almost certainly have heard of include:
- Airbnb
- eBay
- Etsy
- Fiverr
- Vinted
If the vendor is selling through a dedicated platform, like Airbnb or eBay for example, the platform facilitates transactions between customers and will typically take a fee for doing so.
Customer-to-business (C2B)
A C2B ecommerce business is one where consumers sell products or services directly to companies. This is a bit confusing but it basically means a smaller scale individual is selling to a business organisation
Freelancer platforms are a common example of this type of ecommerce business model, such as Upwork, PeoplePerHour and Fiverr.
How to choose an ecommerce business model
When starting an ecommerce business, you’ll also need to consider the right model for you. The ecommerce business model you choose will steer things like how you source products and manage inventory.
There are various ways you can set up and run a business when selling goods or services online so it’s important to do your research and understand your options.
Private label
The private label business model involves products made by an external, third-party company (i.e. a manufacturer), which you then sell under your own brand. This could be a great option for those who want to:
- Run a branded ecommerce business but don’t want to make the products from scratch
- Launch an ecommerce business but don’t have the time, funds or resources to create completely original products
Skincare products are a prime example of private label ecommerce. You can put your own branding and packaging on the products and sell them through your business without having to research or create the formulas yourself. You could simply tweak the ingredients to make the product unique to your brand.
White label
The white label model involves selling products made by a third-party manufacturer and rebranding them to sell through your business. Commonly white labelled goods sold on ecommerce sites include:
- Electronic goods
- Clothing
- Beauty and cosmetic products
- Digital software
White label and private label are often (and easily) confused. The important distinction to make is that white label goods are already pre-manufactured, and therefore can’t be tweaked or customised in the same way private label products can be.
This means the products themselves aren’t entirely new to your business, but you can put your own branded packaging on white label goods.
Dropshipping
The dropship ecommerce model means you don’t have to purchase, store or manage any inventory at all. Instead, when a customer buys something through your website or ecommerce marketplace, the manufacturer, wholesaler, or supplier of the item ships it directly to them.
With dropshipping, all you need to do is concentrate on marketing and selling the products. You don’t need to worry about dealing with stock or shipping.
This is a great option if you want to run an ecommerce business but don’t want to create or brand products. It’s also ideal if you have limited space for storing products.
Print-on-demand
Print-on-demand is similar to dropshipping in how the purchase and delivery logistics work. It can be more flexible and dynamic an option because items (e.g. t-shirts, mugs and notebooks) are only produced once an order has actually been placed.
Print-on-demand also leaves more room for brand differentiation and personalisation because you can provide your customers with designs to choose from. You won’t need to hold ready-made stock because the supplier takes care of the printing and shipping.
Wholesale
The wholesale business model involves buying physical products in bulk which you then sell to your customers. Wholesaling tends to make the most sense for those opting for a B2B or B2C structure.
One of the main benefits of wholesale is that you can purchase products at lower prices due to buying in bulk. The downside is that you almost always need a lump sum upfront to be able to buy large quantities of products and you also need space to store it all. That, or to take the risk of buying on credit.
Subscription
With a subscription model, you sell products or services to customers on a regular, structured basis and they pay you on a scheduled basis in return. Examples of ecommerce brands that run on a subscription model include:
- Graze
- Hello Fresh
- Glossybox
- Gousto
The benefit of the subscription model, although it requires meticulous management, is that you get guaranteed repeat sales from a customer for as long as they’re subscribed. But it does mean you’re under pressure to make sure they remain a subscriber – possibly whilst also looking for new customers at the same time.
How do I choose the right model for my business?
As you will see from some of the main pros and cons covered above, the right structure and model for your ecommerce business comes down to key factors such as:
- How much money you have available to spend upfront: If you have a chunk of cash to spend on launching a physical product, you could benefit from the low costs of wholesale items. If you don’t have a lump sum to invest off the bat, print-on-demand would be a better option, for example.
- Do you have storage space?: If you don’t have room to store inventory, then dropship or print-on-demand would be your best options, as these models mean you don’t need to handle or store products.
- Whether you have enough resources to make or develop an original product: If not, opt for private label or white label so you can rebrand existing products to make them your own.
- Whether or not you’re willing to deal with packaging and shipping orders: If not, avoid wholesale and go for dropship or print-on-demand, for example.
- Who you are and who you want to sell to: Are you a business wanting to sell to other businesses? That’s B2B. Are you a consumer wanting to sell to other consumers? That’s C2C.
- Tax rules and overseas selling: The VAT rules around selling across the UK border are quite complicated, but this blog explains them in more detail.
It’s all about finding your niche and where there’s demand.
Looking for more expert business support? Check out our accounting support hub for more help, or to ask a tax question.
