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An Introduction to Different E-commerce Models

November 3, 2011

In today’s harsh economic climate, starting any new enterprise is a gamble, but the odds are definitely stacked in your favour when setting up an e-commerce company. Yet as profitable and viable as e-commerce companies can be, there are many different models and you must decide on the right one for your particular company if you are to make it work to your advantage.

Let’s look at the pros and cons of three different e-commerce models.




Start at the Beginning
If you are serious about setting up your own e-commerce company, it’s because you are in the business of selling a product. You need to decide if you want to sell your product through a short-lived venture, or if you are in it for the long term.

Affiliate Marketing
Most newcomers to e-commerce initially adopt the affiliate marketing model. How does it work? It’s really quite simple. The start-up investment required is minimal because you simply join an affiliate program, such as Google Adsense or Amazon Associates, which allows them to place adverts on your website or web page, and every time a user clicks or purchases an item through the aforesaid ads, you receive commission. Stock, inventory, shipping, and customer service are things you don’t have to worry when you use the affiliate model. It has been called the ultimate money-making model for introverts because you are not required to deal with members of the public in any shape, form, or fashion. The negative nature of affiliate marketing is the relatively slim profit margins. It’s rare you’ll make any serious dollar through this model and it’s usually short-lived, but if you want to earn a bit of extra pocket money without the hassles of running a proper company it’s well worth your time and effort.

Dropshipping
With the dropshipping model you are creating a website with a shopping cart system that actually sells products. Customers purchase products through credit card transactions or Paypal, and orders are delivered from a supplier who stores the products at their own warehouse or storeroom. Once you have paid the wholesale price and for the delivery (dropshipping fee) your profit is whatever remains of the initial mark-up price. One of the benefits of dropshipping is the freedom from packaging or shipping the product. On the negative side you’re directly responsible in the eyes of the customer for making sure deliveries arrive on time, all the time. You will also need to personally handle all customer service enquiries.

Wholesale
Although a close relative of the dropshipping e-commerce model, wholesale is by far the more lucrative of the two. Wholesale involves the purchase of items in bulk, using your own money. You are then free to decide the retail price as you see fit. The wholesale web-site operates just the same as the dropshipping model, but as opposed to relying on an outside supplier to process orders, you do it all yourself. For those wishing to make serious money through an e-commerce model, wholesale is the best option because it affords you the opportunity to make the most profit per item sold by cutting out the middleman. There’s a lot of hard work in running a wholesale e-commerce model, you need significant investment and plenty of storage, but when you think that the mighty Amazon took its first steps in the road to global domination by operating out of kitchen, anything is possible.

Rachel is a business blogger with a background in e-commerce, writing on everything from marketing to warehouses.

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