Top business model examples

Top business model examples

Business models can take a variety of forms involving different manufacturing and shipping methods. Let’s look at some unique ecommerce business models you can use to start your business.

  • Dropshipping
  • Makers
  • Manufacturing
  • Wholesale
  • Print-on-demand
  • Digital products
  • Direct to consumer
  • Subscription

Dropshipping 

Dropshipping is far and away the least expensive option for starting a new business. It attracts people who prefer to keep startup costs as low as possible and are less concerned about margins. Dropshipping is also a great business model for someone who doesn’t want to hold and manage inventory.

Pros

  • Low cost to start. The biggest advantage of dropshipping is the low startup cost. Because you're never carrying inventory you have no inventory costs, which generally are the most substantial expense for a new ecommerce business.
  • Low risk. Since you don’t actually purchase your inventory upfront, you aren’t taking the risk of holding items you can’t sell.
  • Streamline sales. Dropship partners will take on the tasks of picking, packing, and shipping your product for you. The dropship option provides convenience and efficiency, so you can manage your business from anywhere in the world.

Cons

  • High competition. Because dropshipping has such low barriers to entry, you can bet that a lot of people are doing it. Competition is stiff and it’s hard to set yourself apart from the crowd.
  • Low margins. Low margins makes it difficult to compete with paid advertising space, which means you’ll have to rely more on building content, service, etc. Low margins also means you have to sell at significant volume to make decent profit.
  • Inventory syncing (back orders). Because you’re relying on someone else’s inventory, the occasion may arise where you place a shipment request to the wholesaler but the product is sold out. This longer than normal delivery time can reflect badly on the retailer.

Your profit is the difference between what the customer pays and the price the dropshipper charges you. Typically, with dropshipping your profit margins are slim, around 20%.

Dropshipping is low risk in terms of potential financial loss because you never buy inventory upfront nor do you have to worry about shipping products. Additional risk comes in the form of very slim margins and high levels of competition. Slim margins mean you have to move a lot of units to make decent profit.

A dropshipping success story

Subtle Asian Treats is a top dropshipping business on Shopify selling cute plushies and cases for AirPods and iPhones. It was founded by Tze Hing Chan, a young Malaysian entrepreneur, to jump on the bubble tea trend happening in Asia.

The brand attracted thousands of bubble tea fans from the area by giving people a unique selection of products at a fair price. It’s also done a great job at building awareness on social media to share user-generated content and appeal to customers with any budget. 

 

Makers

Making your product is a common approach for many hobbyists. Whether it be jewelry, fashion, or natural beauty products, making new products yourself allows for precise control over quality and your brand but comes at the cost of limitations, time, and scalability.

The primary costs associated with making your own products include the purchasing of raw materials, the storage of inventory, and labor. The most important thing to note here though is that not all products can be made by hand. Your product choices are limited to your skills and available resources.

This option is for the do-it-yourselfer, someone who has their own unique ideas, can physically produce the goods themselves, and has the resources available to do so. Making your own products is also for people that want to maintain full control over the product quality and their brand and who have the desire to keep startup inventory costs low.

Pros

  • Low startup costs. When you make your own products, you generally don’t have to produce a large number of units upfront to have on hand like you would have to purchase if you were having your products manufactured. This allows you to enjoy relatively low production costs, which for many ecommerce businesses make up the bulk of their startup expenses.
  • Brand control. Making your own product means you can create any brand you wish with no limitations.
  • Price control. Going hand in hand with brand control is the ability to price your products as you see fit.
  • Quality control. When making your own products, you can closely control the quality, ensuring they live up to your expectations, as well as those of your customers.
  • Agility. Making your own products can give you the greatest level of agility for your business, letting you adjust quality, features, and even the entire product on the fly.

Cons

  • Time consuming. Depending on your exact product choice, making your own products can be a time-consuming process, leaving you less time to focus on actually building your business.
  • Scalability. Making your products can become an issue when your business takes off. Although you have the option to look to a manufacturer for help as you scale up, this might not be easy or possible if your customers have come to expect your products to be handmade.
  • Limited product choices. As mentioned prior, your choices of potential products are limited to your skills and the resources you have available to you. This will vary from person to person.

A maker success story

Old World Kitchen began as a family-owned business selling door-to-door in its local area. It went through a period of growth where Etsy was the best move for getting the business online. 

 The brand, which specializes in handcrafted kitchen utensils, wanted to expand further, but to do that, it needed full control over pricing, branding, and quality control—things Etsy couldn’t offer. 

Manufacturing

Manufacturing your product is good for those people with a unique idea or a variation of a currently existing idea. It's also for people that have validated the market for their product and are fairly confident that it will sell. This is important, as manufacturing will require the greatest financial investment upfront.

You can look at manufacturing through two lenses: private label and white label. 

A private label product is created by a manufacturer and sold under the businesses name. The business controls everything from what goes in the product, how it’s packaged, and what the labels look like. Private label is best for brands who want to create unique products. 

A white label product is created by one manufacturer and sold to various retailers under their own brand names. They are generic products that you can sell to wider customer segments. 

Pros

  • Lowest cost per unit. It’s not uncommon for manufacturing to garner the lowest cost per unit, giving you the greatest margins on your product.
  • Brand control. Having your product manufactured means you can build your own brand around it and aren’t constrained by others.
  • Price control. Along with the ability to build your own brand comes the ability to set your own prices for your product.
  • Quality control. Unlike dropshipping or purchasing wholesale, when you manufacture your own product you’re in more control of the quality of your final result.

Cons

  • Minimum order quantities. The startup costs required for initial orders can be quite high. Depending on the costs of your product and the manufacturer, your inventory investment can reach thousands or tens of thousands of dollars, easily.
  • Trouble with manufacturers. Nothing will bring your business to a halt like being scammed by an overseas manufacturer.
  • Time to get up and running. Manufacturing can be a long process of prototyping, sampling, refining, and production. The difficulty of this process can be amplified, even extended, if you plan on using an overseas manufacturer, as language, distance, and cultural barriers can arise.

When you manufacture your product, your margins can vary greatly based on the particular product, the manufacturer, and order quantity. Usually however, manufacturing your own product gives you the greatest margin potential over other methods, like purchasing wholesale and dropshipping.