Hello to all my friends and readers (bigcashers) it’s Darrell back at you on a beautiful sunny afternoon here in Iowa for a serious share.
A lot of my readers have been asking me questions and for my advice lately on what type of e-commerce business model to pursue.
So I want to go over all the different models out there and give you enough information so you can make an educated decision for yourself.
This holiday season more than $ 600 billion will be spent in the U.S alone so hopefully with this e-commerce information my readers will get their share of that holiday money.
Here at the cash blog the number one questions I do get is how long will it take to make money with a blog or with an e-commerce business ?
Read this helpful post How Long Does it take to Make Money Blogging?
The pattern I’m seeing is entrepreneurs tend to choose the business model to pursue based purely on how easy it is to start, as opposed to considering the actual probability of success.
In fact a lot of people ask why go through the hustle of selling physical products online when they can just be an affiliate.
Read this top post about the Top 4 affiliate marketing programs.
Why should they start their own inventory when they can simply dropship all their goods and why should they even bother setting up a shopping cart when they can just put up a blog and sell advertising?
I’m going to go over all the different e-commerce business models that I’ve seen online,discuss the pros and cons and let you decide for yourself.
I believe the more work and the more effort you put into your business to be successful the more sustainable your business will be in the long run because it will be that much harder for someone to copy you.
Read this book Dropshipping and E-commerce for more ideas.
According to the Huffington Post the e-commerce barrier to entry continues to get lower as more tools help more entrepreneurs go digital.
One of the most popular business models I get asked about is drop shipping.
Dropshipping is basically when you put up a website to take orders,but you don’t have to carry any inventory. Instead of fulfilling the products yourself,the vendor is responsible for shipping the order to the end customer.
It’s really cheap to start up a drop shipping business because all you need is a website essentially. All you need to do is find a vendor who is willing to dropship for you and then list his products on your website.
The downside of drop shipping is that margins are super low. Mainly because someone else is storing all the inventory doing fulfillment.
Because the margins are low paid advertising becomes tougher many times you are going to be stuck relying on search engine optimization.
The other downside of drop shipping is that you are not really in control of customer support, anything that goes wrong is on you.
What’s also complicated is maintaining inventory issues.
But overall what makes drop shipping fragile in terms of a business model. You are heavily dependent on your vendors for your business reputation. A vendor can cancel the drop shipping arrangement anytime.
eBay /Amazon arbitrage
The next business model I want to talk about is drop shipping from Amazon to eBay. This is also know as eBay/ Amazon arbitrage.
First you find products at Amazon that are selling higher on eBay and then you take the images and the product copy from the Amazon product and you post an identical listing on eBay that is significantly higher in cost.
This business model works because people who shop on eBay tend to not shop on Amazon and because people are not aware eBay is not the cheapest place to shop.
As soon as the auction closes on eBay the seller then purchases the exact same product on Amazon and has it shipped over to the eBay customer. And so basically you are just leveraging the difference in prices from Amazon and eBay.
Read this post that went viral Become an Amazon Affiliate and Prosper.
Basically all you need is an eBay account and an Amazon purchasing account. It’s easy to get started. You might get banned on eBay but it is attractive if you want a business that has no overhead cost.
Retail Arbitrage /RA
The next business model I want to talk about is called retail arbitrage or RA for short it has become popular over the last couple of years.
A good friend Ritchie makes 6 figures doing this and he teaches others how to do this as well and here’s how it works.
According to Fortune magazine 40% of the world’s online population has bought something online.
You walk into a liquidation store like a Big Lots or TJ Maxx and go straight to the clearance section. So you basically go in buy the entire clearance section and then you list these products on Amazon.
The reason this model works is because alot of consumers don’t have access to some of these stores, the onlything they have access to is Amazon so they are willing to pay higher prices.
What’s nice about this business model is you don’t need a website you can use Amazon’s huge market place for instant sales, there is practically no start up cost except for your initial inventory.
The downside is that your business is 100% at the mercy of Amazon and you constantly need to go on these shopping trips to find new goods to list on the platform.
So basically this means the amount of money you can make doing retail arbitrage is limited to the amount you can go shopping for bargains.
Lately Amazon has introduced alot of new rules that discourage this business model. Amazon has been preventing sellers from selling certain brands without approval from the manufacturer.
These factors are making retail arbitrage difficult right now. While this business is easy to do and can be lucrative, it is risky right now because Amazon can ban your brand you are selling.
Dropshipping on Amazon
The next business model I want to review is drop shipping on Amazon. That is droppshipping on Amazon against versus your own site,they are similar.
The only difference is that you are drop shipping to people who have bought on Amazon instead,and the procedure is the same.
You need to find drop ship vendors who are willing to ship products to the end customer on your behalf and it’s important to note that this business model does not use FBA or fulfilled by Amazon.
Basically you are responsible for filling the order to the end customer in a timely manner, this business model is attractive because there is no start up cost and you don’t need a website.
The drop ship vendor usually has hundreds of products but everybody drop shipping has access to the same exact products.
The other bad thing about this business model is Amazon has really strict requirements on seller quality and on time to shipment dates.
The hardest part is finding a reliable vendor. If for any reason your distributor has a inventory problem and you can’t fulfill the products to the end customer Amazon will and has been known to ban your account.
A well-known blogger John Rampton got banned for not fulfilling orders in a timely manner. He lost a 7 figure business over night.
So guys while this business model is very easy to get into and it doesn’t have that much upfront cost it is extremely risky and it’s not really a sustainable business model.
The next business model is private labeling your own goods. Now private labeling is the act of placing your own brand or label on a product that you produce yourself.
Basically the way it works is you first have to find a manufacturer to produce products for you in bulk and basically they will allow you to put your own brand on the product.
What a lot of people are doing right now is they are going to Ali Baba to find these manufacturers .
Once you produce your product then ship all of your goods to Amazon FBA and you take advantage of Amazon’s huge market place to sell your goods.
Because you are manufacturing and you are buying your own products in bulk you have to put more money upfront to actually get those products into Amazon’s warehouse first.
So the typical minimum investment to do a private label product would be about $1000. Preferably $1 to $2,000 to purchase that initial inventory.
What is really nice about the business model is that you don’t need a website, you don’t need to generate your own traffic,because Amazon’s marketplace is getting you all the sales.
There are no inventory requirements because Amazon is housing all the inventory and the best part is that you are producing products with your own brand on it.
Overall this business model is a bit more challenging than the others,because it requires interaction with a vendor outside the country typically.
You will probably have to deal with Asian vendors where cultures are different but the huge positive is that you own your own brand,you own your own products and the margins are super high 66%.
Because Amazon’s marketplace is so large you can make a lot of money really quickly especially over the holidays.
The downside of private labeling on Amazon is that you are dependent on Amazon and it has really gotten competitive. If you have a successful listing on Amazon you will probably get hijacked or piggybacked.
What this means is you might have other sellers trying to sell on your listing something that’s not the exact product. If you end up selling a popular product be ready to monitor your products like a hawk.
You also have to monitor your feedback for your products because Amazon can ban you at anytime in the event that you get a large amount of negative feedback.
Private Label Own Website
Now I saved the best business model for last which is basically selling private label products on your own website. It has the highest long term potential because you are in charge of everything.
You own the product because you are manufacturing your own products. You are driving traffic to your own store you are in control of your own traffic.
The downside of course is that you really need to know how to do all those things on your site. You can’t rely on Amazon to drive traffic for you.
You have to learn how to drive traffic yourself. You are in control, you can set pricing, you can never get banned by anyone. So in the long run this is the business model that I really favor in cane you want to start a long term business.
If you are willing to work hard, selling your own branded products on your own website is easily the best way to run an e-commerce business. This is a overview of the different e-commerce business models
Now it’s important to note there is nothing that excludes you from combining the different models, for example just because I run my own site doesn’t mean that I can’t sell on Amazon as well.
Just because I sell my own private label products does not mean I can’t dropship either
Take it from me I suggest you give all these business models a try to see which one fits your personality.
Keep in mind that selling private label products is the way to go in the long run if you want to create a long term business.
Leave me some comments about “What E-commerce model is best for you?”. Did it help you out? or It was whack ? Tell me how you really feel.
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