5 types of ecommerce logistics models
When you want to create an online store the first couple things that you think of are what product to sell and what logistics model to choose. You can make the product yourself, stock someone else’s products or avoid the inventory altogether. Different models depend on how much time can you devote to managing the business and if you have the resources for the product manufacturing.
Drop shipping is the easiest to manage logistics model, where you don’t have to worry about neither about the manufacturing nor delivering the product. An online store in this model is simply a mediator between the manufacturer and the client. Supplier stocks the products in his inventory and ships the product himself whenever you receive an order. The most difficult part of this model is finding the right company to work with. Because you don’t have control over the manufacturing and delivering the product, the reputation of your store is in the hands of your business partner.
This model is best for entrepreneurs who don’t have many resources to invest into the manufacturing or storing the products, don’t want to be attached to the business location or prefer to focus on marketing their online store. Due to the simplicity of this model, the competition is huge and margins are not that high. However, the drop shipping model creates a low maintenance business that can be very profitable if you have time for its promotion.
Wholesaling and warehousing
Wholesaling and warehousing require a lot of storage place and dedicated software to manage the supply chain and order fulfillment. With this model you buy the product directly from the manufacturer for the lower price, stock the inventory in your warehouse and ship the product when the client places an order. Products should have a consistent demand so you don’t lose money while they simply sit in your inventory.
Wholesaling and warehousing allow entrepreneurs to have complete control over their business. However, this model requires a lot of upfront investment and unchanging flow of sales. Most of the time business owners decide to sell on marketplaces in addition to their own online store to increase sales.
Private labeling and manufacturing
If you have an idea for the perfect product, but you don’t have the resources or desire to manufacture it yourself, you can find the manufacturer that will make the product and even ship it for you. The product is made by your plans and its packaging contains your branding. This way you can save a lot of money without the need to open your own factory.
With private labeling, you can deliver products yourself, have them shipped to a third-party seller or directly to clients. This model allows you to make a unique product and control the whole process of its creation. The other advantage is that you can easily change the manufacturer if something goes wrong, so they are delivering the best service to retain the partnership.
White labeling is similar to private labeling, but instead of manufacturing the product and selling it under the business label, companies buy products and put their label on them. This is most common in the beauty and health industries where the majority of products do not differ in ingredients.
A lot of manufacturers require white labeling businesses to buy in bulk and it can create a problem if the demand lowers. You then stuck with the huge amount of product that you can’t sell and that is wasting space in your warehouse. Choose this model only if you are sure, that the demand will be consistently high.
The subscription model is based on the recurrent purchases and delivery of the products which guarantee a steady income for the business. The popularity of this model is rising as more and more businesses start to provide subscription services. Usually, they include industries such as health, beauty, food and fashion and it is difficult for companies to find the right products and niche to gain loyal clients. However, now is an ideal time to start a subscription business, as companies have enormous amounts of products and customers find it hard to choose one. Subscription boxes remove the need to make a choice.
There are several e-commerce models you can choose from. Fortunately, they have distinct differences so it is easy to decide which one will be ideal for your product, financial resources, and business plan. All models can be applied to almost all industries and types of products and are profitable when managed right.