Online Business Models

Characteristics of a Good Business Model

Before starting out, it is important to think about the business model. A business model can make or break a company. Below are some characteristics of good business models:

• Offer unique value. Sometimes this is done by inventing a completely new product. In most cases unique value is created through a unique combination of various features such as better prices combined with the ease of ordering online, while offering highly efficient customer service.
• High barrier of entry. Good business models are hard to imitate by competitors. Usually, there is a key differentiator that sets the business apart from the pack. Some of the world’s most successful businesses are monopolies.
• Economic viability. Good business models have economically viable cost structures and sustainable sources of revenue. Assumptions are based on sound research and a thorough knowledge of market conditions. Ideally, the business model should encourage repeat business. There is no better type of revenue than recurring revenue.
• Scalability. This means that systems are in place to handle growth. The business won’t get bogged down when becomes too successful. Business growth potential is unlimited.

Online Retail Business Models

In-House Fulfilment Business Model

This refers to fulfilling orders in-house. When shipping orders from your own warehouse, you need to have good systems in place. Ideally, you need a good computer system to keep track of stock. You will also have arrangements with freight forwarders to pick up parcels from your warehouse and send them to your customers. The advantage of in-house fulfilment is that you have complete control over the fulfilment process and over your customer list.

Outsourcing Fulfilment and Drop-Shipping Business Model

If you don’t want to fulfil your orders in-house, you may outsource to a third-party logistics company. Obviously, this is only an option if your order volume is high enough.

If you have low order volumes, it is possible to get suppliers to ship goods directly to customers. This is called drop-shipping. Drop-shipping may be a good option if the goods are not very price sensitive. In very price sensitive markets, it is often better to fulfil orders in-house, in order to take advantage of better bulk-order pricing.