2. Our business model: how will the revenue come in?
🏪
Store building challenge
The whole journey:
As discussed in our last post in this series, we’ve chosen the product we will sell at the store: specialty coffee ☕. If you didn’t already, check out that post to understand the reasons that led me to such a decision.
Now, it’s time to move on and consider which e-commerce business model we will aim for. By deciding that, we’ll have an initial understanding of the different stakeholders involved in our operation. And we’ll also be able to explain how we expect money to get in.
First considerations about possible business models
There are plenty of business models available on the e-commerce spice rack. What will make you choose one or another is a set of characteristics that’s more or less like the following:
Which stakeholders you will deal with.
How these interactions will happen.
How and from where you expect revenue to come.
So if you’re a manufacturer and you’re creating a store to work as an additional supply channel, you’ll probably be selling to stores. We are talking about a B2B (Business to Business) model here. If you intend to sell to the end-customer, but you want to buy from China without ever seeing the products, we’re dealing with a Dropshipping model. And so on.
My business model
My scenario is the following:
I want to sell specialty coffee to the end-customer.
I want customers to be able to subscribe to my “coffee club,” which means they should be able to pay only once and then receive their set of coffee bags every week or month.
So in terms of business model, we’re talking about a B2C model (Business to Consumer) with a twist, which is the possibility of subscribing.
Why B2C
The B2C part of my scenario is pretty obvious. At first, I have no intention of selling to other businesses or other kinds of stakeholders. My client is the end-customer.
And although I could expand the scope, I’m firmly against doing so while I’m still taking the first steps with my business. A limited scope helps me learn faster about my customer and build a more focused strategy.
Why Subscription
My experience with e-commerce shows me that a frequently underestimated metric is the repeat purchase rate. It is staggering how often businesses fail to consider the impact of the recurring revenue. Getting a new customer is much more expensive than keeping the ones you have. So if you can build a strategy that makes them come back with a predicted regularity, hold on to it.
That’s why I love working with products that are “subscribable.” It’s hard to build a subscription business if you sell fridges. For coffee, it’s the perfect model.
Now what?
So, where does choosing the business model leave us?
Well, this choice informs pretty much everything we will do from now on.
Communication: a B2C store communicates in a very different way from how a B2B or a B2E store would. You are not talking to a professional. You have to use the end-customer’s vocabulary, understand their needs, and sound inviting.
Marketing: the same applies to your marketing campaigns. You should aim at the right audience, with the right language and emotional triggers.
Logistics: different business models require particular logistic flows. In our case, we will need to consider, for example, how the subscriptions will affect the delivery.
Payments: end-customers don’t pay with the same methods or expect the same payment conditions that a business would.
Pricing: you sell a product for different prices depending on the type of buyer. Companies that buy coffee for their offices will never expect the same price that an individual customer is willing to pay.
Competition scenario: once I establish my store as a B2C + Subscription online business, I’m immediately competing with other B2C + Subscription online businesses. So I need to have a deep understanding of their specific strengths and weaknesses.
We’ll talk a lot about all this in detail in future posts. What is important now is that we’re starting to consolidate the kind of business we want to build. For the more eager entrepreneurs, it may be a bit of a pain, but it’s important to do this thinking before raising walls without any focus.
For the more meticulous ones, on the other side of the spectrum, I will say that yes, the analysis presented in this post may seem too superficial for us to roll up our sleeves and start working. However, I wouldn’t spend much more energy than we have right now. I believe it is time to start building.
And I say so because I’ve had my share of suffering from long discovery processes that ultimately don’t bring as much insight as I would expect. Things change fast, and the best way to learn is to test your ideas in the real world. Start small, limit your scope, and allow yourself to make mistakes.