E-commerce Business Models and Performance Metrics

Posted on May 22, 2026 in Business Management and Marketing

E-commerce Business Models

  • DTC (Direct-to-Consumer): Brand sells directly without intermediaries (e.g., Dollar Shave Club, Nike.com). Pros: Control over pricing, data, and experience. Cons: High responsibility for logistics and acquisition.
  • Marketplace: Platform connects buyers and sellers (e.g., Amazon, Airbnb). Pros: Scalability and network effects. Cons: Dependence on sellers and commission pressure.
  • Subscription: Recurring fee model (e.g., Netflix, Spotify). Pros: Predictable revenue. Cons: High churn risk.
  • Dropshipping: Retailer sells without holding stock. Pros: Low startup costs. Cons: Lower margins and weak quality control.
  • Wholesale: Buying in bulk to resell. Pros: Margin control. Cons: Inventory risk.
  • Freemium: Basic free access with paid premium tiers.

Design Thinking Methodology

A human-centered approach to problem-solving:

  • Empathise: Understand user needs through research.
  • Define: Reframe the problem based on insights.
  • Ideate: Generate diverse solutions.
  • Prototype: Build tangible, testable versions.
  • Test: Refine based on user feedback.

Key Performance Metrics

Acquisition and Engagement

  • CAC (Customer Acquisition Cost): Total Marketing + Sales Costs / New Customers.
  • Conversion Rate: (Conversions / Visitors) × 100.
  • Cart Abandonment Rate: (Abandoned Checkouts / Initiated Checkouts) × 100.

Retention and Value

  • Churn Rate: Lost Customers / Customers at Beginning of Period × 100.
  • Retention Rate: 1 – Churn Rate.
  • CLTV (Customer Lifetime Value): Long-term value of a customer considering margin, retention, and discount rates.
  • CLSV (Customer Lifetime Social Value): CLTV + CSV (Customer Social Value).

Strategic Case Studies

  • Dollar Shave Club: Used viral content to disrupt traditional markets.
  • TEMU: Leverages gamification and low-cost cross-border logistics.
  • Farfetch: Luxury marketplace facing disintermediation risks.
  • Xiaohongshu: Integrates content, community, and commerce.

Advanced Social Value Formulas

CSV Formula: CSV = (g × k) / [(1 + d – r)(1 + d – k)]

Note: Traditional CLTV often ignores social influence (k-factor), which measures the average new customers generated by one existing customer through word-of-mouth.