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5 Popular Ecommerce Revenue Models That Grow Businesses
The ultimate goal of any business is, of course, to make money. While most companies do care about their customers and an increasing number of them are even giving back to their communities through charitable efforts, if a company doesn’t have a sustainable revenue model, it simply cannot succeed. In this blog, we’ll look at various eCommerce revenue models, provide tips for choosing your best option, and more.
What is a Revenue Model?
A revenue model is the means by which a business plans to make money. Depending on the revenue model, which can be pretty standard or fairly complex, a company may take into consideration manufacturing, purchasing, distribution, fulfillment marketing , and other costs, until the business arrives at a profit.
The revenue model is considered a high-level look at the revenue structure of a business. Within this model, a company can have a number of different revenue streams, i.e. different sources of income.
5 Common Ecommerce Business Models
Before delving into revenue models, let’s take a look at business models. A business model is not just about how your company will make money (although that’s part of it).
Instead, a business model takes into consideration all aspects of your business regardless of whether you're operating one of the following types of businesses:
- B2C (business to consumer eCommerce company, i.e. a company selling directly to the general public)
- B2B (business to business eCommerce company, such as a parts supplier selling to a manufacturer)
- C2C (consumer to consumer eCommerce company, such as eBay's peer-to-peer online auctions)
- C2B (consumer to business, such as a freelance writer or photographer selling their services to companies).
Here’s a look at the five most common eCommerce business models within these categories.
A manufacturer creates its own product using raw materials or assembles pre-made components in order to create a product. Ecommerce manufacturers may sell their products directly to consumers or outsource their sales to a distributor.
Some manufacturers also offer private labeling. They may specialize in a product that a retailer wants to sell but doesn’t want to manufacture themselves. So, they purchase the products from a manufacturer and put their label on them. The Great Value brand at Walmart is one example of private labeling.
A distributor purchases products directly from a manufacturer and sells them to a wholesaler. A distributor will handle passively received orders and actively promote the products to find new buyers, acting as a sales representative for the manufacturer.
Wholesalers work closely with eCommerce retailers to accommodate their needs, often buying products in bulk at a discount from manufacturers or distributors. A wholesaler’s sole responsibility is to fulfill retail orders to the best of their ability.
Today, dropshipping is a popular form of wholesaling. Ecommerce retailers will sell a product and pass the sales order to a third-party supplier, or dropshipping company, that then fulfills the order, shipping it to the customer.
A retailer purchases product from a distributor or wholesaler, and sells those products to the general public. Some eCommerce retailers are also manufacturers, producing and selling their own products.
White labeling is another way retailers may sell products. They simply purchase generic items from a manufacturer and brand them. The Dollar Shave Club is a good example; they bought basic razors from a manufacturer, slapped their name on them, and then used an innovative (at the time) subscription model (more on that in the next section).
In the franchise business model, an eCommerce entrepreneur pays for the right to sell a product or service under the franchise's name. A franchisee adopts the business model of a particular franchise, meaning they can be a manufacturer, distributor, wholesaler, or retailer!
5 Common Ecommerce Revenue Models That Work
Here’s a look at five common eCommerce revenue models that have proven to be highly successful over the years.
1. Sales Revenue Model
The most common of all eCommerce revenue models, here profits are achieved by selling products or providing services online versus, or in addition to, brick-and-mortar stores. Any business selling items through the internet, regardless of their business model, is following the sales revenue model. While they may have other revenue streams, this tends to be their bread-and-butter.
2. Advertising Revenue Model
Is Bob’s Bait & Tackle ever going to get the type of traffic as, say, Facebook or Google? Of course not. But they can advertise on those sites! The advertising revenue model is when popular platforms allow others to advertise with them for a fee. Media sites, such as magazines, newspapers, and TV channels also frequently use this model. While they may charge a flat fee for advertising, generally cost is based on pay-per-click (PPC), which is the number of people who click on the ad.
3 Subscription Revenue Model
When it comes to the subscription revenue model, a lot of people think of Netflix or Spotify. However, there are also many popular subscription box brands like Bark Box, Hello Fresh, Ipsy, and Harry’s. Regardless of the offering, with this model users are charged a recurring fee (monthly or annual) for using services or having existing products replenished and delivered regularly. Today, there are an estimated 7,000 subscription box services operating globally!
4. Transaction Fee Revenue Model
This model charges a fee every time a transaction is made through their platform. For example, eBay charges sellers a fee whenever an item is sold; PayPal charges users a fee for transferring money; eTrade gains a transaction fee whenever a stock is sold; and so on. While fees tend to be minimal, if people are making thousands of transactions per day, the revenue can be substantial!
5. Affiliate Revenue Model
Last but not least is affiliate marketing. With this model, businesses earn revenue just by promoting and selling another person’s (or company’s) product on their site (as opposed to the advertising revenue model, which doesn’t allow for purchase on the host’s site). The concept of affiliate marketing is based on revenue sharing. If a business has a product and wants to earn more, you can promote complementary products or services of another company that will, in turn, pay you for your referrals. It’s a win-win for both parties; the affiliate gains a new, passive revenue stream, and the merchant gains new customers! Learn more about affiliate marketing here .
Developing the Right Ecommerce Revenue Model
Which revenue model is right for you? Ultimately, you need to understand your customer and their expectations, assess your current resources to find a realistic revenue model, and identify your budget allocation. And, there are many other types of revenue streams to consider within these five models (check out 101 of them here ). Of course, while competition is fierce in the online world, there has never been a better time to get in on the action. According to TechCrunch , COVID-19 accelerated the shift to eCommerce by five years in just one year, boosting revenue growth in eCommerce and making it the number one shopping choice of customers everywhere.
How to capitalize on gen z & millennial spending habits, what is the agile methodology and how can you apply it, grow your revenue with tips from tfl.
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Revenue Model Types in Software Business: Examples and Model Choice
Revenue model vs business model, revenue model vs revenue stream, transaction-based revenue model, advertisement-based revenue model, commission-based revenue models, markup revenue model, affiliate revenue model, interest revenue model, donation-based or pay-what-you-want revenue models.
A business starts with an idea of how to generate value for a customer. So, if a customer is looking for a table, you can produce a table, market it, ship it, and receive payment for it — and that’s your business model. The total amount of money earned — in other words, revenue — is the coal that keeps your train running. Depending on the business model’s complexity, revenue will cover manufacturing, distribution, marketing, and other costs.
Besides simple transactions, there are many ways to generate revenue. That’s even truer for software companies: Web distribution and the nature of software create various possibilities to monetize code. Think of licensed/freemium apps, service subscriptions, and others. All of these represent a certain mechanism that specifies how a business generates revenue. The structure of this mechanism is called a revenue model.
Here’s our video breakdown of revenue models
For those exploring the world of business strategy planning, we’ll elaborate on the definition of the revenue model, and the correlation between business models and revenue streams. We’ll also analyze different types of revenue models and look at some examples to scrutinize the pros and cons of each approach. Finally, we’ll reflect on how to choose or develop a model for your business.
What is a revenue model?
A revenue model is a plan for earning revenue from a business or project. It explains different mechanisms of revenue generation and its sources. Since selling software products is an online business, a plan for making money from it is also called an eCommerce revenue model.
The simplest example of a revenue model is a high-traffic blog that places ads to make money. Web resources that present content, e.g., news (value), to the public will make use of its traffic (audience) to place ads. The ads in turn will generate revenue that a website will use to cover its maintenance costs and staff salaries, leaving the profit.
Revenue models are often confused with business models and revenue streams. To avoid any misinterpretations, let’s quickly define these three terms that form a business strategy.
A business model (BM) is a broad term outlining everything concerning the main aspects of the business, all of which are contained in the answers to the following questions.
- What value will we create?
- How will we deliver it?
- How will we bring in revenue?
- How will we earn profit?
Numerous forms of business models can’t be classified in a single list because each part is highly individual to the industry, type of product/service, audience, or profitability. Business models are often depicted strategically on a business model canvas . This is a compound representation of all the key elements of a BM.
A business model canvas template by AltexSoft
So the BM describes how a business will work from the standpoint of value generation. Revenue models, on the other hand, are a part of the business model used to describe how the company gets gross sales.
A revenue model is used to manage a company’s revenue streams, predict income, and modify revenue strategy. The revenue itself is one of the main KPIs for a business. Measuring it annually or quarterly allows you to understand how your business operates in general and whether you should change the way you sell the products or charge for them.
But what are revenue streams?
A revenue stream is a single source of revenue that a business has. There can be many of them. Streams are often divided by customer segments that bring revenue via a given method. The two terms – revenue stream and revenue model – are often used interchangeably, since, from a business perspective, the subscription revenue model will have a revenue stream coming from subscriptions. However, models can name multiple streams divided into customer segments, while the principle of revenue generation (subscription) will remain the same.
Revenue model types
Any start-up, tech company, or digital business may combine different revenue models. The revenue model will look different depending on the industry and the product/service type.
Here we will pay more attention to the most common revenue models used in the software industry and online business.
A transaction-based model is a classic way a business can earn money. The revenue is generated by directly selling an item or a service to a customer. The customer can be another company (B2B) or a consumer (B2C). The price of the product or service constitutes the production costs and margin. By increasing the margin, the business can generate more income from sales.
Selling products or services entails using different pricing tactics. While some of them may be considered separate revenue models, these tactics are often used in pairs. Because pricing tactics can be seen as pricing plans in a software business, we can clearly define the following types.
Licensing/one-time purchase. This entails selling a software product by license that can be used by a single user or a group of users. The general idea is to offer a product that requires making only one payment for it, e.g., Microsoft Windows, Apache Server, and some video games.
Subscription/recurring payment. Unlike licensing, a user receives access to the software by paying a subscription fee on a monthly/annual basis, e.g., Netflix, Spotify, and Adobe products.
Pay-per-use. This pricing tactic is mostly used by different cloud-based products and services that charge you for the computing powers/memory/resources/time used. Examples are Amazon Web Services and Google Cloud Platform.
Freemium/upselling. Freemium is a type of app monetization in which a user may access the main product for free, but will be charged for additional functions, services, bonuses, plugins, or extensions, e.g., Skype, Evernote, LinkedIn, and many video games.
Hybrid pricing. Sometimes pricing plans are a mixture of more than one. So that freemium plan might morph into some form of pay-per-use tiered plan. After passing some limit in computation or resources, a user can be forced to use or offered another type of pricing. Examples are Mailchimp, Amazon Web Services, and SalesForce.
Various combinations of pricing tactics can be used simultaneously, which is more often seen in cloud-based products that offer multiple payment options at once. The revenue model in this case remains based on the transaction and purchases made by the customers. The difference in pricing tactics will modify how the revenue is generated and basically depends on the type of product/service you sell.
The pros. You have full control over the pricing strategy.
The cons. The cons will depend on the industry/product type and pricing tactics, as the model itself imposes a constant generation of sales with the help of advertising and marketing strategies. The only con we might mention here is the financial burden connected with sales you will carry on your own.
Transaction-based revenue model examples. Nearly any company that produces and sells its products uses this type of revenue model. Examples are Samsung, Rolls Royce, Nike, Microsoft, Apple, Boeing, and McDonald’s, to name a few.
The advertisement-based revenue model is a plan with which businesses make money by selling ad spaces. It is one of the most standard methods of producing top-line growth, and it’s valid both for online and offline businesses. It’s often used by websites/applications/marketplaces or any other web resource that attracts huge amounts of traffic.
The pros. Having a high-traffic resource allows you to monetize the ad space nearly instantly. Often, there is a strong demand for advertising space, especially with organic traffic and platforms with the target audience.
The cons. Running advertising campaigns to gain web visibility on various platforms like social networks is a standard marketing activity with targeting instruments more precise than ever. However, advertisements are everywhere, so you might think twice about whether you want to distract a user by placing an ad in your app – even if it is a secondary revenue stream.
Ad-based revenue model examples. YouTube, Instagram, Facebook, and Google are just a few prominent examples. All these platforms generate revenue by displaying advertisements to users and charging businesses for exposure. In addition to promotion, these platforms may also generate revenue through other sources, such as premium subscriptions or licensing agreements.
A commission-based revenue model is one of the most common ways businesses make money today. A commission is a sum of money a retailer adds to the total cost of a product or service.
A commission may be charged per marketplace or transaction and can be assigned as a
- flat rate, a fixed sum of money for any type of transaction, e.g., a $450/300/1500 transaction is charged with a $20 commission;
- percent of transaction size, e.g., a $100 transaction is charged with a 10 percent commission – $10; or
- tiered commission, a percent or flat rate that grows based on the transaction volume, e.g., 50,000 transactions are charged a 4 percent commission, 150,000 transactions a 7 percent commission.
Marketplaces and eCommerce platforms, in particular, utilize commissions the most. Another large category includes businesses that connect service providers/renters with consumers. Think of any ride-hailing company, food delivery, online travel agency (OTA) , or alternative accommodation services.
The pros. Revenue is easily predictable because of the sheer fee.
The cons. There are many problems bound to the concept of a commission, but the major one goes to the scalability of a business that’s attached to a transaction size or volume. In general, dependency on the product supplier’s sales makes generating revenue require upfront investments and competitive superiority.
Commission-based revenue model examples. Airbnb is a platform that allows individuals to list and rent their homes or apartments as short-term rentals . It generates revenue by charging a commission on each booking made through its platform. The commission is typically a percentage of the total booking cost and is paid by the host (property owner). Other examples are Booking.com, Uber, Lyft, Ticketmaster, Priceline, and Upwork.
Markup is the type of revenue model with which you buy a product at a certain cost and then sell it for a higher price: The difference between the two is your profit margin. This model is often used by wholesale, retail, and service-based businesses.
For example, a wholesaler may be a bed bank — a B2B company that purchases rooms from accommodation providers in bulk at a discounted, static price for specific dates, and sells them to OTAs , travel agents, destination management companies, airlines, or tour operators.
Pros. Markup revenue models are straightforward, allowing businesses to easily calculate their profit margins on each sale. With this approach, businesses can be flexible with their pricing by adjusting the markup to reflect changes in the cost of goods or changes in market conditions.
Cons. While markups provide a great deal of flexibility, some organizations may not have enough resources to manage revenue and apply changes to their markup strategy based on the market state. So they set a uniform markup for all of their products or services. This may lead to prices being too low or too high and businesses may not be able to fully capitalize on the value of certain products.
Markup revenue model examples. In addition to bed banks, airline consolidators leverage a markup model to earn revenue: They are brokers that book flight seats in bulk at discount rates and then resell them to travel agencies. Examples are Mondee, Picasso Travel, and Centrav.
The affiliate model is similar to the commission-based model. The main difference is that, with the affiliate model, you do not sell the product or service on your own platform, but rather redirect the customer to the original provider’s platform to make the purchase and earn a commission on any resulting sales. An affiliate model is a contract between a supplier of a product/service and a promoter. A promoter can be another business/media resource/blogger that recommends a supplier’s product. The earnings will come as a percentage of sales or fees for the number of registrations done via referral links.
Businesses utilizing the affiliate model include metasearch engines as a unique example. Metasearch tools can be found almost everywhere. Their main difference with retailers is that they don’t sell products directly but offer comparison and search as a value. Advertising and affiliate programs are the main revenue models used to get earnings in this case.
The pros. Just like the advertisement-based revenue model, once you have a huge traffic resource, you might apply for an affiliate program to earn money. This will bring you income without any investments because you will basically generate traffic and leads for the affiliate program provider.
The cons. Unfortunately, the percentage of affiliate programs promised to the promoter is quite low. Sometimes it fluctuates between 1-2 percent and requires a high volume of sales generated through your links.
Affiliate revenue model examples. Blogging and event-promoting platforms like Broadway.com or TheaterMania generate revenue using this model. Among other examples are Amazon affiliate websites, e.g., Cloud Living and ThisIsWhyImBroke.
An interest or investment revenue model relates to any type of business that generates revenue in the form of interest on their loans or deposit payments. These are most often banking or electronic wallet companies that work with financial operations.
The revenue is generated by making a loan to a customer or by a customer depositing or investing money (or other resources) into the business. At the end of a return period, a percentage of the loan sum will return as revenue. Debit/credit money provided with the bank accounts also relates to this model. That’s just one of the ways financial companies can make money, combining it with transaction fees for using their e-wallet/bank account.
The pros. The interest rate provides a clear view of what revenue a business will generate, as the percentage stays unchanged until the return period is over.
The cons. The regulations of an interest rate impact both the customer and the business. Sometimes it depends on the economic environment. Think of currency rate changes that influence potential and existing borrowers.
Interest revenue model examples. Many banks, credit card companies, and other financial institutions use the interest revenue model. For example, peer-to-peer lending platforms, such as LendingClub and Prosper, generate revenue by charging interest on loans funded by investors.
This is a revenue model based on investments made by businesses or customers on a voluntary basis. The product or service itself is free to use by default, so that’s the primary value a company brings to the customer. The revenue is generated in the form of donations, or sometimes in the form of “pay-what-you-want.”
It’s important to mention that there is a difference between a donation-based business and a charity organization. A donation-based company is still required to pay taxes.
The pros. Because of the free access to the product, some companies manage to get increasingly popular, resulting in donations becoming a major part of their revenue.
The cons. The model is never used on its own and the revenue generated by it remains a secondary source because of its random/unstable nature.
Donation-based revenue model examples. AdBlock generates revenue through donations from users who support the development and maintenance of the software. At the same time, AdBlock offers a premium version of the software for a fee, which includes additional features and support. Among other examples is Wikipedia which relies on donations as a significant source of revenue. Additionally, the platform makes money through grants and partnerships.
There are many other revenue models, and a business or project may use more than one revenue model. It is important for businesses and projects to carefully consider their revenue model as it can have a significant impact on the overall success of the venture.
How to choose a revenue model for your business?
Before choosing a revenue model, you need a fully developed business strategy that will include a prepared business model with all its key instances. That means you must take a few steps prior to selecting the revenue model.
Define your value proposition. Map out your product strategy by describing what the product is and what value it brings to the customer. Not all products can be sold: Can you recall the last time you upgraded your WinRAR to a full license? Also, you can analyze the future traffic for your app to understand if you can use ads in it.
Explore the market state and customer groups. This step is to define your user persona and understand how these users usually buy things. Some markets are inclined to purchase just one product, some are inclined to ignore upgrades or in-app purchases. A good example in this field is the death of music-selling platforms that were totally replaced by subscription-based streaming services like YouTube Music, Apple Music, Spotify, and others.
You may also explore the techniques on how to market your product in our dedicated article.
Analyze competitors and their products. You’ll need to learn what mechanisms and revenue streams your competitors use and how they manage their costs. This information will probably show you the market’s pitfalls and dead ends.
Looking at this simple matrix below, we can analyze the capabilities and needs of your company to help you decide the type of revenue model to use.
How to choose a revenue model framewor k
Depending on your business model, the product or service you’re presenting to the user is a subject of exchange. This is your value proposition on the market, so you are in charge of choosing what you want to get back based on the market factors, target audience, etc.
Paid value proposition. In most cases, your value proposition costs money to use. Whether it’s a service or a software product, a customer will need to pay in some form to gain access to your value. Your revenue model in this case will be based on transactions. So develop pricing tactics that will depend on the nature of the product, the type of audience you’re trying to reach, the type of deployment, specifics of product usage, etc.
Free-to-use value proposition. If the value proposition doesn’t require money to use or you choose it to be free, then you need a third party to generate revenue for you. This could be anything based on the previously mentioned types, whether it’s ad space, donations, affiliate programs, or reselling.
The combination of the two will basically present you with the revenue streams that will focus on each of the customer segments. In the case of the paid value proposition, each pricing plan will be a separate revenue stream.
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A Detailed Guide on E-commerce Revenue Model
The e-Commerce space has never been so elastic and broader before. Addressing the recent upsurge in global business, technological advancement and the people following online shopping, the digital space has opened flexible ways to put up your e-commerce revenue model in the array and reach out to your audience much more easily.
It has been just 25 years that the internet has brought the entire marketplace to your fingertips. This has forged a branched path for eCommerce allowing people to come up with different business over the internet that is categorized into wider aspects. But before we jump into our classification of eCommerce business models, let’s refurbish our definition of eCommerce business.
What is an eCommerce business?
In simple terms, eCommerce or electronic commerce business refers to selling, buying or making a transaction over the internet in the digital marketplace. The products or services are showcased through a website or mobile application through digital signage systems that are integrated with a secured payment gateway facilitating product purchase and financial transactions.
Now let’s move ahead with segregating the eCommerce business model based on their revenue model.
The e-commerce revenue model is usually considered in classifying an eCommerce business as revenues denote the total amount of money that is being received by the company after trading its products or service with its customers. There is a range of options from which revenues can be generated including advertising, affiliate marketing, subscription and a lot more.
The industry never restricts the upcoming of any new way of generating revenue. Though we will stick to explaining the basic five eCommerce Revenue Models with possible variations to the approach.
Advertising Revenue Model
Generally, there is always a commission charged to advertisers to put up their advertisements in a well known online marketing platform. This is the classic principle that is being followed for the business categorized for the Advertising Revenue model . They take advantage of the huge traffic who regularly visit the chosen platform to shop around, see the ad and get redirected to the actual site.
This can be related to a way of increasing leads to the business. The payments are made to the hosting platform based on a fixed commission or decided upon the traffic density that is driven to the business.
Business following the Advertising Revenue Model presents an indirect way of earning revenue through a digital platform and the conventional ways of putting up ads generally include display marketing that includes a super banner, wallpaper, skyscraper or rectangular ads. These are paid according to the traffic that is driven from the platform through the ads. The general income structure is based on the invoices raised against Cost per Click (CPC) or Cost per Action (CPA). Apart from the regular display marketing strategies that are aimed to redirect the traffic coming onto the eCommerce platform into the address where the ads are linked, affiliate marketing and search engine marketing are other famous ways.
Google Adwords and Adsense are among the most trending and reliable options that allow you to place your ads through the Google Search engine allowing you to bring your business website to the top of the search results when searched with the related keywords. Similar platforms are Facebook and the New York Times that allows you to display ads based on a Cost Per Mile (CPM) basis.
Subscription Revenue Model
You must have heard of Netflix, Amazon Prime, YouTube Premium, etc who will let you enjoy their unlimited services. These eCommerce business models charge their users or rathers subscribers based on a certain interval of time (daily, monthly or annual) to avail their services.
The service offerings of these companies generally include music, videos, TV channels, magazines, special services, etc. which is offered to the subscribers for a price to watch/listen or get the latest edition. Now, let me guide you through some examples of basic subscription business models.
- Premium membership: Many social media and business platforms like Xing, Linkedin, stayfriends, etc. offers subscriptions to avail of additional services that get the subscribers to access to daily updates, newsletters, short notices, etc. These information and quick updates are delivered to them directly to their account.
- Internet service providers: We all are familiar with the monthly and annual subscription of internet service providers or rather a broadband connection enabling the subscribers to enjoy unlimited internet service.
Publishers and content services: You are well acquainted with Netflix, New York Times, Spiegel Online, etc. These eCommerce business models ask for subscription fees based on monthly or annually to get access to their content.
We all know that every eCommerce business has one thing in common and that is their payment gateway. These are companies like Paypal, VeriSign whose subscription fee depends upon the SSL certification and the period of service.
Transaction Fee Revenue Model
Following the transaction fee revenue model, the eCommerce business charges a fee to a seller for every transaction made through them. They are the payment companies that provide the payment gateway service to other eCommerce business platforms . Generally, the profit is derived through enabling or executing transactions.
The operator provides a platform for the eCommerce marketplace through which the transaction can be completed. Now, the necessary steps include registering of the vendor and the operator so that the identities are kept intact that may later be required for a business. The model has proximity to the affiliate market but is somewhat different.
To explain it in a better way, let’s take the example of PayPal. The company charges a transaction fee to the sellers of the product once the transaction is completed. Similarly, eTrade gains a transaction fee whenever a stock transaction is made with a customer. The amount to be paid to the operator is either decided upon based on a percentage or a fixed amount with the vendor. Amazon is another example of a transaction fee revenue business model.
Sales Revenue Model
This is the most commonly followed eCommerce business model where wholesalers and retailers sell their products over the internet intending to reach out to a larger target audience. Also, more importantly, this model brings inconvenience for the customer as well as saves them time. And the hassle to walk up to their physical store. There is an extra cost.
The prices are often competitive in comparison to the actual store price. The business following the online sales model often comes with marketplaces as common entry points that allow them to deal with various product vendors allowing them to grow the marketplace and therefore earn more.
In certain cases, the sales are directly injected into the business where the profit is shared with none. Based on the size of the business and the point of sales traffic, certain functionalities of the business are transferred to third party vendors, generally done for the logistics and supply chain.
Examples can be sited in terms of all the single shop companies selling their brand products over the internet through their online platforms. This forms a dedicated way of doing sales and reaching out to a vast number of customers. Amazon, Otto, etc are examples of businesses following such a model for their web catalogue-based business over the internet. Also. Buy.com and Etsy are examples of such marketplaces while blood, woot! guut.de are examples of live shopping marketplaces.
Affiliate Revenue Model
Next, on the list, we have an affiliate revenue model that deals with a business that follows the principle of commission. Merchants and vendors partner up with well-known eCommerce platforms to advertise and sell their products giving them a percentage of the profit as a commission.
An affiliate marketing is a well-known way of inviting as well as driving quality leads into their business. The process basically works as a link that is hyperlinked to the affiliate and is archived on a host platform that gets regular traffic. Any user who clicks to the affiliate link is redirected to their website where the product or service is catalogued. The affiliate or the merchant thus pays an agreed commission to the host operator who’s carrying the link for every traffic driven.
Amazon and affiliate are well-known examples that let you affiliate your product links and drive traffic. For each lead driven to your website, you need to pay a certain percentage to Amazon or affilinet as their commission. Interestingly, this brings a win-win situation for both the merchant, who sells his product and the affiliate who advertised or marketed their product. Such an eCommerce business model utilizes different variations such as pay-per-click, banner exchange and also, revenue sharing programs that aim at driving the audience from one platform to another.
There are a lot of other business models that are being used today to gain profit from the online marketplace. However, it’s natural that eCommerce business and digital marketing go hand in hand while delivering the business objective. Today there is an estimated rise of 17% in the eCommerce business since last year and has the potential to grow sky high in the coming years.
Though shopping around physically hasn’t yet gone out of trend, most businesses today find a way to rule both the physical and online marketplace. So, there is always a scope for defining a new way of doing business over the internet. This means, more business models are yet to be known for the online eCommerce market .
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Everything You Need to Know About eCommerce Revenue Model
Table of Contents
1) a brief on e-commerce business.
E-commerce (electronic commerce) business refers to any type of transaction that takes place over the internet. This could include selling products or services, making payments, or even just gathering information from potential customers.
2) What is the e-commerce revenue model?
The classification of online business based on the kind of revenue model it utilizes to generate income is called the e-commerce revenue model. This blog post will guide you to understand different revenue models that online platforms employ to conduct e-commerce business.
3) E-commerce Revenue Model, a Complete Guide
What are the different ways that ecommerce businesses can generate revenue? Is there one model that is more successful than the others? In this blog post, we'll take a look at the most popular ecommerce revenue models today:-
1) Advertising Revenue Model
With this revenue model, advertisers are charged a commission for their advertisements to be put up on an online marketing platform. It follows the popularity and traffic levels that regularly visit hosting websites where ads are allowed or supported by other stores/companies.
Consumers visit the sites for shopping or just looking around, click on ads and links to get redirected towards your site. The platform host who supports the ads get paid based on the traffic density and clicks on the site.
2) Subscription Revenue Model
The subscription revenue model is a great way to generate steady, monthly income. By charging customers for access and processing payments at regular intervals, you can establish long-term relationships with your clients who will continue paying even if they don't use the product or service as often.
Subscription-based revenue models can be convenient for customers giving them leverage to find new products. This revenue model can be analyzed with accurate subscription data and offer predictions for future revenue. The advantage of subscription-based revenue is that you know exactly how many consumers are availing of your subscription. Moreover, returning customers can be a handful under this e-commerce revenue model, facilitating a long-standing relationship with the consumer.
3) Transaction Revenue Model
For any kind of buying and selling that takes place on an online platform, there has to be a payment method set up for completing transactions. The setup is done by companies providing a secure platform for various payment modes. Companies like Paypal, Transferwise, etc., charge sellers for every transaction carried out through their payment gateways.
Companies providing a transactional platform charge sellers based on the pre-negotiated percentage between them and the online platforms. Furthermore, payment gateways are configured with high-security protocols to maintain private and critical consumer data integrity.
4) Sales Revenue Model
The sales revenue model is another eCommerce business model where wholesalers and retailers sell their products over the internet. This type of revenue works by reaching out to a wider range of target audiences connected to the internet. Businesses in these markets come with marketplaces as common entry points for dealing with various goods.
Online retailers can sell their products on the market places at prices that are often considered competitive against what you would find in-store or on competitor websites.
5) Affiliate Revenue Model
The Affiliate Revenue Model deals mainly with companies offering services based on getting paid per commission. To make a profit, many merchants and vendors use an affiliate revenue model to partner up with well-known eCommerce platforms to advertise their products. In return for an agreed percentage of the sales proceeds from any purchases made through these sites, they are given access to high-quality traffic that can help drive revenue as well increase brand awareness online.
6) Agency Revenue Model
In an e-commerce market where a company wants to find visibility, they employ agencies to set up their presence with creative and engaging content. An agency traditionally balances the marketing goals of brands with understanding how to create the best and present the information online.
The agency provides a paid space for the brand to publish and utilize its audience base for greater reach. The advantages of an Agency revenue model are two-fold: not only does an agency provide experienced voices and skills from industry leaders in their respective fields but they also help create custom content tailored specifically towards your business needs as well!
7) Sponsorship Model Revenue
A sponsorship revenue model is how companies advertise by putting their brand name out through other e-commerce websites or services with a considerable audience base. Companies directly pay a brand with a considerable audience for projecting their name. This revenue model can be a stable and a great way to get your brand in front of people.
The sponsorship revenue model can be effective if done through larger broadcasting channels for reaching a wider audience. In contrast to the advertisement, sponsorship deals through non-targeted, wider broadcasting channels. However, advertising can be customized to take your brand to a particular demographic, geography or individual user, anywhere.
4) Final Conclusion
So, which e-commerce revenue model is right for your business? It depends on various factors, including the products or services you offer and your target market. But as you can see, there are several different options to choose from, each with its own advantages and disadvantages. Consider all of your options carefully, and then decide which model will work best for you and your customers. Thanks for reading!
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Online revenue model for digital businesses
An online revenue model describes the method(s) of monetisation used for businesses to generate revenue online.
It’s particularly relevant to publishers who may consider different forms of ad revenue. These first eight of these are relevant to publishers, the last two are more classic e-commerce business models.
See my more detailed article explaining these 10 online revenue models :
- 1. Revenue from subscription access to content (often using a freemium business model approach)
- 2. Revenue from Pay Per View access to documents
- 3. Revenue from CPM display advertising on site
- 4. Revenue from CPC advertising on site (pay per click text ads)
- 5. Revenue from Sponsorship of site sections or content types (typically fixed fee for a period)
- 6. Affiliate revenue (CPA, but could be CPC)
- 7. Subscriber data access for e-mail marketing
- 8. Access to customers for online research
- 9. Online e-commerce sales transactions
- 10. Online digital service subscriptions
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What Is a Revenue Model?
Published: October 06, 2021
Deciding how you’ll generate revenue is one of the most challenging decisions for a business to make, aside from coming up with what you’ll actually sell.
You want to ensure that you’re accounting for production costs, salaries for workers, what your consumers are willing to pay, and that you generate enough to continue business operations. You also want to make sure that your strategy fits with what you’re trying to sell.
Various revenue models will help you set your business on the right path. In this post, we’ll outline what they are and how to choose the right one for your company.
What is a revenue model?
A revenue model dictates how a business will charge customers for a product or service to generate revenue. Revenue models prioritize the most effective ways to make money based on what is offered and who pays for it.
Revenue models are not to be confused with pricing models , which is when a business considers the products’ value and target audience to establish the best possible price for what they are selling to maximize profits. Once the pricing strategy is set, the revenue model will dictate how customers pay that price when they purchase.
RevOps teams also use pricing models to predict and forecast revenue for future business planning. Knowing where your money is coming from and how you’ll get it makes it easier to predict how often it will come in.
There are various revenue models that businesses use, and we’ll cover some below.
Types of Revenue Models
Recurring revenue model.
Recurring revenue model , sometimes called the subscription revenue model, generates revenue by charging customers at specific intervals (monthly, quarterly, annually, etc.) for access to a product or service. Businesses using this model are guaranteed to receive payment at each interval so long as customers don’t cancel their plans.
Recurring Revenue Model Example
Businesses that benefit from recurring revenue models are service-based (like providing software), product-based (like subscription boxes), or content-based (like newspapers or streaming services). Businesses you may be familiar with that use this strategy are Spotify, Amazon, and Hello Fresh.
Affiliate Revenue Model
Businesses using affiliate revenue models generate revenue through commission, as they sell items from other retailers on their site or vice versa.
Sellers work with different businesses to advertise and sell their products, tracking transactions with an affiliate link . When someone makes a purchase, the unique link notes the responsible affiliate, and commission is paid.
Affiliate Revenue Model Example
Businesses you may be familiar with that use the affiliate revenue model include Amazon affiliate links and ticket promoting services. Influencers also use this model to advertise products from businesses and entice users to purchase them through custom links.
Advertising Revenue Model
The advertising revenue model involves selling advertising space to other businesses. This space is sought after because the advertiser (who is selling the space) has high traffic and large audiences that the buyer (who is purchasing the space) wants to benefit from to give their business, product, or service visibility.
Advertising Revenue Model Example
Various types of online businesses use this model, like YouTube and Google, and so do traditional outlets like newspapers and magazines.
Sales Revenue Model
The sales revenue model states that you make money by selling goods and services to consumers, online and in person. Therefore, any business that directly sells products and services uses this model.
Sales Revenue Model Example
Clothing stores that only sell their products in a storefront or business-specific retail website use the sales revenue model as they sell directly to consumers with no third-party involvement.
SaaS Revenue Model
The Software as a Service (SaaS) revenue model is similar to the recurring revenue model as users are charged on an interval basis to use software. Businesses using this model focus on customer retention, as revenue is only guaranteed if you keep your customers. The image below is the HubSpot Marketing Hub pricing page that uses the SaaS recurring subscription model pricing.
SaaS Revenue Model Example
Businesses using this revenue model include video conferencing tool Zoom, communication platform Slack, and Adobe Suite.
How to Choose a Revenue Model
Choosing a revenue model is entirely dependent on your specific business needs and your pricing strategy.
There is no one-size-fits-all solution, and some businesses have multiple revenue streams within their revenue model. For example, if you use a recurring revenue model, you still may sell advertising space on your website to other businesses because you have a high-traffic page.
There are some key factors to keep in mind, though:
1. Understand your audience.
When picking a revenue model, the most important thing to remember is the target market and audience your pricing strategy has identified. You want to understand their pain points and what model makes the most sense for charging them.
For example, if you’re a service that sells meal kits, your target audience is likely busy and wants the convenience of food that is set up and easy to make after a long day. Using the recurring revenue model makes sense, as you’ll automatically charge them on an interval basis, and they won’t have to remember to submit payment — speaking directly to their desire for convenience .
2. Understand your product or service.
It’s also essential to have an in-depth understanding of your product or service and how your audience will use it. For example, if you sell shoes, your audience likely won’t need a new pair every month, so it may make sense to go with the Sales Revenue Model. Instead, your customers can come to you directly every time they need a new pair.
Choose the Model That Best Fits Your Needs
Ultimately, choosing a revenue model is centered around understanding what makes the most sense for what you’re selling and what makes the most sense (and will be most convenient) for the audiences you’re targeting.
Take time to develop your pricing strategy, choose a revenue model aligned with it, and begin generating revenue.
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Ecommerce Business & Revenue Models Explained
In less than 25 years, the internet has brought the whole offline shopping experience right at your fingertips. Even the offline players are trying to fit into the online sphere just because online sales are projected to account for 17.0% of all retail sales within the next five years.
If you’re reading this in or after 2017 and are still alien to the concept of ecommerce, you’ve got do to a lot of work before launching your business in the online ecosystem.
What is Ecommerce?
Ecommerce (short for electronic commerce) is when commerce meets the internet. It refers to the process of conducting trade over the internet.
Technological development has revolutionalised the way people conduct business. Businesses have gone global and serve customers in countries they didn’t even dream of before. There are many types of ecommerce businesses:
B2B ecommerce model focuses on providing goods and services to other businesses. Examples include online marketplaces, SAAS companies and catalogue websites like – Alibaba, Ahrefs, ExxonMobil, Boeing etc.
This is the most prevalent eCommerce model where businesses sell their goods directly to the end consumer. These businesses run on the traditional retail model but sell their goods over the internet. Examples include standard retail eCommerce stores, social shopping websites, etc., like Amazon, Groupon, GAP etc.
C2C eCommerce websites provide a platform for consumers to sell their products to other consumers. The differentiating characteristic of this platform is that the seller is also the consumer of other products. These websites usually make money by charging commissions or through advertisements. Examples include c2c marketplaces and crowdfunding websites like OLX , Letgo , Kickstarter etc.
There are times when businesses buy products and services from consumers. These products and services can be bought on C2B eCommerce stores and marketplaces. C2B ecommerce usually includes freelance services and specialised products. Examples include recommerce websites like Cashify and freelance websites like Upwork, etc.
Ecommerce businesses are classified into many other types other than these four, all of them which are derived from these.
Ecommerce Business Model
The ecommerce business model is the conceptual structure of your b2b, b2c, c2c, or c2b business strategy. It includes the purpose and goals of your company and how it intends to achieve them.
According to the inventory management and sourcing of the products, the eCommerce business models are classified into:
- Drop Shipping
- Wholesaling and Warehousing
- White-labeling and Manufacturing
Drop Shipping Business Model
Dropshipping business model is a retail model where you don’t have to care about the fulfilment costs. The model involves a partnership with a wholesale supplier who stocks your inventory deliver the goods on your behalf directly to the customers.
All you have to do is create a platform listing the products for sale and handle the business’s marketing. The inventory, delivery, and handling are taken care of by the drop shipper. There is an extra charge for this, but this is better than piling up an inventory of products with no guaranteed demand.
This type of eCommerce business model is suited for businesses-
- Who don’t have much investment to buy and store inventory
- Who prefer mobility over fixed business locations
- Who prefer to focus more on the marketing of the business
However, there are certain limitations to the dropshipping business model. These include
- A lot of competition
- Low profit margins since many businesses sell the same product
- Heavy dependency on the drop-shipper
How Drop Shipping Works?
Dropshipping works on the principles of the aggregator business model , where you focus on building a brand for your organisation while the actual product or service is delivered by someone else under your brand.
The orders are given to the drop shipper as and when they arrive. This is done either through automated or manual emails, calls, or spreadsheet files, which is decided in the contract between you two.
How To Start Drop Shipping Business?
There are many dedicated dropshipping business websites. These include Shopify , Aliexpress, etc.
Wholesaling and Warehousing Business Model
Operating a wholesaling and warehousing eCommerce business model is comparatively simpler when compared to dropshipping. This business model runs on the principles of offline wholesaling. That is, you buy products directly from the manufacturer or the middleman at discounted rates, store them in your warehouse, and sell them at profitable prices. This business model suits businesses with guaranteed demand.
Setting up and maintaining a wholesaling and warehousing eCommerce business model requires a lot of investment and supervision. This type of eCommerce business model is suited for businesses which-
- want every aspect of their business in their control
- deal in exclusive products
- have guaranteed demand for their products
- want to sell products in volume
- want to cater to other businesses (b2b)
However, there are certain limitations to the wholesaling and warehousing business model. These include
- A lot of upfront investment
- Business may make losses if there isn’t much demand
- Dependence on sale volumes to generate profits.
Examples Of Wholesaling And Warehousing Business Model
DollarDays, with a product catalogue of 26,000 products, is an excellent example of wholesaling and warehousing business model.
White-labelling And Manufacturing Business Model
This business model is perfect for organisations that don’t have enough investment in manufacturing their own products. This business model allows you to outsource the manufacturing but at the same time put your name as a manufacturer on the label of the product.
This eCommerce business model turns out to be profitable as you make use of the infrastructure already set up by the outsourcing company. This business model suits businesses which:
- want every aspect of the product in their control
- deal in products which are similar to other competitors
- This isn’t for commitment-phobic businesses as goods once manufactured belong to the business
- Businesses have to develop a process to monitor and maintain quality control
How To Start white-labelling Business?
Sourcify connects many businesses to factories to encourage this business model.
Ecommerce Revenue Model
The front end of the business is as important as the back end. Ecommerce businesses plan their revenue model in many different ways. These include:
Direct Sales Model
The direct sales model is the most commonly used revenue earning model adopted by ecommerce companies. It involves setting up a store in an online marketplace or a self-owned website and shipping the goods as and when the customer pays the money.
Freemium model is prevalent among SAAS providers who let you test some features of their software for free but charges money for advanced features.
Subscription is one of the best strategies to retain users and have reliable income streams. Companies that rely on subscription revenue models deliver the customers products and services and charge them a fee for the same at regular, scheduled intervals.
Dollar shave club is a perfect example of the company relying on the subscription-based revenue model.
The ‘buy now, pay later’ model allows the customers to purchase the goods and services on credit and pay for them later. The income is generated in the form of profits + interest rate. This revenue model is widespread in mainland Europe but has recently found its way to other parts of the world.
British clothing company Next has seen a great response after adopting this revenue model.
Go On, Tell Us What You Think!
Did we miss something? Come on! Tell us what you think about this article on the ecommerce business model & eCommerce revenue model in the comments section.
A startup consultant, digital marketer, traveller, and philomath. Aashish has worked with over 20 startups and successfully helped them ideate, raise money, and succeed. When not working, he can be found hiking, camping, and stargazing.
that was so helpful. thank you so much. was just given an assignment on direct sales model and online based and i didnt know what to write
Thank You for Providing some valuable Information.
Great information. We are a start up business interested to get into e-commerce. If you have time we would like to have a chat with you.
It’s really an impressive content
how to do work? plz guide me I wana work on it
definitely a good read. there is not a single blog that covered everything to start an e-commerce business but people should read this article to understand the three models you described here.
Ecommerce Business & Revenue Models Explained
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Types of eCommerce Business and Revenue Models
Published: 23 Jun 2020
There's no denying it; we are living in the era of eCommerce. People don't have to travel to a physical store anymore to get what they need. We pay to listen to music and watch videos online. Millions of people fill their carts online as we speak.
The unprecedented situation has transformed the way we shop today. It seems like the perfect time to break into an eCommerce business.
A thriving eCommerce business is a combination of market understanding, a good business plan, and in-depth research of eCommerce business models. There are lots of opportunities in terms of business models, which all potential eCommerce business owners should know. In this article, we will shed light on these models so you can choose the one that's right for you. But first of all, let's speak terms.
E-commerce is a business process and the scope of the economy that includes trading or money transactions completed online.
In the 50s, American Airlines, in partnership with IBM, began developing a unique system that automates seat reservations. The system exists to this day and is used by more than 350,000 travel agencies around the world.
Over the past two decades, the eCommerce market has been developing especially rapidly, fueled by the advancements in technologies, the widespread availability of the Internet and social networks. Now, let's take a look at the most common eCommerce transactions.
Business to Business
The B2B model is defined as selling products to other companies. That definition only scratches the surface, given that B2B customers are a vague group. It may include business owners, project managers, and decision-makers on various levels. Lots of companies in B2B are service providers, including software development companies, cloud hosting, team and project management tools, and much more. The example is right in front of you: NCube provides virtual teams of software developers to businesses that need to build software.
Business to Consumer
Anything we buy online falls under a B2C transaction. In this model, a company sells goods (and sometimes services) to an individual in an online store. This includes traditional online stores as well as a relatively new entrant on B2C market – selling goods via social media. B2C differs from B2B in a short cycle of sales where most purchases are made at the spur of a moment. B2C businesses market via mobile and web apps, using techniques like native advertising and remarketing to appeal to the customers' emotions.
Customer to Business
Hiring a freelancer on one of the freelance platforms is a C2B transaction, in which you can engage an independent specialist like a graphic designer, customer support manager, or a back-office assistant. In this model, people are seeking the attention of companies, so they put in a lot of effort to land a job. That includes gaining a good reputation with platform users, a portfolio, and always collecting feedback. Good examples of С2В are talent repositories like Upwork, Feverr. Also, we should mention advertising platforms that help monetize your website content and social influencers that market products.
Consumer to Consumer
The model where the customers trade and buy via an eCommerce platform is known as C2C eCommerce. Well-known companies like Amazon and Ebay are making a lot of money, providing a virtual place where one individual sells to another. In traditional C2C, none of the participants call themselves a businessperson. Platforms that provide this type of transaction for a commission resemble traditional Craigslist.
Government / Administration Ecommerce
We have listed the most common eCommerce models, but this one is less obvious. Think of a time when you paid for college tuition or taxes online. That was also an eCommerce transaction. Government eCommerce deals with organizations (B2G) and individuals (C2G) alike. Generally speaking, any transaction between the government and an individual or a business can be defined as government eCommerce. To make it happen, the government hires specialists to develop a digital platform.
Read also: How to Write a Startup Business Plan That Will Secure Investment
Business models in eCommerce
The most important thing in building an eCommerce business is getting revenue. Let's take a look at the key monetizing ways.
One of them is an advertising revenue model . Following this model, innovators put up a digital platform where advertisers could post their ads for a commission based on traffic density and other factors. With this model in place, the customers will come to a website to shop, see ads, and access the advertiser's website. Examples of companies using this model are Google Adwords, Adsense, Facebook, New York Times. To attract users, these platforms typically offer internal advertising tools.
The next is a subscription revenue model . Companies like Netflix and Spotify usually come to mind when we think of a thriving subscription service. In this model, users are charged a recurrent fee (monthly or annual) for using their services. Typically, the services allow access to all kinds of digital content, including music, video, TV, and magazines.
Now let's take a look at a transaction fee revenue model . This one drives revenue by charging a fee for a transaction made via their payment portal. The operator puts up a platform that enables or executes payment transactions to be completed. A good example here is E-Trade that charges a fee once it executes a stock transaction to a customer. Another example is PayPal that charges a fee to sellers. It can be a fixed amount as well as a percentage from a transaction.
There is also a sales revenue model , which is probably the most commonly used model. In this model, the profit comes from selling products or providing services where sellers try to reach a broader audience via the Internet as opposed to offline stores. An example can be any company that sells products online using a single platform like Amazon, Buy.com, Etsy. Such an approach creates a unique way of doing business based on web catalogs.
Finally, an affiliate revenue model where users are steered to an affiliated website. Here sellers collaborate with different eCommerce platforms to advertise and sell their products for a referral fee. Amazon is a good example here since it lets you add links to your products and bring traffic to your website. For each potential customer that comes to your website from Amazon, you will need to pay a fee.
Choose a Model That Fits Your Needs Best
We have looked at different classifications of an eCommerce business, but there's no answer as to which one is the best. Choosing one boils down to what you want to sell, which will determine your business model. If you have a need for an eCommerce solution, our team at NCube can help you get it off the ground. Contact us.
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A revenue model is the means by which a business plans to make money. Depending on the revenue model, which can be pretty standard or fairly complex
An e-commerce revenue model is a plan for generating revenue for an online business. While e-commerce revenue models share many similarities
Five Primary Revenue Models for E-Commerce · Affiliate Marketing · Online Advertising · Transaction Fees · Subscription-Based Services · Product and
A revenue model is a plan for earning revenue from a business or project. It explains different mechanisms of revenue generation and its sources
The e-commerce revenue model is usually considered in classifying an eCommerce business as revenues denote the total amount of money that is
The classification of online business based on the kind of revenue model it utilizes to generate income is called the e-commerce revenue
An online revenue model describes the method(s) of monetisation used for businesses to generate revenue online.
A revenue model dictates how a business will charge customers for a product or service to generate revenue. Revenue models prioritize the most
The direct sales model is the most commonly used revenue earning model adopted by ecommerce companies. It involves setting up a store in an
A revenue model is a framework for generating financial income. It identifies which revenue source to pursue, what value to offer, how to price the value
Business models in eCommerce ; One of them is an advertising revenue model ; The next is a subscription revenue model ; Now let's take a look at a