5 E-commerce Business Revenue Models

The eCommerce business revenue model you choose will be one of the most important decisions you make for your business. It will impact everything from your margins to your customer base. There are a few basic models, but each can be customized to fit your specific needs.

In this article, I will cover the five most common eCommerce revenue models so you can make the best decision for your business. Read on to learn more about eCommerce business revenue models.

What is a Revenue Model?

A revenue model is a plan for how a business will generate revenue. This generally includes pricing models and plans for generating customer demand. Pricing models can be subscription-based, pay-per-use, or advertising-based. Creating customer demand can involve:

• Marketing campaigns.
• Building an ecosystem of complementary products.
• Creating a unique selling proposition.

The right revenue model will depend on the type of business and its goals. For example, a company that sells physical goods will likely use a different model than a company that provides services. Ultimately, the goal is to generate enough revenue to cover costs and generate profit.

5 Common Ecommerce Business Models

Revenue and business models are not the same. Revenue is how your company makes money, but that's only a component of a business model.

Rather, a business model considers all elements of your company, regardless of whether you're running one of the following types of enterprises:

• B2C?Business-to-consumer (B2C) is the process of selling products or services directly to consumers. Businesses that use a B2C model typically sell products or services through a direct sales force, retail stores, or online channels.
• B2B: "B2B" means "business to business." B2B businesses sell products or services to other businesses rather than individual consumers.
• C2C?C2C is shorthand for "customer to customer." It's a business model where customers buy products or services from other customers rather than the company itself.
• C2B?C2B, or Consumer-to-Business, is a business model in which consumers sell products or services to businesses.

Here are the five most frequent eCommerce business models categorized to give you a better understanding.

Manufacturer

Many businesses need products to sell but don't want to go through the hassle and expense of manufacturing those products themselves. That's where manufacturers come in. A manufacturer creates products using raw materials or pre-made components, then sells them directly to consumers or distributors, who sell them to retailers. Some manufacturers also offer private labeling, which means they produce products that a retailer then puts their label on. The Great Value brand at Walmart is one example of private labeling.

Distributor

A distributor is a company that buys products directly from a manufacturer and sells them to a wholesaler. Distributors usually handle passively received orders and promote the products to find new buyers.

Wholesaler

Wholesalers are an important link in the eCommerce supply chain. They work closely with 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. This can involve working with multiple suppliers to source products, negotiating better prices, and managing inventory levels. In some cases, wholesalers may even provide drop-shipping services, directly fulfilling orders on behalf of the retailer.

Retailer

A retailer is a company that sells products to the general public. Retailers can be either brick-and-mortar stores or online eCommerce businesses. They purchase products from distributors or wholesalers and then sell them to consumers. Some retailers are also manufacturers, producing and selling their products.

Franchise

A franchise can be a great way to get started in the eCommerce business world. By paying for the right to sell a product or service under the franchise's name, you can adopt the business model of a particular franchise. This can be a great way to get started in the eCommerce business world because it means you can be a manufacturer, distributor, wholesaler, or retailer!

5 Common Ecommerce Revenue Models That Work

Here's a list of five eCommerce revenue models proven to work.

Sales Revenue Model

The sales revenue model is the most common of all eCommerce revenue models. Here, profits are achieved by selling products or providing services online versus brick-and-mortar stores. Any business selling items through the internet, regardless of its business model, follows the sales revenue model.

While they may have other revenue streams, this tends to be their bread-and-butter. Furthermore, the sales revenue model can be quite profitable; after all, there are no physical storefronts or product inventory to maintain. That being said, running an online store is still quite a bit of overhead, from website hosting and design to marketing and customer service.

But for many businesses, the benefits outweigh the costs, making the sales revenue model a popular choice for eCommerce entrepreneurs.

Advertising Revenue Model

The advertising revenue model is a way for popular platforms to make money by allowing others to advertise with them. This model is used by many different types of media, including magazines, newspapers, and TV channels. Advertisers will pay a flat fee to display their ads on the platform. However, the cost can also be based on pay-per-click (PPC), which is the number of people who click on the ad.

This model can be beneficial for both advertisers and the platform itself. Advertisers get exposure for their product or service, while the platform gets paid for displaying the ad.

Subscription Revenue Model

The subscription revenue model is popular among many businesses, big and small. For example, Netflix charges users a monthly fee for access to its streaming library, while Spotify users can either pay a monthly fee for ad-free listening or listen free with ads.

On the other hand, Bark Box delivers monthly boxes of dog toys and treats to subscribers, and Hello Fresh sends weekly ingredients and recipes to help people cook fresh, healthy meals at home.

Ipsy is a subscription service that sends monthly beauty products to members, while Harry’s delivers shaving supplies regularly.

As you can see, there are many different types of subscription offerings. But what all of these businesses have in common is that they charge a recurring fee (monthly or annual) from their users. The subscription revenue model is a great way for businesses to generate predictable and recurring income, which can be used to invest in product development, marketing, and other growth initiatives.

Transaction Fee Revenue Model

The transaction fee revenue model is a great way for businesses to make money while providing a service that people need. Essentially, transaction fees are charged every time a transaction is made through a particular platform. For example, eBay charges sellers a small fee whenever an item is sold; PayPal charges users a fee for transferring money, and eTrade gains a transaction fee whenever a stock is sold. These fees may seem small, but if people make thousands of transactions daily, the revenue can be noteworthy! This model is particularly popular with online businesses as it allows them to generate revenue without relying on advertising.

Affiliate Revenue Model

Affiliate marketing is a popular revenue model for many businesses. With this model, businesses earn revenue by promoting and selling another person's or company's product on their site. The concept of affiliate marketing is based on revenue sharing. If a business has a product and wants to earn more, it can promote complementary products or services of another company that will, in turn, pay them for referrals. It's a win-win for both parties; the affiliate gains a new, passive revenue stream, and the merchant gains new customers!

Ending Thoughts

Now that you know a little more about the different eCommerce business revenue models, it's time to choose one that best fits your needs. Consider your business goals and objectives, as well as your target market and audience. With this information in mind, you should be able to narrow down your options and choose a model that will help you achieve your desired results. If you're unsure which model is right for you, don't hesitate to contact a professional eCommerce consultant for help. With their guidance, you can select the perfect revenue model for your business and start generating more sales and profits today!