For any eCommerce store, the revenue model is an important part of the business plan. It is usually based on how they expect to make money and what costs are associated with that process. It provides an overview of what type of stream will bring them income and any potential pitfalls that could arise in this strategy. In other words, the revenue model is a high-level look at the business's finances and how it plans to earn money through the online store.
The eCommerce business is a thriving market with many opportunities for those who know how to take advantage. There are many different eCommerce revenue models to choose from. But which one is right for your business? In this article, we’ll look at the 5 most popular eCommerce revenue models so that you can make an informed decision on how best to serve both customers AND generate profit! A good plan and research will help you find your niche in this ever-growing industry.
The sales revenue model is the most common eCommerce business model used by wholesalers and retailers. The eCommerce merchant offers products and services to consumers and generates revenue by selling them these goods and services at a price. The eCommerce merchant bears the burden of creating the product or service, packaging it, storing it in inventory, transporting it from one location to another, processing payments, and marketing it. Merchants who follow the sales revenue model typically offer a wide range of products to a broad base of customers. eCommerce stores following the sales revenue model are similar to brick-and-mortar stores. The difference is that eCommerce stores following this model cater to a larger audience, including international customers, which is not possible in traditional offline stores.
Affiliate marketing is a great way for an eCommerce store to gain additional coverage and potentially expand its customer base through affiliation with another site that appeals to the same market. Affiliate marketing is a type of ad on your site that is paid only when a certain action takes place due to the ad being displayed on your website. Advertisers who wish to send traffic to an online retailer pay these affiliates for this service based on the number of clicks they receive through the website. An eCommerce merchant may associate with affiliate marketers who promote his products or services on their eCommerce sites in exchange for a percentage of the revenue generated from any sales.
Many popular bloggers use this business model to earn whenever someone clicks on the affiliate marketer’s promotional link that is redirected to an eCommerce store. Depending on the agreement, the blogger might earn when the customer signs up, decides to take a free trial or purchases on the external website.
There is a huge range of different affiliate programs. It is important to understand their differences before you start using this business model to market your eCommerce store. Several things make up successful affiliate marketing programs, including the product itself, commission levels, customer service, sales, and promotional tools.
An eCommerce business can use the subscription revenue model to monetize its eCommerce store. With this eCommerce business model, the e-merchant charges a recurring fee for his product or service and enables the store visitors to pay for it periodically. Amazon Prime, Spotify, and Netflix all have a subscription revenue model in which consumers receive value on an ongoing basis in exchange for their recurring fees.
This eCommerce business model revolves around customer retention and the ability of brands to build long-term relationships with their customers. Companies following the subscription revenue model need to understand the value of good customer service and invest in it. Their main focus should be on selling more to their existing customers.
The name freemium is a combination of “free” and “premium.” The e-merchant may offer a basic eCommerce product or service free of charge and then upsell a premium version or a more advanced eCommerce product or service to the store visitors.
The idea of the freemium model is that more people will use your service or buy your product and that some of those people will pay for the enhanced experience. The free version is used as an advertisement or promotion for the premium product, making it a key strategy in the online marketing world. The freemium model came into existence around 2008 when Apple famously changed its policy so that all apps submitted to the App Store had to be free at first and then offer a paid upgrade path via in-app transactions. This forced app developers to embrace the freemium model by charging for some or all of their apps’ functionality rather than an up-front fee. Google followed suit with its Android Market (now Google Play), and this model gained popularity.
While deciding on this business model, the important thing to remember is that the eCommerce merchant must generate enough revenue from the visitors who buy the premium version to make it worthwhile to offer the basic, unpaid version to all the other customers.
Drop shipping is an online business model in which the merchant does not keep an inventory or handle the shipping and fulfillment of the products. Usually, the products are purchased from a third party as soon as a customer makes a purchase which is then shipped directly to the customer.
The merchant lists products on his website with price, images, description, and features and takes the orders under his brand. The buyer places an order for this product online on the merchant’s website. The merchant purchases the product from his supplier and the supplier then sends it directly by shipping it to the customer.
The drop shipping business model has many advantages over other online business models such as:
The drop shipping revenue model is very lucrative. The entrepreneur saves on costs while selling his products online. The price can go up or down depending upon the product, supplier, and location. The entrepreneur saves on costs while selling his products online. The drop shipping revenue model is very lucrative for fresh entrepreneurs as it is very easy to start. All one needs to do is follow the steps mentioned above without worrying about inventories or shipping costs.
Final verdict: which revenue model should you choose for your eCommerce store? The key to a successful eCommerce store is understanding which revenue model is feasible for your business. There are many different classifications and models, but which one is best for you depends on your needs and what type of merchandise or services will be offered in the future. It all boils down to understanding who will buy from this company. Customers have varying levels of expectations, so it pays off knowing how much effort each model requires versus others with more perks without sacrificing customer satisfaction.