E-Commerce Revenue Models Defined
Selling products online can be a profitable business. As e-commerce has developed, many options have emerged for creating revenue online. An e-commerce revenue model is a plan for generating revenue for an online business. While e-commerce revenue models share many similarities with brick-and-mortar businesses, they also enable you to reach customers around the globe and offer more diverse methods of generating sales. These models can be helpful in determining how to structure your e-commerce business.
Five Common Models
While there are many ways to earn money online, you may want to consider these five common e-commerce revenue models when planning your business.
1. Affiliate marketing enables you to earn revenue by marketing or offering another product for sale on your site. For example, you may reference a book you read and recommend your customers get a copy for themselves. You could also set up an affiliate account and place a direct link to the book on the Amazon site, which will pay you a percentage of the sale. If you decide to participate in affiliate marketing, you'll need to research which companies might provide you with a financial incentive for promoting their sites on your page.
When you're just starting out, the money you earn from affiliate marketing may be just a small, supplemental amount. However, as traffic to your site increases, you may enjoy more substantial income.
2. Online advertising is a very popular revenue model for e-commerce businesses. In this method, companies or organizations buy advertising space on your site, provide a designed ad or written message, and then pay you for promoting their messages. Media sites, such as magazines, newspapers, and television channels typically use online advertising.
Two common types of online advertising include pay-per-click and pay-per-view, which determine how much advertisers will pay for their advertisements. While some sites charge a set fee for placing an ad, most pay a set fee for each person who clicks on a link or views a page related to the advertiser. As traffic to your site grows and more people click on an advertiser's link or view a related page, you'll earn more advertising revenue.
3. Transaction fees are the charges a company pays for using their service. If you've ever sold anything on eBay, you know there's a set price for posting a product for sale. Each time a transaction happens, you pay a small fee to eBay for marketing your product. Whether you charge a small fee for a company to list a transaction or for someone to view a video, transaction fees can be sizable if the traffic to the website is substantial.
4. Subscription based services allow customers to access a library of information or entertainment, join a community, or receive an on-going service for a set fee. Dating sites are common subscription models where members pay a set fee to interact with other members. Additionally, services like Netflix and Amazon Prime offer member-specific benefits for those who pay a monthly fee. For example, members may get free movies and books or discounts on other products.
5. Product and Information Sales are a direct way for online businesses to generate revenue, as long as they identify the right markets and set appropriate and competitive prices. Sales sites allow you to reach customers around the world, and unlike at a brick-and-mortar store, they can place orders 24 hours a day. However, lack of traffic can lead to low sales income, so when testing your product and information site, you'll want to make sure it's easy to navigate, includes an opt-in offer, and simplifies the ordering process--especially for customers who may be new to online shopping. Sales copy typically includes information about you and your company, as well as product benefits and guarantees.
Let's review. E-commerce revenue models are used to generate income online and include product and information sales, affiliate marketing, online advertising, subscription services, and transaction fees. Online marketing initiatives differ from brick-and-mortar businesses in that they allow you to reach more customers, such as those on the other side of the world! In affiliate marketing, you earn money by referring visitors to other product sites, while online marketing allows you to charge others directly for placing an ad or message on your site. Some companies also use subscription services and transaction fees to generate income, such as eBay and Netflix respectively.
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E-Commerce Revenue Models - A Business Case:
- Consider a website that you want to start. Describe what will be shown on your website and why you chose this material.
- Describe a way that you can earn revenue on your website through affiliate marketing. What types of products would you allow other companies to market on your website? Why do you think these products would be a good match for your website?
- Describe a way that you can earn revenue on your website through online advertising. Would you allow all companies the ability to purchase ad space on your website? Why or why not?
- Describe a way that you can earn revenue on your website through transaction fees. What method would you use to allow companies to sell products through your site? Specifically, would you charge them a percentage or a set amount per product? Explain why you believe this is the best method.
- Now assume you want to make money directly based on the content on your website. Describe a way that you can earn revenue through subscription based services. What services would you offer? What payment structure would you set up for your customers?
- Now assume that you want to sell products on your website. Describe a way that you can earn revenue through product and information sales. What specifically would you sell? Why would this be a good product to sell on your website?
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