E-Commerce Revenue Models

Lesson Transcript
Tara Schofield

Tara has a PhD in Marketing & Management

Expert Contributor
Joseph Shinn

Joe has a PhD in Economics from Temple University and has been teaching college-level courses for 10 years.

You have decided to start an online business. Now, you must consider how you will earn money from your site. This lesson will discuss five common revenue models that will help your e-commerce site earn more. Updated: 11/29/2019

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.

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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.

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Additional Activities

E-Commerce Revenue Models - A Business Case:

  1. Consider a website that you want to start. Describe what will be shown on your website and why you chose this material.
  2. 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?
  3. 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?
  4. 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.
  5. 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?
  6. 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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