E-commerce Revenue Models

The first online shopping

system was demonstrated in
1979, e-commerce has been
constantly growing and
diversifying.
E-Commerce Business Model
• A business model is a set of planned activities (sometimes referred to
as business processes) designed to result in a profit in a marketplace.
• The business model is at the centre of the business plan.
• A business plan is a document that describes a firm’s business model.
• A business plan always takes into account the competitive
environment.
• An e-commerce business model aims to use and leverage the unique
qualities of the Internet and the World Wide Web.
Eight elements of Business Model
• Value proposition -Why should the customer buy from you?
• Revenue model- How will you earn money?
• Market opportunity -What marketspace do you intend to serve, and what is its size?
• Competitive environment -Who else occupies your intended marketspace?
• Competitive advantage -What special advantages does your firm bring to the
marketspace?
• Market strategy - How do you plan to promote your products or services to attract
your target audience?
• Organizational development - What types of organizational structures within the
firm are necessary to carry out the business plan?
• Management team - What kinds of experiences and background are important for
the company’s leaders to have?
E-commerce Revenue Models
Advertising revenue model:
• A Web site that offers its users content, services, and/or products also provides a
forum for advertisements and receives fees from advertisers.
• Those Web sites that are able to attract the greatest viewership or that have a
highly specialized, differentiated viewership and are able to retain user attention
are able to charge higher advertising rates.
• Google, for instance, derives a significant amount of revenue from search engine
and other forms of online advertising.
• Business following the Advertising Revenue Model presents an
indirect way of earning revenue through a digital platform.
• 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).
• Affiliate marketing and search engine marketing are other famous
ways.
How to calculate CPC
• CPC stands for Cost Per Click and is an important metric for marketers to
understand when analysing the performance of their digital campaigns.
• The formula to calculate cost per click :

• If a campaign cost an advertiser Rs 100 and they received 40 clicks, the CPC

would be Rs. 2.5 (100/40 = 2.5). Some CPC’s on certain advertisements can
range anywhere from Rs.1.00 – 4.00 on average. It is important to
understand this metric to see if an ad campaign is performing or not.
Subscription Revenue Model
• The age old Indian practice of having groceries, dairy products and
newspapers/ magazines delivered at your doorstep on a recurring (bi-
weekly/ monthly/ daily etc.) basis, and paying ‘x’ amount for the
service and the convenience it offers, has hit the Indian market in a
new avatar – as Subscription e-Commerce.
• A Web site that offers its users content or services charges a
subscription fee for access to some or all of its offerings.
• Example: Flinto offers differently themed boxes containing toys and
projects for children, delivered monthly.
Subscription E-commerce

• The operating space changes from offline to online and the application of
‘subscription’ changes with the category of online retail.
• The objective of this business model is to:
• Engage the customers
• Build a loyalty program
• Build long term relationship with the customer
• Make retention rates affordable
• High conversion rates

https://
economictimes.indiatimes.com/small-biz/startups/grocery-startups-subscription-ba
sed-services-may-prove-cost-efficient/articleshow/60214386.cms
BigBasket, country’s largest online grocer is considering a plan to start testing the subscription-based services model
in five-six months 
Transaction Fee Revenue Model
• In the, a company receives a fee for enabling or executing a
transaction.
• For example, eBay provides an online auction marketplace and
receives a small transaction fee from a seller if the seller is successful
in selling the item.
• E*Trade, an online stockbroker, receives transaction fees each time it
executes a stock transaction on behalf of a customer
Sales Revenue Model
• Companies derive revenue by selling goods, information, or services to
customers.
• Wholesalers and retailers of goods and services sell their products online.
• The main benefits for the customer are the convenience, time savings, fast
information etc.
• The prices are often more competitive.
• In terms of online sales there are different models such as marketplaces as
common entry points for various products from multiple vendors.
• Companies such as Amazon (which sells books, music, and other products)
have sales revenue models.
Affiliate Revenue Model
• The affiliate program is an online distribution solution which is based on the principle of
commission.
• Merchants advertise and sell their products and services through links to partner-
websites.
• It is a pay-for-performance model: Commissions are only paid for actual revenue or
measurable success.
• An affiliate-link includes a code, which identifies the affiliate. That’s how clicks, leads or
sales are tracked.
• The affiliate therefore acts as the interface between merchants and customers.
• This model leads to a win-win situation for both the merchants sell their products or
services and the affiliates get their commissions.
• Variations include banner exchange, pay-per-click and revenue sharing programs.
• The affiliate model is well-suited for the web and therefore very popular.
Working of Affiliate Revenue Model
• The way the affiliate revenue model example plays out is through coded affiliate
links. When someone enters a site through an affiliate link, these clicks are
tracked, as are any leads and/or sales derived from these clicks.
• Different payment methods within the affiliate model:
• Pay Per Click (PPC) - Affiliate gets paid whenever the affiliate link is clicked.
• Pay Per Impression (PPI) - Affiliate is paid when someone lands on the
merchant’s site.
• Pay Per Lead (PPL) - Affiliate is paid when someone clicks on affiliate link and
takes an action, e.g. completing a form to generate a new lead.
• Pay Per Sale (PPS) - Affiliate is paid when a sale is made. Affiliate receives a
percentage of the cost of that item.
Social Shopping
Including ‘buy’ buttons
on social networks like
Pinterest, Facebook and
Twitter; stoppable videos
and galleries; and third-
party social shopping
sites.
Business Models based on Inventory
• Drop Shipping

Customer places order online store passes Supplier ships order

on online store order to drop shipper directly to consumer
• The simplest form of ecommerce, drop shipping lets you set up a
storefront and take the customers’ money.
• The rest is up to your supplier.
• This frees you from managing inventory, warehousing stock, or
dealing with packaging.
• If your sellers are slow, product quality is lower than expected, or
there are problems with the order, it will affects your reputation.
Wholesaling and Warehousing

Online store orders Supplier send products to Consumer places order

direct from supplier online store warehouse from online store
• Wholesaling and warehousing ecommerce businesses require a lot of
investment at the start – you need to manage inventory and stock,
keep track of customer orders and shipping information, and invest in
the warehouse space itself.