Exploring the Revenue Models of e-Commerce
After identifying how you can create value for the needs of your customers, it's time to focus on the element that fuels your engine: income streams. The second part of our series will focus on the revenue models of e-commerce — what the different vessels for income generation are, along with their main sources.
Types of e-commerce revenue models
Let's now proceed to the different types of e-commerce revenue models. Depending on the industry you're in and what you offer to the consumers, each revenue structure may appeal differently.
DropshippingAmong the 6 types of revenue models, dropshipping is gaining traction for a few years already as it opens the doors of the e-commerce arena for business beginners who have little to no capital to invest.
Classified under the B2C umbrella, the dropshipping e-commerce business model eliminates the need for managing inventory, stocking supplies in warehouses, organizing shipments and similar matters. Once an order is made, the dropshippers purchase the orders from the suppliers, who directly packages and ships the parcels to the recipient. A great upside about this setup is you have all the time and resources to enhance your front-end office, which includes business marketing, advertising, customer support and sales approach.
On the other hand, there are caveats present in this model as well. The biggest qualm in dropshipping is having no control over the products the customers receive. If the material incurs any damage, or should the quality decline during the dispatch, the responsibility lies on your end and affect poorly on your brand.
Subscriptions servicesConsuming products at regular, pre-determined intervals is what the subscription model is all about. Sending of products to consumers is made on a specific period of time offered by the supplier, but most subscriptions boil down to a monthly or annual cadence. Once the subscription expires, customers have the option to either cancel or renew for more savings on their orders.
This e-commerce revenue model is growing strongly as well. In an environment where convenience is highly sought, providing accessible services that satisfy your market’s consumption behavior is leverage in your favor, hence positioning subscription-based online venture a lucrative area with promising benefits.
For one, it is a relatively steady income stream. It also fosters customer loyalty through provided incentives such as the savings they can incur. Another strong point is the lower risks affiliated with subscriptions, since the inventory is done in advance. However, it’s worth noting that this model isn’t a one-size-fits-all solution. It’s mostly niched down to food, fashion, health and lifestyle, and entertainment.
WholesalingWholesale offers products and goods in large quantities that usually come at knock-off rates. This practice mostly involves the entire process of making a purchase — from managing inventory to arranging shipments — except the production of the goods. By convention, a company manufactures the product, then a retailer purchases in bulk. The latter takes it from there and sells the goods to their customers at profitable prices.
Read the Series Part 1 here: Learning the 4 Main Types of e-Commerce Business Models
Private labelingIf you’re starting out an e-commerce entity but don’t have the internal resources to produce your materials, you may want to consider the private label practice. So how does it work?
Private labeling is a model where a business outsources to a manufacturer in bringing their design and ideas to life. All the exclusive rights are granted to your business, entitling you to sell the produced materials as your own. In addition, the marketing, labeling, and selling of goods fall under your responsibility in this context. Although you may want to keep an eye out for possible bottlenecks, such as defective produce, upfront capital settlement, and scanty consumer access since you’re the only one offering your products.
Once this structure takes off alongside a good marketing strategy, creating a clout of customers is plausible, thus increasing the profit margin you generate.
White labelingWhite labeling is almost the same as private labeling, only that the former purchases their desired products from retailers instead of having them made from scratch. Both models tap third-party manufacturers but differ on what they can only influence in their outsourced function.
Private labeling allows you to have full control over the specifications, and quality control, whereas white labeling leaves you the marketing strategy and distribution channels to battle their competition. On the upside, you can take advantage of your lean investment in in-house manufacturing and channel your resources in technology and marketing game plans.
Print-on-demand (POD)This model is somehow resemblant to dropshipping and white labeling. POD is where an entity sells designs on a variety of products through its online store. The order is then forwarded to the third-party manufacturer who prints the chosen design on a particular product, as the name suggests. The supplier also packages it according to the brand and ships the finished material directly to the customer.
POD runs on low risk too since there’s no need to manage your inventory. In addition, there is also no need to purchase the goods in bulk since you operate on a per-order basis. All you need to do is stay on top of your front-office responsibilities to increase your sales.
How to choose the right e-commerce revenue model
Now that you know the revenue models of e-commerce, it’s time to decide which structure best fits your business. To begin with, you can answer some queries related to your startup:
- Who is your target market: businesses or consumers?
- What are you going to offer to your customers? Are you adding value to their needs?
- Consider the competition. What can you do to stand out in the field?
- What part of the business are you going to allocate your resources to?
- Will you be needing external help for your operations (e.g. manufacturing, shipping), or are you managing everything in-house?
Aside from these points, you also need to factor in other concerns you may encounter along the way such as providing customer support, payment methods, and short and long-term plans for the enterprise.
Much like anything in the digital platform, these revenue models of e-commerce are bound to transform in the years to come because of continuous innovation. There are various platforms to choose from, but you need to deliberately assess all the pointers that establish the digital venture to find out which one will best work for your business in the long run.