E-commerce sales are expected to reach $6.5 trillion by 2023 increasing from $4.2 trillion in 2020. That’s almost 54% overall growth in 3 years or so. And if this trend keeps up its pace, we are looking at $8 trillion in e-commerce revenue by 2025.
Evidently, we are living in an e-commerce era where people’s shopping habits are slowly but surely shifting towards digital. So, if your customers are shopping online, then your business needs to be online as well. Take that leap of faith and go online, if you still haven’t. More importantly, e-commerce opens various revenue streams for businesses to explore and hopefully, earn more than they used from traditional business and revenue models.
And that’s what we are going to explore in this article: revenue models for e-commerce businesses to explore and adapt in 2021.
Note: All models might seem lucrative but make sure you are considering your industry, market, target audience, and your capabilities before choosing and implementing the ones that are right for your business.
Sales Revenue Model
As the name suggests, the revenue comes from selling the products and services online. It can be through your own e-commerce website or third-party platforms like Amazon, eBay, Etsy, etc. Adopting this model is easier compared to others as it has fewer technicalities and most business owners have already been using it for their traditional businesses. They’ll just be leveraging the benefits of the internet i.e. reaching a wider audience.
This model can further be divided into the following models:
In this model, you charge your customers a fixed recurring fee (monthly or annually) for your products or services. The most famous businesses that run successful subscription models are Netflix and Spotify.
If you are in the business of curated and artisan products, then this model is perfect for you. Dollar Shave Club personalizes grooming kit subscriptions for its customers based on a small quiz they take before signing up for their services.
Scaled personalization is one of the biggest benefits of replacing the traditional brick-and-mortar stores with e-stores. Since customers are preferring personalized experiences over generalized ones, this model is a perfect way to start or scale your operations in 2021.
Pro Tip: Invest in a good recurring online billing software like Stripe to manage your subscriptions.
This model refers to outsourcing your entire order fulfillment to suppliers or manufacturers. You just need to set up shop online, and get orders, the suppliers take care of the rest. Your e-store works as a middle man between suppliers and customers.
The best way to go about this is to use e-commerce platforms like Shopify, Instamojo, etc. to create your online shop in a quick and cost-effective way.
- Wholesaling and warehousing
This is a more capital-intensive option where you are responsible for everything, from marketing your products, setting up an e-store to all aspects of order fulfillment. You will have to manage stock, keep track of inventory, manage suppliers and their demands, shipping information, customer satisfaction, and more.
This model works perfectly well for wholesale businesses having huge product catalogs.
Pro Tip: Always provide multiple pricing options that cater to both retailers as well as businesses looking to buy in bulk.
Advertising Revenue Model
Apart from selling your products and services, you can also sell ad space to advertisers through platforms like Google AdWords, AdSense, etc. Advertisers pay commission to the platforms and based on their inputs about their target audience, the platforms choose the ad space for their advertisers.
If their target audience matches your audience, then their ads will be placed on your website and you get to earn a commission based on the density of your traffic, quality of traffic, cost per click, etc.
This revenue model employs the unutilized website space and creates an indirect revenue stream for your business. More importantly, if you get to choose which ads end up on your website — this allows you to add more value to your customers’ visit on your website as well as block your competitor’s ads.
This model works best for media companies but if your e-store has good quality traffic and some free space, then do explore this revenue model.
Affiliate Revenue Model
Create a referral affiliate program for people who are looking to earn commission in exchange for marketing your products and services.
This is how you go about it:
- Create an affiliate program: ideally, the program should let people sign up as affiliates, create unique product links for them to share, and if possible, a payment system integrated that automatically pays your affiliates at the end of the month.
- Create a landing page dedicated to your referral program. For effectiveness, start by listing various benefits, commission %, free products if any, etc., followed by a detailed process of how to sign up as your affiliate.
- Add a resources section for your affiliates to us. Resources like links to value-adding, informative, technical blogs, banner images, videos, or any type of content that’ll help them market your products.
The affiliate revenue model, in hindsight, is you paying for advertising but indirectly.
This model has a lower cost per acquisition in comparison to spending on marketing for media buying, content creation, etc. The reason being affiliates usually have their audience who trusts them and the products they promote.
The opportunities are increasing in the e-commerce space as you read this, but that doesn’t mean that it’s easy to survive or be successful when you are up against the giants like Amazon, eBay, etc.
The key lies in perfecting the art of providing a unique customer experience along with a unique product catalog. And of course, when paired with the right revenue and business model, you can carve your own path to success.
Businesses with flexible and varied product catalogs can also set up all three revenue streams at the same.
Pro Tip: Utilize these third-party platforms as well as social media platforms like Facebook, Instagram that allow social selling to sell your products.