A revenue path is a blueprint that states the revenue-earning strategy of a business. It includes the product or service of value, the revenue generation techniques, the revenue sources, and the target consumer of the product offered.
This blueprint decides the feasibility and long-term projections of the online market by stating its money-making process.
The most successful online marketplaces on the Internet are the ones that figured out their revenue path.
Before we dive into the details of determining what revenue path your online market will rely on, let’s take a quick look at the e-commerce business transaction models available on the Internet:
- Business to Business
- Business to Customer
- Customer to Business
- Customer to Customer
- Business to Employee
- Government to Government
- Government to Employee
- Business to Government
- Government to Business
- Government to Citizen
The e-commerce business transaction models above use different platforms to connect their audience and vendors and can be classified into:
- Product-based marketplace – Platforms that rely mostly on selling products, for example, Amazon, eBay, and Etsy.
- Service-based marketplace – Platforms that rely mostly on providing services, for example, Uber and Airbnb.
We will cover three primary revenue models in detail to determine the most fertile revenue path for your next marketplace. The models are as follows:
- Commission Model
- Subscription/membership Model
- Listing fees Model
The Commission Model
The commission model is a popular revenue model among leading online marketplaces. Amazon, eBay, Etsy, Uber, and Airbnb have chosen the commission model as part of their revenue path.
Any fee accruing to your online market for initiating, executing a commercial transaction is a commission.
The commission model is the best revenue model for any product marketplace.
How Does It Work?
The commission model is based on a percentage or flat fee on every transaction. Vendors are allowed to list their products free of charge and anytime the vendor makes a sale, a certain percentage or flat fee is deducted for that sale.
At the initial phase of starting an online marketplace, implementing the commission model is hassle-free. Once the vendor and administrator come to a mutual consideration on the commission split-up, the cash flow of the trigger will be autonomous.
The commission model helps you win the trust of vendors.
The Subscription Model
The Subscription/membership Model is a popular revenue model among leading online businesses. Amazon, eBay, LinkedIn, and Match.com have chosen the commission model as part of their revenue path.
Any recurring fee accruing to your online market for maintaining, and owning an account on your platform is known as a subscription.
The subscription model generates more revenue than the commission model.
How does it work?
In the subscription model, the administrator sets up basic marketplace features for vendors, limits their capabilities with a lower subscription plan, and lures them with costlier membership plans or subscription packages for more advanced features.
Membership can be divided into various levels and based on better features and better support services at different membership levels, the vendors will be tempted to upgrade as they grow their business.
The Subscription/membership Model is the best option for a service marketplace.
Listing Fees Model
The Listing Fees Model is used by the popular classifieds giant Craigslist for select classified listings. Some other takers are Etsy, eBay, and Zomato.
Any revenue accruing to your online marketplace for every new product or service listing is a listing fee.
This is the simplest revenue generation model, similar to the classified ads, merchants are charged here for each of their new product/service listings.
How does it work?
In the listing fees model, the administrator controls the product listing in the marketplace, charge for special products or categories, and does not depend on the sellers’ performance.
The e-commerce businesses that make a profit out of the listing model create different listing plans/service levels. For example, they allow vendors to list for free and can charge you per listing you want to be sponsored and displayed at the top during customer search for particular products or services.
The Listing fee model helps you reach a very large audience as it is very open and has the feel of a community market.