How do eCommerce Websites Make Money?
As we all know, eCommerce has become a widely accepted form of shopping and selling products worldwide.
Ecommerce websites like Amazon, eBay and Flipkart have revolutionized how people shop for physical and digital goods.
While some eCommerce sites allow buyers to purchase directly from them through their online website,
others are built on a marketplace model and enable buyers and sellers to connect directly on their platform.
These online marketplaces and broad-based eCommerce websites generally adopt revenue models.
To understand how eCommerce websites make money, we have to look at how they generate revenue.
Business models, and it’s pretty interesting to see that all these businesses have been able to find ways in which they can successfully monetize their product or service.
This section will look at how eCommerce websites make money from their business model.
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Transaction Fees:
For every successful sale made on its website, eBay charges a certain percentage as a transaction fee.
This transaction fee generally varies between 4% and 10%, depending upon the item’s category.
Online advertisements:
Most of the online marketplaces, whether broad-based or niche-specific,
choose to have an ad-based revenue model.
The reasons for this are plenty – there is an influx of users,
these sites wish to promote their product/service offerings,
and they also want to target a specific section of the population.
Commission on sales:
Commission on sales is one of the more popular ways eCommerce websites make money.
These sites generally charge a percentage of the transaction value, depending upon the item’s category.
Subscription Fees:
Subscription-based revenue models are used by broad-based online marketplaces like Amazon and Flipkart.
These sites generally charge a monthly or yearly subscription fee from their users.
Selling Stock/Goods:
Finally, we also have ecommerce websites like ShopClues and Snapdeal that allow its users to sell their stock directly on the platform itself.
Such business models are obviously more profitable for these companies as they get a commission and the transaction fee plus the subscription fees.
These are some of how ecommerce websites make money; however,
there are many more business models that these sites follow to generate revenue.
Depending upon their type and size,
they can choose different methods to generate income for themselves.
Online Marketplaces vs Broad-based eCommerce Websites?
Since we have already discussed the various ways in which ecommerce websites make money,
we will now try and look at how online marketplaces make money vs broad-based ecommerce websites.
Broad-based platforms like Amazon and eBay allow both buyers and sellers to connect with each other on their platform,
thereby opening up a sizable revenue stream for themselves. Amazon charges its users a certain percentage of the total sale value, while eBay generally charges a flat fee for each transaction.
On the other hand, online marketplaces are slightly different from traditional eCommerce websites as they do not store any inventory on their own.
These websites act as an intermediary between the buyer and the seller, allowing them to connect.
This is a more simplistic business model and usually does not require as much investment as a traditional ecommerce website.
The revenue model that online marketplaces follow is also slightly different from those adopted by broad-based ecommerce websites.
These sites generate revenue by charging a commission on every sale on their platform.
Also, online marketplaces generally do not charge any subscription fee like those captured by broad-based eCommerce websites.
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Advantages of Making Ecommerce Websites for Business
Let us look at the benefits of setting up one’s own ecommerce website.
1. Increased Exposure :
One of the most significant advantages of having an ecommerce website is the increased exposure it can provide to one’s business.
With a well-optimized e-commerce platform, there is a possibility that your brand can reach out to millions of people across the world, thereby increasing the overall revenue of your business.
These sites generally charge a percentage of the transaction value, depending upon the item’s category.
2. Convenience:
Ecommerce websites make it highly convenient for businesses and merchants to sell their products and generate revenue.
3. Low Maintenance:
One of the most significant advantages of having an ecommerce platform is how little maintenance it requires from your end.
And Once your website is up and running, you barely need to bother about the maintenance.
All you have to do is optimize your site for search engines so that they can crawl through it quickly to index your website’s content.
4. High Conversion Rate:
One of the most significant advantages of having an ecommerce platform is how much revenue these sites can generate for their owners.
In fact, most ecommerce websites have a very high conversion rate as people are often impressed by the sheer convenience of these sites.
These sites generally provide their users with multiple ways to pay for their purchases,
including credit cards and other modes of payment.
5. Scalability:
Another advantage of having an ecommerce website. If you are facing a slowdown in sales,
you can simply reduce the number of offered products on your website.
On the other hand, if your business is doing well and you want to capitalize on the current trend,
you can simply increase the number of products offered on your website.
This level of scalability is not possible with most other business models.
6. Increased Revenue:
In the long run, an ecommerce website can provide a significant boost to the overall revenue of your business.
With a well-optimized website, you can quickly generate thousands or even millions of dollars in additional revenue each year.
7. Increased Customer Loyalty:
Once a customer has made a purchase on your ecommerce website,
they are likely to return to your site for future purchases.
This is because ecommerce websites provide their customers with a great shopping experience,
which often involves various modes of payment, such as PayPal and others.
Since ecommerce websites also offer their users proper customer support,
people are generally satisfied with such platforms.
Disadvantages of e-commerce website
1. Security:
One of the most significant issues with ecommerce platforms is their lack of adequate security measures.
Hackers are constantly finding new ways to break into these sites,
making it quite risky for users to purchase items from them.
Hackers often target such websites due to many sensitive data on their servers.
2. Poor Quality:
Since most ecommerce websites are primarily dependent on third party suppliers,
there is always room for poor quality products.
The moment such a third party supplier starts delivering low-quality goods,
it directly impacts the credibility of your business and brand.
3. Customization:
When it comes to customization, ecommerce websites have a significant disadvantage.
Unlike traditional websites,
ecommerce platforms are generally limited when it comes to the extent of customization that they allow on their website.
Most ecommerce websites are either based on one or more third-party scripts,
which limit their functionality in some way.
4. Payment Issues:
One of the biggest problems with ecommerce websites is how they lack proper payment gateways.
This means that users often resort to using various third-party payment processors, which can be pretty risky.
In addition, the use of such payment processors can often lead to additional charges for the customer.
5. Limited Functionality:
Another common issue with ecommerce websites is that they are often quite limited in terms of their functionality.
This is because most of them are based on a single or limited number of third party scripts.
As a result, these websites often lack the features and flexibility that users expect from an ecommerce platform.
6. Difficulty in Managing Orders:
Another common issue with ecommerce platforms is the difficulty in managing orders.
This is because most ecommerce websites lack proper order management features like advanced shipping options etc.
This can be pretty problematic for ecommerce websites that deal with large volumes of orders regularly.
Conclusion:
A new ecommerce website can be a great platform to boost your overall sales and revenue.
Venues need to be taken into consideration before you actually buy one.
Take the time to understand these issues and their respective remedies.
It will become relatively easy for you to choose and implement an ecommerce platform that will provide the best results for your business.
An ecommerce website is a great way to increase sales and revenue.
It also increases customer loyalty; however, it has some issues like poor quality, security, etc.
