The Business Model of E-Commerce Companies through which they generate profit!


We all shop online! Online shopping is a vast ocean from where you are picking your pearls. However, in order to get these pearls to the customers, it is necessary for the ocean to be vast enough. If the e-commerce companies aren’t profitable enough, then How will they transfer the benefits to the customers? In this article, we are discussing The Business Model of E-Commerce Companies through which they generate profit!

What is their main source of income?

There are different types of E-Commerce websites in their market. However, their main source of income is the same, i.e. Commission. Here is a glimpse of their all sources of income.

Commission

Whether it is selling a product or service, the E-Commerce Companies are having a flat margin of 20% to 30% commission on whatever is being sold through their platform. In certain cases, the amount of commission may vary. It includes warehouse, logistics, advertisement and other such kinds of expenses.

Apart from that, the E-Commerce Companies are also largely investing in their technologies. For instance, Amazon is investing in automating their processes to a greater extent. Therefore, the man-hours spent during the processes will be reduced. Hence, the savings will be in a higher amount.

Advertisements

E-Commerce Companies also promotes certain brands. It is known as a PPC (Pay Per Click) Campaign. The main agenda of this campaign is to show the brands on the top over other brands who are using this campaign. Whoever clicks on such brands, they levy a charge upon that brand. Because they got a lead interested in buying to that particular brand.

Promotions

There is a thin line of difference between Advertisement and Promotion. There are also various campaigns such as banner ads whose aim is to drive traffic to the brand’s website. Such driven traffic is more likely to buy from that brand. In this manner, the E-Commerce companies sell their visibility to other brands so that they can get good visibility.

Premium Plans

The E-Commerce companies also make money through the premium plans. These premium plans offer facilities such as quicker deliveries, additional discount offers, and priority customer care. Many of the customers who need special attention generally go for such premium plans.

Selling Certification Courses

Many of the users get training through the online platform. It is noteworthy that many of these courses are offered at free of cost. Since the tutor who is teaching these courses wants to get recognition or want to educate people at a low cost. However, these companies do charge in case the students want a certificate to showcase it in his portfolio.

Furthermore, there are also certain paid courses directly from universities. Both the universities as well as e-commerce platforms make good money from it. Besides that, the students get to develop new skills without even going to college.

How does the pricing model work in the case of E-Commerce Websites?

The pricing model of the E-Commerce website is always a hot topic for discussion. Since they are offering a lot of discounts, we are curious How is that possible for them. Here is how the pricing model is decided:

With the use of Marketing Analytics

The E-Commerce companies have teams who identify the true value of a product. Their team and system researches across the platforms to determine the cost price of a similar product. In this manner, they suggest a suitable price for the seller.

If the seller is convenient then they can offer an additional discount to the buyers. It is quite noteworthy that whatever discount these websites are offering, are always on the seller and not on the website itself.

They Buy in Bulk!

Since the E-Commerce Companies buy goods in bulk, there is also a good scope of discount. Apart from that, they buy goods directly from manufacturers. Therefore, there are no additional costs include which generally happens when we buy goods from the market. These additional costs includes the profit margin of the manufacturer, wholesaler, retailer and of the merchant from whom you’re buying.

Apart from that, there are also certain additional costs including, but not limited to Logistics, Transport, and their margin. As all these costs are eliminated through the online process, they are able to sell the goods at a lower cost.

These are some of the ways through which the E-Commerce Companies are able to generate profits. It is noteworthy that companies don’t start making money instantly. Amazon became profitable after continuously running in loss for 8 years.

There is a long way to go. But once the company is large enough, it makes enough money that can maximize their profit and ROI.


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Anupam Chaturvedi
Engineer, Poet, Social Worker, Author, Marketer by Profession! A proud son of Mother India.