Amazon is a well-known online store that is doing exceptionally well, being the world’s largest eCommerce company. The eCommerce giant’s sales are growing at a staggering pace.
Looking at the growth of Amazon, many entrepreneurs are looking forward to starting a similar business. Amazon has a marketplace business model. It offers goods at affordable rates but still makes revenues. This post describes the revenue models which you can adopt when starting an eCommerce marketplace like Amazon.
You can choose a subscription model which will guarantee you an annual revenue in exchange of which you can provide services to customers.
Amazon offers Prime membership that involves the benefits of free delivery, unlimited access to movies and music, and more discounts on special days. This makes the users subscribe for the Prime membership. Amazon Prime members can avoid delivery charges for certain products that are Prime eligible, and can even get the advantage of fast delivery of products.
Amazon Prime has been specifically introduced for loyal customers to make them spend more. Amazon has over 100 million US Prime members.
According to Statista, as of June 2018, it was found that Prime members spend an average of 1,400 U.S. dollars on Amazon every year, compared to non-Prime members who spend 600 U.S. dollars.
As an eCommerce marketplace, you can charge a commission for connecting buyers with sellers. Amazon provides a marketplace, charging sellers commission on each sale. The seller bears the cost of stocking inventory and providing products to customers along with commission. The commission is charged differently for various categories of products.
As far as Amazon is concerned, it has different commission models for individual sellers and pro-merchants.
It also has different commission plans:
The commission model is beneficial for an eCommerce business because it gets a share in every transaction that takes place, different from the subscription model. As an eCommerce platform, you can attract sellers towards your business who will not be required to pay an additional cost to showcase their products except what they sell.
Affiliate marketing involves partnering with related websites and asking them to promote your products to the users. For every sale made by your affiliate partners, they have to be given a certain percentage of the profit generated. By 2020, the US affiliate marketing industry is expected to grow to $6.8 billion, showing the increasing trend of keeping affiliate partners.
In Amazon’s associates program, businesses who are associates create links on their websites, and when customers click on those links and get Amazon’s products, they are given a certain amount of fees.
Amazon has a wide range of methods to link to its website to increase conversions. For example, affiliates are given an option of using straight text links directing towards the product page, or they can even use various dynamic banners having different content.
Online advertising is the most widely-used revenue model for e-commerce businesses. In this method, you can earn by providing advertising space to businesses on your eCommerce site. You get paid for promoting other businesses on your site. There are generally two types of online advertisements including pay-per-click (PPC) and pay-per-view (PPV). In PPC, you can charge when each person clicks on the ad and PPV involves charging when users view a page related to the advertiser.
Advertising can be a good medium for your business, and as the traffic on your eCommerce site grows, you get a chance to earn more revenues. eMarketer had estimated that US advertisers would spend $4.61 billion using Amazon’s platform in 2018; an increase by 144.5% from 2017.
The reason behind the success of Amazon as an advertising platform is the large database the company has of users information that enables successful targeting and enhances ROI.
Amazon also earns by sponsoring products of sellers. The sponsored products are displayed during the buying process of the consumers or search results.
Amazon earns from sponsored products through PPC model, where advertisers pay based on the number of clicks, not impressions. This kind of sponsored ads gives visibility to products when users search for keywords or when they are buying something, making these ads lucrative for sellers.
Wrapping it up
Amazon’s revenue models help to increase traffic on the site, create awareness about the products, and increase repeat purchases. They not only generate revenues for the tech giant but also add value for all the players involved. To get the most out of the revenue models, a hybrid model can be apt, which takes advantages of various models.
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