How do E-commerce sites monetise themselves? There are various ways, ranging from profit from sales, commissions, marketing fees, logistics costs to more novel methods like subscription plans and premium services for sellers.
Revenue from products sold
There are two main ways an E-commerce company can make money from goods sold.
- On a retail model, the amount earned is revenue from sales minus cost of goods sold. Any promotions or discounts will also be deducted. In order to maximize earnings from this model, companies will need to ensure procurement costs are competitive and at the same time ensuring that prices are competitive in the market.
- In a marketplace model, the platform can charge sellers a commission for every item sold. This commission could either by a flat rate, category-specific, or merchant-specific.
Payment fees
For E-commerce platforms that manage their own payment gateway, for example, Alibaba or Lazada, these platforms can earn from the fees charged for the usage of the payment gateway. Of course, the platform will still have to pay an internal fee to their payment gateway but this will usually be lower than the amount charged to sellers.
Delivery/Warehousing
At the logistics front, E-commerce companies can monetise delivery fees by earning the gap between the delivery fee charged to sellers/buyers and the actual cost charged by logistics companies.
For platforms that own their own warehouses and logistics fleet (last mile and/or crossborder), they can charge sellers who are willing to pay for these services. Instead of the seller having to fulfill orders one by one, they can pay a premium to the E-commerce platform to store, pick, pack and ship out the parcels to customers. Examples include Fulfillment by Amazon (FBA) and Fulfillment by Lazada (FBL).
Premium services
There are two type of subscription plans that E-commerce platforms can leverage on for revenue – seller side and buyer side.
- For the seller side, platforms can charge sellers a recurring fee for premium services or tools. An example is Amazon Prime, whereby sellers pay a monthly fee to have better exposure and other benefits on the platforms.
- On the buyer side, platforms can charge customers a subscription for benefits such as free shipping, rebates or priority access to product launches and customer support. Examples include Amazon Prime and LiveUp by Lazada.
Another form of premium service is through seller tools. This could include more advanced tools to decorate their store pages, product pages or tools to gain more exposure such as sponsored products and news feed.
Marketing
Marketing assets on the site can also be monetised for revenue. Below are some of the examples.
- Banners, pop-ups, homepage takeover (meaning the homepage of the E-commerce platform will be branded with the logo and colours of the brand) to give brands higher exposure to customers.
- Flash deal or brand offer slots to give brands higher visibility of their products and discount events.
- Sponsored live streams and games to engage customers and provide marketing and visibility to brands.
- Super brand day slots for brands to have a dedicated day on the platform. This is equivalent to brands having their own 11.11 or Black Friday event.
- Traffic from the e-commerce platform’s own social media accounts to the brand’s products or store.
Sellers can also pay E-commerce companies a fee to optimize their performance marketing and improve traffic to their store.
Summary
These monetisation methods are non-exhaustive and are likely to grow as the industry changes, especially with new business models such as social selling, online-to-offline (O2O), and group buying becoming more popular.
Chan Jing Wei 