Choosing your online revenue model

We know that starting an online business can allow for a faster launch than traditional bricks and mortar businesses.

 

However, while online businesses can be quick to create their presence, one area that hasn’t historically received as much focus as it should is revenue and determining the right revenue model for a new online business.

 

 

Basic types of businesses

 

There are generally five types of online business:

 

1. Merchant – who buys products and then sells them at a higher price, like Amazon and iTunes.

 

2. Market operators – who bring buyers and sellers together but don’t take part in the transaction themselves. eBay is one well-known example.

 

3. Application providers – who provide software as a service, like Gmail or Xero.

 

4. Utilities – that provide a service which is reliant on other applications to deliver their value. PayPal is an example where on their own they provide little value, but teamed up with sites, shoppers want to buy from and the convenience and security of PayPal is appreciated by the consumer.

 

5. Publishers and broadcasters – who distribute content, some at a rapid rate like YouTube where 72 hours of video are uploaded every minute.

 

Historically, marketing to increase clicks, views and impressions or growth of an online community of followers, has been the driving force of online business.

 

 

Revenue models

 

Today, attention is turning to the more traditional focus on activities that drive revenue and some experts in online business performance are starting to advocate for performance tracking based on average revenue per user, rather than the traditional marketing and advertising measures just mentioned.

 

After all, businesses including those online still need cash to survive and grow, so gone are the days of an online start-up taking its time to turn a dollar.

 

Generating revenue and returning profits are the primary focus of start-ups and for those operating online the options for doing so are numerous:

 

Mark-ups

 

Typically used by merchants to add their own margin to the price the consumer pays to acquire the goods and services the merchant is on-selling.

 

Commission

 

Used by online market places to charge a percentage fee on each transaction.

 

Subscription

 

Often used by application providers, utilities and publishers to charge a recurring fee for ongoing access to a service. Some sites such as LinkedIn will offer their members the option of free basic access or premium access with additional features as a subscription cost.

 

Licensing

 

Used by publishers and broadcasters with copyrighted material to licence access to it to their customers, such as training materials for business or education institutions.

 

Pay per use

 

Utilities, application providers, publishers and broadcasters charge a transaction fee for each use of a service or to download premium content.

 

Cost-per-click advertising

 

This is used to deliver products or services for free or at a minimal charge in return for exposure to paid advertisements on the website. This model requires a high volume of traffic though.

 

Social media sites such as Facebook, LinkedIn, Twitter and Pintrest are very effective at selling targeted advertising space in this manner, which best suits publishers and broadcasters, market operators and utilities.

 

Adwalls

 

Are another more targeted form of advertising used by publishers and broadcasters. Advertisers underwrite the cost of delivering premium content or extended access to content, using third party advertising company tools that allow advertisements to be matched to the content.

 

Access is only provided if the advertisement is viewed. This direct engagement with the advertisement allows the site to charge higher advertising rates, although they are generally shared with the third party advertising company.

 

Third party sponsorship

 

Is used by application providers, publishers and broadcasters to offer exposure through a relevant channel, such as a bank sponsoring and gaining exposure in the Money section of a news site, in exchange for a fixed fee arrangement or a contra-deal where two sites exchange advertising space to each other.

 

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