Unlocking New Revenue Streams in B2B eCommerce: the Major Paradigm
eCommerce to the modern businesses is what the quest for gold and new lands was for the age of discovery: it offers a bottomless pool of opportunities for both global and small businesses alike. It almost paradoxically empowers the isolated communities and minority interests and democratizes the market by allowing customers access to virtually any product or service they like.
A thriving ecommerce business is a combination of a good business plan, in-depth market understanding, and of course, comprehensive research into ecommerce revenue models. Finding new revenue streams has gradually taken on a distinct shape and meaning in certain contexts to signify new, undiscovered, creative, and potentially lucrative ways of exploiting the business potential and generating income. Especially in an ecommerce context, businesses, mostly by trial and error, have been discovering extremely innovative ways, which seemed to be impossible a few years ago. The flip side of the coin of such an intense pace of innovation and competition is the constant nagging push for businesses to continue digging, exploring, and using new ways to generate financial returns.
In this piece, we’ll discuss new revenue models and streams, which will open up new pathways for commercial exploration and success. We will focus on B2B ecommerce since our company’s specialization lay in such domain and ecommerce B2B platform is our brainchild.
Definitions of Revenue Models and Streams
A revenue model, a key component of a business model, is a framework for generating financial income, which identifies four key elements, such as
- A revenue source to pursue;
- A value to offer;
- Price of the value;
- Recipients and payers of the value.
To simplify, a revenue model identifies a product or service created to generate revenue generation and the ways to sell that product or service. Establishing a revenue model is a top priority for businesses since it sheds light on many other critical strategic variables, such as target audience, development and marketing plans, financial sources for raising capital, and so on.
A revenue stream, a vital aspect of the revenue model, is an amount of money a business gets from a particular source. Businesses are continuously looking for new ways of generating revenue and new streams.
17 Types of B2B Revenue Models
Since for your prospect, a revenue model is essentially what they get and how it is priced and paid for, your value proposition should be obvious, the terms and conditions reasonable, and the effort to complete the transaction totally worth it. Therefore, when choosing the revenue model, it is best to think of your buyer’s journey rather than your selling process. A good rule of thumb is to make sure you test your concepts before implementing them. Below are a few B2B revenue models (some of which are far from typical) that you can try along with your existing models.
In a partnership (or barter) revenue model, two parties form a strategic partnership. Each party possesses one or more business assets that can help the other, but neither is willing to invest in developing such an asset independently. For example, Casper, an online mattress brand, partnered with West Elm, a high-end furniture store, and allowed customers to try out mattresses before purchasing. Such a strategic partnership allowed both parties to reach a larger market and attract new customers.
In a freemium model, a business segments its user base into free and paid users. Paying customers receive superior features and services, and free users can try the products and services before committing themselves to purchase. For example, Slack is free for a limited number of users; however, as the number grows or new functionality is required, the platform offers paying options.
Pay what you can afford
In such an arrangement, customers are welcome to pay whatever they want. The scheme works well when there are no or few variable costs and when something else is expected from customers in return. For example, Zest Business consulting offers new clients to pay whatever they can afford for the first two-hour strategy consultation. In return, Zest’s customers leave positive reviews and refer Zest to other businesses, while 30% return for more sessions.
Making and selling the core asset as a standard
Companies can create a product and make it available to the community, competitors, or the general public to introduce an industry-standard or accelerate the pace of technology. For example, SmartThings provides an open platform for developers working on smart home and IoT devices.
In the advertising model, your users also become your saleable asset. Businesses pay to reach your consumer base. For example, EasyJet partners with hotel booking systems and rental companies to provide complementary services, where all parties involved benefit by sharing the consumer base.
In an affiliate scheme, one business drives referrals to another business, thus increasing the latter’s sales and earning a penny for the successful transaction, typically 5 to 10% of the product price. For example, the Bosch system, while offering remote vehicle diagnostics, also recommends third party services based on the affiliate agreement.
Another revenue model is based on selling customer data, which can be further used for targeted advertising, medical research, personalized services. PatientsLikeMe sells anonymous user data to pharmaceutical companies for research purposes.
In a matchmaking Tinder-like arrangement, two relevant parties are paired together based on mutual needs and available resources. Orange Fab for Silicon Valley, for example, matches startup companies and big corporations for cooperation.
In a marketplace, be it a B2B services marketplace or a product one, supply reaches demand through a third party platform or broker. Typically, in such an arrangement, the one who derives the most value pays the commission. However, other revenue streams can be explored, such as fixed placement fees, advertising, data selling, and so on.
Negative Working Capital Requirement (or WCR)
Negative Working Capital emerges from a situation where a business collects payments from customers before paying its suppliers. Such capital can be invested in technology or used as a fund for growth. For example, although Amazon immediately charges its customers, it pays out its suppliers only after some time, using the collected payments as an investment source.
The loss/aversion model is based on selling cheaply and kind of lock up the customer by making the switch to another service or product almost impossible or too expensive. Teamleader, which offers an online CRM tool along with other services to SMEs, has made it very difficult for SMEs to switch solutions. Besides the obvious staff training and transferring data to another system, switching to another solution might be just too costly and irrational.
The fewer people who have access to a product, the higher the perceived value. Think limited stock, invite-only, combo offers, and so on. For example, Medecision, a provider of health management solutions, hosts customer-only webinars that are perceived highly in the industry and therefore valuable.
Convenience of acquisition
Since acquiring new customers is a laborious and time-consuming enterprise, businesses value the convenience other companies offer in acquiring new customers. This is especially true for social media platforms, like WeChat, where the company’s prominent presence can result in doubling its customer base practically overnight. Another example is Lafarge, a cement manufacturer, which links retailers with microfinance organizations so the stores can support their low-income consumers. Lafarge markets its services through counselor info-kiosks established on stores’ premises.
Risk minimization and aversion
Lowering the perception of risk is often enough to convince a new customer to buy your product or service. For example, The Blazer System offers an IoT-connected device installed under the beehives for beekeepers to keep track of their bees’ health. Each year, beekeepers risk losing around a third of their income due to unforeseen bee diseases, so minimizing that risk by installing The Blazer System for them is essential.
Since high investments typically equal higher risk for businesses, allowing your customers some flexibility to minimize their investments is another strategy to generate revenue and keep both your customers and stakeholders happy. For example, DOZR is a Canadian construction equipment rental company that lends costly construction equipment to contractors, so they don’t have to invest in buying machinery. The decreased risk in investment has led to increased machine rentals and consequently higher revenue for DOZR.
Automation of non-value adding tasks
By allowing your customers to automate repetitive and non-value-adding tasks, you help both your customers by providing them with an essential source of automation and your business by generating revenue. Mercury by Landmark Global is a unique clearance system designed to speed up customs clearance by automating some of the mundane tasks connected with import/export procedures. The investment in such a system has resulted in million-dollar savings for the company, which now plans to license it to competitors.
Businesses can leverage the environmental solutions of a circular economy to better manage their resources, cut costs, generate revenue, enhance customer value, improve its goodwill, and finally help the Earth. For example, Caterpillar has created the Reman Program, through which businesses can return Caterpillar components at end-of-life. The program resulted in reduced costs, waste, and greenhouse gas emissions, which ultimately benefited all involved parties.
In the age of fake news and data breaches, there is a growing need for companies to remain authentic and transparent. Customers are willing to do business with companies who share their data and remain consistent and truthful to their values. It’s much easier to trust an open company than a shady business mired in a conspiracy (think Theranos). For example, a sportswear company Patagonia shares information, in their ‘Footprint Chronicles’ project, relating to each produced item, showing the plants, textile mills, sewing factories, and farmers involved in the production across the globe. Moreover, Patagonia supports and treats its suppliers as partners and strives to improve their environmental and ethical situation.
Top 9 Revenue and Pricing tactics in B2B ecommerce
One of the most effective ways to attract customers and improve their loyalty is by adequately and transparently pricing your product or service. Below are a few suggestions on pricing your offering effectively, so it makes perfect sense for your customers and stakeholders, and ultimately results in a stable revenue flow for your business.
The most common pricing tactic is when a customer pays a one-time fee to own a product or receive access to a service. For example, CatHook from Shopify helps companies recover abandoned ecommerce sales through their platform in an all-inclusive plan at a flat monthly cost.
Another well-known tactic is subscription-based, where a customer pays for periodic delivery of a product/service. For example, Hubstaff offers time and activity tracking software for businesses in the form of a subscription, typically known as software-as-a-service. It charges a monthly fee based on the number of employees in the company and the required features.
In a leasing arrangement, customers receive access to a physical product for a limited period. For example, Kwipped leases all sorts of equipment for businesses, from IT hardware to laboratory facilities.
In case some of the products stay idle for a time, you may allow your customer to pay only for the time they use your product or service. EM3 Agriservices offer agricultural equipment to farmers in India, who pay on a pay-per-use basis.
We’ve extensively discussed dynamic pricing strategy in our previous article, Making sense of dynamic pricing, which you might want to review. Dynamic pricing is based on a highly flexible pricing mechanism that accounts for numerous variables, such as time of day, season, demand, customer behavior, company performance, and competitive pricing. Uber and Amazon are among the brightest examples which utilize dynamic pricing on a daily basis. Maersk, an ocean carrier, adapts its prices based on the shipping route and demand; for example, when the vessel is almost full, the prices surge and vice versa.
Offering a product or service before it is fully developed is typically employed as a means of funding its completion or receiving proof of customer interest. For example, before customers commit to purchasing healthcare, high-tech, or manufacturing equipment, businesses use Axomon’s VR simulation tool to provide their customers with realistic product configurations to help make up their minds.
Some customers can have more purchasing power than you might think, so allowing them to upgrade or purchase additional services/products on top of your initial offering can result in a significant revenue boost. For example, Zapier uses artificial intelligence to track users’ behavior and engagement and cues upgrade prompts when users are more active on the app.
In a razor blade pricing tactic, customers pay an initial flat fee upon purchasing a product or service and then incur periodic expenses that they cannot dismiss. For example, Intuitive Surgical makes most of its sales from additional accouterments like instruments and accessories to the main product rather than the main product itself.
Co-investment or group purchase works for those customers who can’t afford to buy a product on their own and seek to share their expenses with other interested parties. Some can cooperate to receive volume discounts. For example, Cainiao, a Chinese company, aggregates the shipping demand and consolidates requests from more than 150 thousand sellers to get volume discounts.
7 Revenue Streams in B2B eCommerce
However, there are still other ways to generate revenue, outlined below. We will elaborate further on these in the next few months.
Herein, we’ll discuss the streams briefly to make you aware of current market trends and possibilities not mentioned above.
Direct-to-Consumer (or D2C) refers to selling products and services directly to consumers bypassing any middle-men, such as wholesalers, retailers, and so on.
To understand the power of D2C, consider the following example.
In 2016, Unilever acquired online-only service Dollar Shave Club (for one billion dollars), which already disrupted the market with its subscription-based revenue model. The company sent razor blades directly to consumers by mail for a fixed monthly fee. Because of such unprecedented growth in the market, traditionally dominated by Gillette, the latter saw its market share drop from 71% to 59% in 2015. By acquiring the service, Unilever gained access to the market and valuable consumer data and insights into consumer behavior. In response to that acquisition, Gillette launched its own online subscription-based club; only that was a tad bit late. Unilever, in turn, having recognized the disrupting power of digital startups, launched the Unilever Foundry, a startup accelerator program and hackathon in London to find bright developers and future industry leaders to create products and ideas internally.
However, in the B2B context, consumers can refer to any end user, not necessarily a private (physical) entity but a company. Suppose a manufacturer of semiconductor plates has two to three middle-men between its business and its end consumer; the manufacturer can try and bypass any third parties and sell the plates directly to the end customer.
One strategy that businesses can embrace to reach their customers directly is employing IoT. For example, as soon as one of the parts in a product is about to break or expire, a customer gets notified about the need to replace a part. The customer receives also information on where to do so quickly and conveniently. In such a way, customers are unlikely to shop for a part replacement elsewhere and will directly order it from you. Major consulting firms, such as McKinsey, aver that by streamlining your main product operations, you open up new ways of selling additional products and services that either correlate with your main product or add additional value and benefits to it. So, by selling replacement parts or providing maintenance and repair services, you’ll gain both extra financial gains, nurture your customer relationships, and improve customer satisfaction.
Entering the market of new countries
Exploring new possibilities internationally (or regionally) and penetrating new markets might seem self-explanatory as a means to obtain additional revenue streams. Yet few venture into that risky domain and for obvious reasons; political changes (Brexit), unbridled governmental control (China), military insurgencies (Myanmar), natural disasters (Indonesia in 2004), and pandemics (COVID). It’s much easier to explore new market opportunities electronically since you don’t necessarily have to be present physically on the location but can conduct business from afar. eCommerce business significantly lowers transaction costs, thus making the probing of new markets more affordable.
Besides the more risky possibility of setting up a subsidiary in the new country or partnering with a local distributor of similar products, businesses can start trading on ecommerce marketplaces that ship internationally. This automatically gains an opportunity to sell globally, or make their ecommerce portal multilingual, partner with international shipping companies and suppliers and begin targeting desirable international markets.
Extending digital catalog due to direct integration with suppliers
By extending your offering through direct integration with suppliers, you’ll open up new opportunities for your business. The abundance of choice will consequently lead to an increase in sales and customer satisfaction. A marketplace-like integration with suppliers is when you add your suppliers’ offering to your ecommerce solution without buying their products but allowing your customers to acquire them on a need-to-have basis. This way, as soon as a customer wants a specific product, you organize the logistics from the supplier who has it.
For example, for Standaard Boekhandel, the largest Belgian bookstore chain, Virto Commerce has integrated Standaard Boekhandel’s system with hundreds of third party distributors, which allowed the company to multiply its offering to consumers and resulted in a significant increase in book sales. Moreover, the customers of Standaard Boekhandel can now see as close to real-time inventory availability as possible across multiple stores, thus providing users with an omnichannel shopping experience.
Connecting to third party marketplaces
Digital marketplaces have been the buzz of the industry for the past several years. The proliferation of marketplaces (both horizontal and vertical) and growing customer demand (especially given the recent pandemic) have increased competition between marketplaces to attract customers and sellers. However, many B2B businesses still struggle to understand how and why to partner with growing digital exchange hubs.
Joining the marketplaces now, though, will lead to significant benefits in the future: companies can thus gain a new channel for distribution, acquire new customers, enter new markets, compare their offering to that of competitors, test new concepts, products, and gain valuable consumer insights. It might seem daunting to embark on new ventures and partnerships, but strategic planning and research can eliminate all potential risks and adverse effects of a marketplace.
Creating a B2B marketplace on top of your headless modular ecommerce solution
Instead of entering a third party marketplace, businesses can build marketplaces of their own. First of all, headless ecommerce solutions allow businesses to completely reimagine the idea of ecommerce: while traditional ecommerce solutions come single-stack, with customizable pre-set storefronts and a back end, headless solutions decouple the front end from the back end. This allows for building different front end customer experiences. The flexibility that comes with headless allows to add new channels to any market segment (regions, audiences), build different websites tailored to different customers on top of the same ecommerce solution, test new business ideas and concepts, and provide an outstanding customer shopping experience with a multi-device access. New channels ultimately mean new opportunities and new revenue streams.
Acquiring your digital competitors
Acquisition of competitors is one of the most effective and time-efficient growth strategies. Businesses acquire resources and competencies not currently held internally and quickly gain access to new products, markets, and an existing customer base. Moreover, by acquiring competitors, businesses drop the risks typically associated with developing new products. Obviously, there are also certain disadvantages related to acquisition, like the cost of the transaction, unexpected integration issues, unrelated diversification, and distraction from main operations. It all comes down to heavy preliminary research and professional help from third parties who might evaluate the pros and cons of acquisition, as well as help with any integration issues.
Vitro Commerce experience shows that the best way to gain the competitor’s market share is to acquire a company that already sells its products or services digitally and then attach its ecommerce solution to your back end. This way, customers might be oblivious of acquisition because they still purchase from the same website and, on the other hand, they benefit from the extended offerings since now they can buy more products from the same website. For example, one of our Virto Commerce customers sells embroidery designs in the US. They gradually started acquiring their competitors who were not doing well in business, then attached their website and offering to their main back end system, gaining new market share and improving customer satisfaction by providing more products while still allowing them to conduct business the old way via the same familiar website.
Creating a new vertical B2B portal
Vertical marketplaces have been particularly on the rise in recent years. Niche or highly specialized marketplaces unite both sellers and buyers of a particular industry and allow B2B relationships to grow within the vertical. Although the number of marketplaces is growing, there are still not that many of them, so now seems like the right time to build one of your own. As a marketplace owner, you will be responsible for providing a B2B ecommerce platform for both buyers and sellers to interact with each other, drive traffic to the website, and gather valuable customer data, which you can later monetize.
We’ll elaborate on each of the above revenue streams in our future articles, so make sure you sign up for our newsletter to receive updates on new materials.
New Paradigm: B2B eCommerce Platform as the Means to Explore New Opportunities
Your B2B ecommerce solution is the key to your future prosperity because it opens up new ways of making financial gains, exploring new market opportunities, entering new markets, extending your business, and improving goodwill. Depending on where you are in your ecommerce journey and how and what you choose as your solution, your chances of making money go up or down. So, when choosing a solution, think of the future, challenge it and test new concepts, extend or shrink it – it should be able to bend and flex according to your needs.
In short, your ecommerce solution should
- Be able to integrate with any third party system (any back end, any ERP, any acquired competitor’s solution, supplier’s system, etc.), which will allow you to quickly and seamlessly add new products and services.
- Be headless, so it integrates with any channels, sites, marketplaces, devices via APIs, allowing you to reach a new audience. Your partners should be able to connect to your system as well as via APIs to whatever function or part of the business they want and need to.
- Be flexible: your ecommerce solution should be able to adapt to any business model. As your business grows and your ecommerce solution matures, your business will have other needs, some of which you can’t foresee at the moment.
- Be a scalable, cloud based solution so that it can be used and deployed in any location.
- Be using multifunctional net ecommerce, capable of changing your ecommerce business direction towards B2B, B2C, marketplace, and more
A headless, API-based, composable B2B ecommerce platform that can be easily extended and seamlessly integrated with other systems is almost always a win-win. Virto Commerce is one of those platforms. Our platform’s main competitive advantage is that it’s very tolerant to the business models that seek to unlock new revenue streams, explore new opportunities, and scale up or down depending on the desired developmental trajectory.