How do E-commerce Companies Make Money?

What Led to High Valuations of E-commerce in India?

To a large extent, development in online retail could be attributed to the deep limiting of items
on the rear of PE money. This has helped large online business players in two different ways –
• Driving out the customary block and mortal model of shops thereby creating a restraining infrastructure;
• By getting people prone to shop online, before ceasing limits.

Normally such limiting of items can’t go on in perpetuity. Venture industrialist and private
equity investors have borne losses in the hope that these organizations will turn profitable as
they expand their operations. Alternatively, these assets could discover an exit by selling their
equity at high valuations through an IPO.

Are These High Valuations Justified?

Absolutely not.

Once these online retailers accomplish scale, there will be pressure from the investors to
eliminate their limits and come up with a more sustainable and profitable business model. In
such a scenario, will India return to the customary block and mortal model?

Or then again could coordination’s players hop in and start working with the customary
retailers to procure and supply their items to the end consumer.

How Do E-commerce Companies like Flipkart?

Amazon and Snapdeal Make Money?

E-commerce companies make money in 2 principal ways:

1. Fixed Price – a fixed month to month membership paid by the registered sellers to have
their items on the stage (i.e., website) of the e-commerce organization. In some cases, the
organization additionally charges a fixed shutting fee like 10 for every sale.

2. Commission – Depending on the item category, the organization charges the registered
seller a certain percentage commission on the value of the item sold. This commission could
range between 5% – 20%.

3. Why are E-commerce companies getting into Logistics? – The biggest advantage of getting into coordination’s for e-commerce players isn’t the back-end integration as it might appear. Truth be told, coordination’s are a major source of extra revenue for these companies.

They earn shipping/delivery charges directly from the customers just as from the registered
seller (for getting and delivering the merchandise from the registered seller to the customer).

Deep Discounting: How Do Flipkart, Amazon, and Snapdeal Manage to Sell Below The Market Price?

The legitimization for deep limiting of items by online retailers is often that these limits are
being offered directly by the registered seller. That the retailer just provides its website to the
registered seller to offer their items.

What Really Happens:

Huge online retailers like Flipkart, Amazon, SnapDeal, and Junglee have bleeding edge
examination capabilities and dedicated resources to compare prices of items on different
websites and crosswise over stores. Based on these prices, they suggest the price at which the
registered seller should offer their item. This suggested price is where limiting happens.

The seller isn’t under any commitment to offer his items at these prices, yet since they get
compensated for the markdown element by the online retailer, there is not really a reason for
them not to offer their items at the suggested price.

How do Registered Sellers Get Compensated?

Toward the end of each month or quarter, the registered seller will send a debit note to the
online retailer titled something like – “discounted subsidizing bill.” This note mentions the
measure of cumulative limits at which the registered seller supplied the merchandise during the
period. The online retailer can settle this balance in any capacity the parties decide.