Commission based business model

Commission based business model has turn out to be one of the best business model of present time considering the growth of some top companies in this domain. Companies have proven track record of growing multifold.

Basics of commission based business model

You sell one product, keep your margin aside and let the parent company handle everything else. Some most established commission based business or indirectly lead based businesses are Just Dial, Sulekha and India Mart, Flipkart, Snapdeal and Shopclues (Indian Context) to name some. These do not sell any product directly or do not produce anything. All these companies do not make any product themselves but they provide platform to sell.

Business model of Flipkart, Snapdeal and Shopclues

These companies started as ecommerce stores with limited number of products which later converted them into Market Place. Now they do not sell anything. They provide a selling platform for vendors (WS Retail which was initially with Flipkart, no more belongs to them).

Marketplace business model

As first step in marketplace business model dealers or vendors have to complete registration formalities including sending or uploading all document copies required to complete the process.

After that vendors have to upload their products on the portal. To manage these products all these websites have dedicated website panels for vendors.

Product catalog for the vendor is ready to go live and products in digital form are published on the portal which can be seen by customers online.

Most of the companies do not charge anything for registration as vendor. But later they charge anywhere between 15 to 20% of the product cost per sale (this percentage sometimes gets bargained depending on the unit sales commitment by the vendor). This cost also includes delivery charges.

This 15 to 20% amount later makes the company grow and expand.

All marketing and brand building activities happen for the market place only. If vendors want to advertise or promote a product on this portal he/she has bear advertisement cost.

In case of any dispute with the customer

In most of the cases all major marketplaces have return policies. They impose the cost of poor quality delivery on vendors or suppliers of product. Therefore customer remains with the marketplace or brands like Flipkart or Snapdeal.

All warrantees are also provided by the vendors.

Just Dial, Sulekha and India Mart

These brands are not very different from each other in terms of nature of work. For the end customer this does not matter. The only difference is in the user interface and data collection model. At the end every one of them is same.

Lead generation

Many of these companies work on lead generation model and allow free registration on their portal for companies, customers and manufacturers etc and create profile along with product catalog and some of the times contact details are replaced with their information. They promote their portal and ask customers to place their requirement with a promise to revert with potential companies that can fulfill this requirement.

Revenue generation strategies

There are standard procedures for revenue calculation. Revenue generation strategies also linked. They approach companies with a promise to increase their sales by providing customers. Business customers pay for these leads because of contract they sign with market place. Average potential customer name or a lead price is around 150 to 200 Rupees depending on the contract and it is sent to 12-15 different companies. So each customer requirement generates them 2500 to 3000 rupees.

Who is making Profit?

Companies like Just Dial, Indiamart and Sulekha are making profit for sure because they are not dependent on deal closure.

Customers are getting 12-15 companies list that can fulfill their requirement (sometimes this becomes irritating as well but that is part of business).

In case of listed business (who is getting these leads or requirements) it depends because with every potential customer they get 10 competitors.

So no matter what the circumstance are, these companies will get take their commission away with each customer requirement or each sale and with each day passing they are becoming bigger and bigger.