Dot-com companies need to tell their investors how they will eventually make profits. They need to have a revenue and profit model, a business model that specifies the main revenue sources, and the projected revenue costs, and income the dot-com expects to achieve.
The company’s revenue stream may come from several sources:
Advertising income: Sales of banner ads could provide a major source of revenue. It would be advisable to consultant with a digital marketing agent or Richmond search engine optimization company about advertising and marketing related income.
Sponsorship income: A dot-com can solicit sponsors for some of its content and collect sponsor fees to help cover costs.
Alliance income: A company can invite business partners to share costs in setting up the website and offer them free advertising.
Membership and subscription: Websites can charge a subscription fee to receive a password to use the site. Many online newspapers (e.g., the Wall Street Journal and the Financial Times) require a subscription for their online services. Auto-By-Tel gets its income from selling subscriptions to auto dealers who to receive hot buyer leads from Auto-By-Tel’s website.
Profile income: Websites that have accumulated the profiles of a particular target group can sell these profiles if they get permission. At the same, there is a code of ethics that warns against the wrongful sale or misuse of customer information.
Product and service sales income: E-commerce websites draw a good portion of their revenue from marking up their goods services.
Transaction commission and fees: Dot-coms charge commission fees on transactions between other parties. For example, eBay puts buyers in touch with sellers and takes a 1.25 to 5 percent commission on each transaction.
Referral income: Companies can collect revenue by referring customers to others. Edmund’s receives a finder’s fee every time a customer fills out an Auto-By-Tel form at Edmund’s website, regardless of whether a deal is consummated. Marketplace.com charges a fee for the names of corporate customers who want to sell or buy a business.
Many dot-coms failed because they overestimated the revenue and underestimated the costs of starting up and maintaining momentum. And venture capital funders were also at fault for committing funds without requiring better business models from dot-com entrepreneurs.
How many dot-coms are profitable today? McKinsey & Company studies more than 200 B2C e-businesses and found that 20 percent are making an operating profit. The best performers were transaction sites along with media and content sites.