This is when the business charges a fee for each transaction conducted on the platform. This revenue model is popular in eCommerce, and is employed when charging a fee per transaction on a platform. For example, this could be a flat fee or a percentage of a total when a sale is made.
When transaction-based models have fees directly linked to usage, this offers users a transparent pricing structure with flexibility and agency. Customers only pay for what they use, which may increase trust and loyalty to your business.
A business can generate revenue from the beginning of operationalizing products or services. Fees and commissions can provide a direct and predictable stream of income.
Repeated transactions can lead to familiarity, habituation, and customer loyalty.
This model has diverse flexibility and can be used in various industries from e-commerce, payment processing, marketplaces, finance, and more.
When revenue directly depends on the volume and size of the processed transactions, some platforms will charge a fee or commission every time a customer uses a service or buys a product, which may leave customers feeling “nickel and dimed,” especially if the fees are too many, too high, or not explicitly communicated up front. Consumers are increasingly aware of micropayments, hidden fees and junk fees.
Some businesses like eCommerce require physical products which can add greater levels of complexity and risk to navigate and manage.
Some business may be restricted by a specific domain or area of impact, thus revenue may not prove exponential over time.
Companies that use a transaction fee business model are common in many industries, so competition may be fierce, and it could be hard to stand out from the crowd.
Attaining and retaining customers may cost a lot, especially in a crowded market.
Industry regulations might be complicated and grow more so as the business scales, making it more expensive and riskier to run.
Revenue is directly dependent on transaction volumes. When the economy is bad or things outside your control happen, people might not buy as often.
In payment processing, risks like fraud and disputes will incur added overhead costs which will reduce profits. To remain competitive, robust customer service offerings may be needed.