brokerage-business

The Brokerage Business Model In A Nutshell

Businesses employing the brokerage business model make money via brokerage services. This means they are involved with the facilitation, negotiation, or arbitration of a transaction between a buyer and a seller. The brokerage business model involves a business connecting buyers with sellers to collect a commission on the resultant transaction. Therefore, acting as a middleman within a transaction.

Understanding the brokerage business model

Brokerage businesses usually charge a commission or fee to one or both parties in exchange for services rendered. Many such companies have also adopted a zero-commission policy, instead of making money from investments and the difference in price between what they charge buyers and what they charge sellers.

Advances in eCommerce have allowed the brokerage business model to thrive since virtually any product or service can now be ordered online. Brokerage businesses are common in the real estate, finance, retail, travel, and online marketplace industries, to name a few. 

Seven types of brokerage business model

In truth, there are many brokerage business model types across both B2B and B2C businesses – although some types are more suited to one or the other.

With that said, we have taken the liberty to list seven of the most common below:

  1. Buy/sell match model – where brokers concentrate on the fulfillment of buy/sell transactions. This model is routinely used by financial brokers, insurance brokers, travel agents, and bricks-and-mortar businesses with an online presence.
  2. Buyer-aggregator model – here, brokers bring together a group of buyers who share the common goal of receiving discounts on goods and services. Merchants pay the broker a small percentage for each sale, which is often percentage-based.
  3. Classified-advertiser model – these brokers charge a fee to an advertiser based on the time, location, size, or nature of an advertisement. They may also offer search and rating services. For example, the online classified platform Craigslist charges users for brokering sales of apartments, commercial real estate, cars, trucks, and furniture.
  4. Virtual mall model – in this case, the broker creates a website and rents out virtual space to online retailers. The broker may also offer advertising, marketing, search facilities, and business advice. Online marketplaces such as Amazon and eBay are the most obvious examples.
  5. Virtual mall intermediary model – a more bespoke version of the virtual mall model, where the broker locates multiple product suppliers and sells their products in a single online store sorted by department. The broker also acts as an intermediary by taking care of billing, shipping, order tracking, and credit card authorization. Brokers charge product suppliers a fee for setting up and maintaining their storefronts. Chinese B2C platform Tmall is one example of a virtual mall intermediary broker.
  6. Auction and reverse auction model – an auction broker offers goods and services from multiple resellers and receives a fee for every successful sale. In a reverse auction, buyers name their price and the broker secures a seller who can facilitate a sale.
  7. Directory and evaluator model – these brokers offer a directory listing for goods and services, evaluate relevant businesses, and offer value awards to companies based on consumer feedback. Consumers themselves may also be rewarded with certain incentives for purchasing from broker recommendations. For example, Nerdwallet is a consumer finance platform reviewing credit cards, bank accounts, personal loans, insurance, mortgages, and investment products. 

Key takeaways:

  • The brokerage business model involves a business connecting buyers with sellers to collect a commission on the resultant transaction.
  • Advances in eCommerce have allowed the brokerage business model to thrive since virtually any product or service can now be ordered online. The model is common in the real estate, travel, finance, and retail industries. 
  • There are many brokerage business model types in the B2B and B2C space. Some of the more common include the buy/sell match model, buyer-aggregator model, classified-advertiser model, virtual mall model, auction and reverse auction model, and directory and evaluator model.

Connected Business Concepts

Marketplace Business Models

marketplace-business-models
A marketplace is a platform where buyers and sellers interact and transact. The platform acts as a marketplace that will generate revenues in fees from one or all the parties involved in the transaction. Usually, marketplaces can be classified in several ways, like those selling services vs. products or those connecting buyers and sellers at B2B, B2C, or C2C level. And those marketplaces connecting two core players, or more.

Food-Delivery Business Models

food-delivery-business-model
In the food delivery business model companies leverage technology to build platforms that enable users to have the food delivered at home. This business model usually is set up as a platform and multi-sided marketplace, where the food delivery company makes money by charging commissions to the restaurant and to the customer.

Wholesale Business Model

wholesale-business-model
The wholesale model is a selling model where wholesalers sell their products in bulk to a retailer at a discounted price. The retailer then on-sells the products to consumers at a higher price. In the wholesale model, a wholesaler sells products in bulk to retail outlets for onward sale. Occasionally, the wholesaler sells direct to the consumer, with supermarket giant Costco the most obvious example.

Retail Business Model

retail-business-model
A retail business model follows a direct-to-consumer approach, also called B2C, where the company sells directly to final customers a processed/finished product. This implies a business model that is mostly local-based, it carries higher margins, but also higher costs and distribution risks.

B2B2C

b2b2c-business-model
A B2B2C is a particular kind of business model where a company, rather than accessing the consumer market directly, it does that via another business. Yet the final consumers will recognize the brand or the service provided by the B2B2C. The company offering the service might gain direct access to consumers over time.

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