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 B2B and B2C businesses – although some types are more suited to one or the other.

b2b-vs-b2c
B2B, which stands for business-to-business, is a process of selling products or services to other businesses. On the other hand, a B2C sells directly to its consumers.

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

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 brick-and-mortar businesses with an online presence.

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.

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.

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.

how-does-craigslist-make-money
Craiglist is a local posting website that enables people to post any sort of classifieds on the platform, mostly for free, except for some categories of ads and the advertising of vehicles on the website. Therefore, craigslist monetizes based on some premium categories of listings (like job postings or apartment rentals).

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.

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.

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.

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.

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. 

how-does-nerdwallet-make-money
NerdWallet is an online platform providing tools and tips on all matters related to personal finance. The company gained traction as a simple web application comparing credit cards. NerdWallet makes money via affiliate commissions determined according to the affiliate agreements.

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.

What are the types of brokerage business models?

What's an example of Classified-advertiser model?

A great example is Craigslist, which charges users for brokering sales of apartments, commercial real estate, cars, trucks, and furniture. Craigslist is a local posting website that enables people to post classifieds on the platform, primarily for free, except for some categories of ads and vehicle advertising on the website. Therefore, craigslist monetizes based on some premium categories of listings (like job postings or apartment rentals).

What's an example of Virtual mall model?

Examples of virtual mall models comprise marketplaces such as Amazon and eBay, with various goods in many categories, convenient pricing, and many offerings throughout the year. They replicate a real-world mall in the digital world.

Related Business Model Types

Platform Business Model

platform-business-models
A platform business model generates value by enabling interactions between people, groups, and users by leveraging network effects. Platform business models usually comprise two sides: supply and demand. Kicking off the interactions between those two sides is one of the crucial elements for a platform business model success.

Marketplace Business Model

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.

Network Effects

network-effects
A network effect is a phenomenon in which as more people or users join a platform, the more the value of the service offered by the platform improves for those joining afterward.

Asymmetric Business Models

asymmetric-business-models
In an asymmetric business model, the organization doesn’t monetize the user directly, but it leverages the data users provide coupled with technology, thus have a key customer pay to sustain the core asset. For example, Google makes money by leveraging users’ data, combined with its algorithms sold to advertisers for visibility.

Attention Merchant Business Model

attention-business-models-compared
In an asymmetric business model, the organization doesn’t monetize the user directly, but it leverages the data users provide coupled with technology, thus having a key customer pay to sustain the core asset. For example, Google makes money by leveraging users’ data, combined with its algorithms sold to advertisers for visibility. This is how attention merchants make monetize their business models.

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
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.

Crowdsourcing Business Model

crowdsourcing
The term “crowdsourcing” was first coined by Wired Magazine editor Jeff Howe in a 2006 article titled Rise of Crowdsourcing. Though the practice has existed in some form or another for centuries, it rose to prominence when eCommerce, social media, and smartphone culture began to emerge. Crowdsourcing is the act of obtaining knowledge, goods, services, or opinions from a group of people. These people submit information via social media, smartphone apps, or dedicated crowdsourcing platforms.

Open-Core Business Model

open-core
While the term has been coined by Andrew Lampitt, open-core is an evolution of open-source. Where a core part of the software/platform is offered for free, while on top of it are built premium features or add-ons, which get monetized by the corporation who developed the software/platform. An example of the GitLab open core model, where the hosted service is free and open, while the software is closed.

Open Source vs. Freemium

open-source-business-model
Open source is licensed and usually developed and maintained by a community of independent developers. While the freemium is developed in-house. Thus the freemium give the company that developed it, full control over its distribution. In an open-source model, the for-profit company has to distribute its premium version per its open-source licensing model.

Freemium Business Model

freemium-business-model
The freemium – unless the whole organization is aligned around it – is a growth strategy rather than a business model. A free service is provided to a majority of users, while a small percentage of those users convert into paying customers through the sales funnel. Free users will help spread the brand through word of mouth.

Freeterprise Business Model

freeterprise-business-model
A freeterprise is a combination of free and enterprise where free professional accounts are driven into the funnel through the free product. As the opportunity is identified the company assigns the free account to a salesperson within the organization (inside sales or fields sales) to convert that into a B2B/enterprise account.

Franchising Business Model

franchained-business-model
In a franchained business model (a short-term chain, long-term franchise) model, the company deliberately launched its operations by keeping tight ownership on the main assets, while those are established, thus choosing a chain model. Once operations are running and established, the company divests its ownership and opts instead for a franchising model.

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