The (Ultimate) Guide for Marketplace Analytics

There are a lot of resources to help you build analytics for SaaS companies. Yet, and quite oddly, little has been published about marketplaces and other kind of networks.

At daphni, we deeply believe in the platformization of the economy and look closely at these models.

Several founders have asked us tips to structure their data-driven approach, so we’ve decided to publish a guide to help founders do it.

We divided the guide in 2 parts: (1) marketplace dynamics, where we try to grasp the overall picture, (2) marketplace KPIs, where we make a snapshot of the different parts of the business and look at them overtime.

And as a super bonus, we’ve prepared an open-source spreadsheet to structure your activity.

Ready? Go!

Review of the most important KPI in the dashboard

open-source dashboard (the first tab -here- is the dashboard, the second is a cohort analysis)

To save you time, we’ve build for you a generic dashboard for marketplace, in open-source.

Don’t hesitate to copy it to your Google Drive and adapt it to your own business, adding specific metrics and removing those not relevant.

Let’s now consider some of the most important KPIs of this dashboard.

Gross merchandise volume (GMV)

The Gross Merchandise Volume is the total sales dollar value for merchandise sold through the marketplace, it is sometimes called “Total Order Value“, “Total Dollars Processed” and “Gross Revenue”.

GMV is the top level metric businesses for business that only takes a cut of the dollars flowing through it. It is a good way to estimate the size of the business but not sufficient to understand its health. Marketplaces such as Amazon, Etsy, AirBnB are not valued on GMV but on revenue (and growth of revenue).

GMV Growth is a good indicator of the overall growth of the marketplace.

Average Order Value (AOV)

The Average Order Value is the average revenue per transaction.

AOV = total revenue / number of transactions

Schematically, high AOV = considered purchase, low AOV = impulse purchase.

AOV is a very important metric because it helps understand how much value a business can capture from the transaction and consequently how much it can spend for the transaction. For instance, if you sell homes, cars or life insurance you will have a significant higher AOV than companies like Deliveroo or Uber, so you can spend -all things being equal- more money to acquire user, to provide additional services, etc.

Rake (or Take Rate)

Take rate (sometimes called “rake”) is the percentage of the Gross Merchandise Value captured by the marketplace. The lower it is, the more frictionless the marketplace for its suppliers. This is central point of Bill Gurley in his post about platform pricing strategy (highly recommended reading):

If your objective is to build a winner-take-all marketplace over a very long term, you want to build a platform that has the least amount of friction (both product and pricing) […] The most dangerous strategy for any platform company is to price too high — to charge a greedy and overzealous rake that could serve to undermine the whole point of having a platform in the first place.

Here is a good (indicative) benchmark of some rake by Bill Gurley

Bottom line: most marketplaces take rates are between 10 and 30%.

The take rate is a good indicator of the power of negotiation: a high rake usually means that the marketplace proposition value is high and somehow exclusive in a given segment. For example, The App Store charges 30% commission because that’s the only way to access 1.35B+ iOS devices. But as noted by Bill Gurley: there is a big difference between what you can extract versus what you should extract.

Buyer/Seller Overlap & Buyer-to-Seller ratio

There is no “one best way” for these two metrics: it really depends in the underlying business.

Buyer/seller overlap is the number of sellers who are also buyers ; buyer-to-seller ratio is the number of buyers divided by the number of sellers.

Buyer/Seller overlap is most often found in peer-to-peer marketplace, like second-hand sales. It is often a good sign when the supply also buys stuff/services in the marketplace: this is a typical behavior of power users in marketplace such as Etsy, AirBnB, eBay or PriceMinister. But in others, such as Uber, Rev (or at a lesser extent Upwork), it is natural that the supply don’t buy in the marketplace as well.

A buyer/seller overlap has a good advantage: it decreases your average CAC since you acquire both a buyer and a seller at the same time.

Buyer-to-Seller ratio, can be as low as 1:1 when the buyer/seller overlap is total, which can happen in stock market or real estate market. It is generally higher and often for early stage startups, it is between 1:3 and 1:6, but as stated, it really depends on business and can be far higher than 1:1000 (eg: refurbished smartphones).

It could be interesting to measure not the Buyer-to-Seller ratio but the following ratio: Transactions Per Buyer/Transactions Per Sellers (TPB/TPS).

  • AirBnb’s TPB/TPS = 1/70
  • Uber TPB/TPS = 1/50
  • eBay TPB/TPS = 1/5

(source)

This ratio is useful to build its user growth and balance the buyers and sellers.

In short:

  • the balance depends on churn & frequency*
  • on average, sellers makes more transactions, which help making repeat business
  • on average, the buyers churn is higher (more alternative, not saving/earning money, easier to quit)

For those who likes proofs, here is the demonstration (if all transactions are satisfied) from Phil Hu and John McGugan:

number of sellers * seller LTV = number of buyers* buyer LTV
⇔ number of buyers/number of sellers = seller LTV/buyer LTV
with LTV = gross margin per transaction * frequency / churn
number of buyers/number of sellers = seller frequency/buyer frequency * buyer churn/seller churn

(source)

Contribution Margin & Contribution Margin Ratio

Contribution margin is difference between the price paid and associated variable costs, which represents the profit earned for each unit sold. Contribution margin is close to gross margin, the only difference: it takes into account not only the cost of the good sold but all the variables costs associated.

The total contribution margin results in the total earnings available to pay for fixed expenses.

Contribution Margin = Sales — Variable Costs

with variable costs = cost of goods sold (COGS) + human cost if the transaction is a service + sales commissions + payment processing + delivery price

Contribution Margin Ratio = Total contribution margin / Total sales

The contribution margin ratio is the percentage of revenues that remains after all variable costs have been covered.

Quick ratio

The term was coined by Social + Capital. It allows to see if growth outpaces churn. A ratio above 1 means that the marketplace is growing (new+resurrected > churn), otherwise you would be losing users (churn > growth).

Quick ratio = (new users + resurrected users) / churned users

You can use focus on users or add the money component, with the Monthly Recurring Revenue (MRR).

Quick ratio for revenue = (new + expansion + resurrected) / (cancelled + contraction)

with MRR from new users (new users), (b) expansion MRR (upgrades), (c) MRR from resurrected users (resurrected), (d) cancelled MRR (churn), e) contraction MRR (downgrades)

As a rule of thumb, VCs from Social Capital are looking for Saas Companies with a MRR quick ratio > 4. To discover more about quick ratio I highly recommend you the reading of this series of articles by Jonathan Hsu (@jonathanhsu).

Net Promoter Score

Net Promoter Score (NPS) is a management tool to measure customer satisfaction. It became famous with the Harvard Business Review article One Number You Need To Grow by Fred Reichheld (BCG) in 2003.

The score is obtained asking the following question: “How likely is it that you would recommend [brand] to a friend or colleague?”

Respondents are said to be
- Promoters, if their score is 9 or 10. Promoters are loyal enthusiasts who will keep buying and refers the service or the product to others.
- Passives, if their score is 7–8. Passives are not enthusiastic customers but they are satisfied with the product overall.
- Detractors, if their score is between 0 and 6. Detractors are unhappy customers who will share their disappointment and alter your brand.

NPS = Promoters — Detractors

The score is between -100 (everybody is a detractor) and +100 (everybody is a promoter). An NPS that is positive (i.e., higher than zero) is felt to be good, and an NPS of +50 is excellent.