Choosing the Right Business Model for Your Marketplace
You may be profoundly devoted to your startup, but a sheer enthusiasm without proper funding will not let you go very far. Every business idea serves the purpose of the development of the effective and scalable business processes that would generate profit.
This particularly relates to running a marketplace. For such an entity, it is vital to select a business model, which would allow for the viability and scalability of the project. So, below are the solutions we believe to be the most effective in monetizing marketplace platforms.
1. Commissions
The most commonly applied business model currently used for online marketplaces implies charging a commission for each transaction. Such an approach is attractive for both vendors and buyers since they plunk down the money only after they practically sell or buy something (i.e., receive a real value) on the platform. This strategy is lucrative for you as well because you receive funds from every activity passing through your website and you are able to start earning money right from the earliest stages of your project’s functioning. Apart from that, a commission-driven approach scales jolly well: the more sales are performed in your marketplace, the more revenue you generate.
The fees may be of two kinds: the fixed ones (so-called flat fees) and the adjustable ones. Fixed fees are usually expressed by a certain percentage, and adjustable fees depend on the sum of the order, product category or type of the marketplace client, their loyalty etc.
Airbnb, Esty, Uber, eBay — all these e-commerce giants utilize this approach. Also, it is typical for freelance platforms like Upwork.
Whom should you charge? It depends on whether your e-commerce site is a demand- or supply-restrained one. The logic is simple: if you need buyers, then charge sellers more. If sellers are more valuable in your business paradigm, then charge buyers.
2. Subscriptions
This model implies charging money for the subscriptions (also referred to as membership fees) from some or all platform’s users. The boon for you here is that you cooperate with long-term customers who bring you a regular gain, which frees you from spending too much on ad campaigns.
Membership fees are widely used by many online resources dedicated to apartment exchange and dating (Match.com, Home Exchange etc.). Sometimes such sites explain the subscription costs by the fact that the company is scrupulous about the image of their average user to ensure the safe and pleasant user experience.
As a rule, marketplaces provide several options for arranging membership, depending on the volume of features delivered. For example, eBay lets users pick an account type depending on their needs; the offer consists of Basic, Premium, and Anchor ones.
3. Listing Fees
Using listing fees is another popular monetization strategy, which is particularly widely used when we deal with non-monetary transactions and when the listings have a high potential value. Many classifieds sites like OLX, Click.in and others make good use of this business model. Its users can buy and sell literally anything: the items available range from pennyworth trifles to real property and can be both pre-owned and new.
Additionally, listing fees may be regular and premium ones. The latter are more visible to site’s visitors — they are usually larger, brighter and are located in the most visited areas of the website. Such ads are called featured ones.
Such monetization method is justified when users don’t need a long-term subscription but want to sell some items occasionally. The fee for listing an ad should be affordable since providers would hardly want to pay a pretty penny for something that is not even profitable yet. Thus, if you wish to have it repaid, you need to ensure you have a sufficient number of users who are ready to pay for the listings.
4. Lead Generation Fees
This model is conditioned by the idea that the company gets their revenues by charging suppliers to contact customers. It is a good choice when it comes to rendering services that can’t be thoroughly tracked by the marketplace owner: some repairing works, freelance projects etc. Various service finder sites like Thumbtack, Porch and Pro Referral work this way. Vendors can view the details of this or that job listing and pay the website in case they feel they will make a good job of it.
5. Freemium Services
What are the options when you want to monetize your e-shop on which the majority of users share free or inexpensive items? You can offer a basic plan for the major part of your users and premium subscriptions with an extended list of options for frequenters — for instance, an insurance fee that can be paid to the seller in case the product is lost or broken, or delivery service for a client.
Specifically, Etsy, an e-commerce site for selling handmade and creative goods, offers free services for occasional users and premium services for the established customers with high volumes of transactions. The advantages catered include featured listings, direct checkout and the provision of transportation labels.
Generally, the most widespread and profitable option for an online store is to control each transaction that goes through the website and charge the commission for it. However, each of the abovementioned models can become a part of a successful business plan.
It is recommended to start with one core model and concentrate fully on it during the initial stages. Later, in case your business demonstrates a successful growing, you can try to reconcile several monetizing approaches. Anyways, the most outstanding results come from the adjusting of each particular model to your actual tech and business needs instead of just keeping to the beaten track. You need to understand your market sector well and stick to your corporate goals first.
Which monetization strategies proved to be the most effectual for your website? What was your choice based upon? Share your opinion with us and with those who work on their marketplace projects too!
