Business models

A key consideration for any marketplace is how (and how much) you charge your users. Your business model needs to cover the costs of running the business including customer acquisition and churn without turning off sellers or users or encouraging disintermediation. In general, successful marketplaces charge or “take” as little as they need to remain sustainable. This helps avoid users trying to find ways to go off the platform or for competition to come in and undercut prices. If your marketplace has an effective moat or provides significant value that can’t be gained elsewhere, you may be able to charge a higher rate and take extra margin above what’s sustainable. Determining your business model is an important first step as you’re building your marketplace, but remember that this can change and evolve and you test concepts and grow the business. 

Different factors will go into determining what commission you want to charge, or if an alternative business model makes sense for your marketplace. You’ll want to think about things like marginal costs for sellers, your competition, network effects, provider differentiation, transaction size and volume, and quality and additional services you provide.  Below are some of the common marketplace business models and how to think about them.

Transaction fees

This is the most common type of marketplace business model. During the transaction process, your platform collects money from the buyer and then sends a portion to the seller and keeps a portion as a platform or transaction fee. Fees commonly range from 3.5%-10% for product marketplaces and around 20%-30% for service marketplaces.

Pay for access

If you’re relatively certain users understand the value of the platform, you can charge them for access up front. This helps ensure that the ones who most value the platform end up on it, and also reduces the pressure to try to keep the transaction on the platform. This can be done via a subscription or a one-time entry fee.

Pay to list

Since professional sellers typically have a stronger incentive to join (and thus might be more likely to outstrip demand), you can charge them up front for access to list their items/services, which will earn revenue, manage supply, and ensure sellers are more committed/invested in making the most of the platform.

Pay per lead

Certain marketplaces that put a high value on the connection itself versus the transaction may charge sellers per qualified lead generated. This can be seen in some real estate or job marketplaces, where the negotiations and coordination happen offline after the lead is matched.

Pay for discounts/perks

Sometimes marketplaces can offer additional special discounts or perks for their members. Amazon Prime is the best example of this, where you pay a subscription for free shipping and other perks.

Combination of fees

Sometimes you can offer a combination of fees to capture or attract different user types such as power sellers vs infrequent sellers. VRBO, for example, offers it’s homeowners an option for an annual subscription fee instead of a fee per booking. Etsy offers its premium sellers additional features for a subscription fee or upsells for being a premium listing. Food delivery companies like Uber Eats or DoorDash offer extra benefits for premium subscribers through a monthly subscription.

“Free”

Of course nothing is truly free in this world, but some marketplaces choose not to charge buyers or sellers directly at all. This might be because they are collecting data and selling ads (like Facebook Marketplace), or because the marketplace is a gateway to other services.


No items found.