The marketplace businesses need to have a clean marketing strategy and also you need to focus on which marketplace business models that will suit your business. Make sure that the marketplace business and revenue models scale to endure long-term sustainability.
Before you get into the marketplace business models you need to know how well the eCommerce marketplace is performing in the digital market today. Let us go through the statistical report on its growth.
- Recent survey states that 40% of worldwide internet users have purchased products online through their desktop, mobile, tablets or other online devices.
- There will be 2.05 billion global digital buyers by the end of the year 2020.
- In retail sales, it is expected to account for 15.5% of global sales.
Table of Contents
What is a Marketplace Business Model?
A marketplace business model is a structure that is well-framed to streamline the product or service that is created. The platform will be organized in a way how a product should be sold and will give a clear picture of how your returns will be. Perfect guidance will be gained on competing with competitors.
The Chicken And Egg Problem Of Marketplaces
To lead a successful marketplace platform you need to have more customers. But customers will visit your online store only if there are more sellers. You can connect more sellers but sellers will be interested if your platform contains more customers. So it is like a chicken and egg problem. You may wonder whom you should attract first. Either customers or sellers, the problem is continuing.
We have tactics that will attract buyers and sellers. By clearly following the strategy you can easily make your platform standalone in the market.
Tactics To Attract Buyers
Better loyalty programs – customers have more options in selecting their favorite marketplace platform. To make them visit your platform again and again, you need to have monetary incentives for your customers. Build a better loyalty program that will gain the attention of customers and make them stay with your platform.
Provide the best user experience – your platform should contain excellent and feature-rich UI & UX that will make customers stay in your marketplace and will make them buy products instantly.
Tactics To Attract Sellers
Simplified registration process – one should keep in mind that all sellers are not technical people. Registration process should never be a complicated one. If you have a long process then sellers will leave your platform and will move to your competitors’ platform. So keep it simple.
Provide unlimited listing – One of the best approaches to attract sellers each seller will have more products and they would like to display all their products in the marketplace. Your platform should support unlimited listings that will support sellers and will make them stay on your platform.
Now let us analyze the various marketplace business models in detail.
Commission Business Model
The commission based revenue model is the most popular marketplace business models that get you a substantial commission on each and every sale that the vendor makes. Whenever the customer pays for the product, the marketplace owner will process the payment and will receive a percentage as a commission from the vendor. Since it is a multi vendor marketplace software, you will have various vendors and each vendor will be selling more products per day. So this is a good source of increase marketplace revenue.
How does it work?
The commission based revenue model can be set under different schemes. First, you can set to have a global commission that means for any sale value you will get a fixed commission. You can set a different commission by considering the size, price of the product that is sold through your marketplace platform. Also, you can set a commission for each product. If you are a start-up then you can set a performance-based commission with your vendors so that according to their performance level you can fix your commission.
Benefits & Challenges For Commision Revenue Model:
The main benefit is whatever passes your ecommerce marketplace platform, you will get some percentage of profit out of it. Also the providers are not charged unless they gain some value for their marketplace platform.
The real challenge is to make your vendor get enough value after providing the provider as well as the customer. If they are not satisfied with the value there are chances for losing them. They may find another marketplace easily. Another challenge is fixing the commission pricing. We will be in a dilemma on how much should we charge? Or how to retain them?
Сommission Business Model Use Cases
The best examples for commission marketplace business models are Flipkart and Amazon. They have a perfect commission slab and they make sure that the vendors are getting enough profit with their marketplace platform. They also periodically announce offers and deals with their vendors and they never fail to delight them.
Subscription Business Model
Subscription based revenue model is one of the recently introduced marketplace business models. This business model will get you a recurring payment from the customer either for the product or the service you provide them.
How It Works:
This marketplace revenue stream pays more attention to its regular customers and retains them. By getting them into monthly or yearly subscription plans, you can let them access the product or service whenever they need. Initially, the subscription can have stages like basic then silver than gold.
The basic plan can be useful for small sellers who can avail most of the features for free with limited access and then the silver plan that can give you additional access and finally the gold plan that offers you to access all the enhanced features of the marketplace platform.
Benefits & Challenges For Subscription Revenue Model:
This marketplace business model is more convenient and personalized. And it is also time-saving to use the platform. The growth potential is high with the subscription marketplace business models. The challenge that this model faces is to have enough customers. You need to get more customers to get more subscriptions.
Subscription Business Model Use Cases
Amazon Prime, Netflix is the leading marketplace platform that uses this subscription revenue model. These marketplace platforms give more benefits to the users who have subscribed like free shipping, additional discounts, and many more.
Listing Fee Business Model
Listing fee marketplace business models is a typical model that will get the providers to have a fee for all the listings placed on their websites. Most of the classified ads use this type of marketplace business model.
How It Works:
The marketplace charges clients for posting ads on their websites. Compared to the commission model this sounds better wherein the commission model the marketplace will get revenue only when the sale happens but in the listing fee business model one can earn for each and every ad placed on the platform.
Benefits & Challenges For Listing Fee Revenue Model:
The key benefit is this model is quite cheaper compared to other marketplace business models. Also, you can expect a good quality of listing as you can select what has to be posted on your website.
The challenge is to convince the client in paying for the ads. Because they need to pay for the ad before they get the returns out of it.
Listing Fee Business Model Use Cases
Etsy, one of the leading marketplaces uses this marketplace revenue model for its business. Initially, it gives a trial period for all its clients and the trial period will be for one month. In this period the clients have free listings with some restrictions. After one month they will be charged according to their listing.
Lead Generation Business Model
This lead generation revenue model has a good response from the client’s side as they will pay when they want to bid with the potential customers. Here the client as well the marketplace are satisfied with what they get and pay.
How It Works:
The customers will post their requests on the marketplace platform. Now the clients who can provide service to the customer’s request will pay to the marketplace and get the chance of bidding for the customer’s request. For every lead, the client will pay the marketplace. The chance of order conversion is high with this marketplace business model.
Benefits & Challenges For Lead Generation Revenue Model:
The marketplace can’t get enough value with this model. There is no risk for suppliers as they get potential customers for what they pay.
The challenge comes when the increase marketplace revenue charges for the lead. In this case the suppliers will search for some other option to get direct contact with their potential customers.
Lead Generation Business Model Use Cases
Thumbtack, the leading ecommerce platform uses this type of marketplace revenue model. They give options to suppliers so that they can have either for leads that perfectly match their preference or they can pay if the customers accept their job.
5. Freemium Business Model
Freemium as the term explains, this marketplace revenue model will have both free and premium features. The entire core offering will be free for the users. But to get into advanced features of all the core features they need to pay and use it.
How It Works:
The customers who need the service will get registered with the marketplace for free. They will access all the basic features and at one point if they want to upgrade it then they will pay for the marketplace and will get the update.
Benefits and challenges for Freemium Revenue Model
Lead generation is easy as this model starts its service for free. So there are many chances to get more customers getting signed in to the marketplace.
The real challenge is when you try to convert the free users to the paid one. Your paid features should be more convincing for the customers so that they can easily get converted to premium customers of your marketplace.
Freemium Business model use cases
Craigslist, a leading classified ad website uses this revenue model marketplace. With craiglist one can post a listing for free. Only certain features like real estate need to be paid to access.
Our Recommendation
After completely studying all revenue models, we can strongly recommend the commission revenue model to be the most suitable model for any marketplace platform. This model easily gets adapted to various niches. The admin of the marketplace platform will earn whenever a product or a service is being sold through the platform.
The seller will also be mutually benefited as he will be paying the platform only when he earns through it. This will retain sellers with the platform and both the parties will be satisfied with this model. Successful marketplace platforms like Amazon, Airbnb, Fiverr and many more use this marketplace revenue model to increase their marketplace revenue.
Conclusion
To increase marketplace revenue along with significant features, users need to pay more attention to selecting the best marketplace business model. It is not necessary to stick to any particular business model. As your business grows you can have multiple revenue streams integrated into your platform that can bring better returns. Be more determined in making your marketplace platform a successful one in the market. Use unique marketing strategies to promote your brand and reach your audience effectively.
Thanks for sharing this wonderful blog! We want to start an online marketplace, I’m looking for a marketplace business model to increase the revenue growth of your marketplace.