Launching a marketplace and implementing the right business model is hard. According to Medium.com, less than 10% of marketplaces become profitable because of the competition, not achieving a critical mass of users or suppliers, and difficulties to monetize a platform. In the previous article, we focused on the ways of creating a marketplace, the average price of the website as well as mistakes to avoid. In this guide, we will briefly explain the successful marketplace monetization strategies, any of them can be applicable to your platform depending on your business model. If you are planning to monetize your marketplace, the first step to think about its monetization type.
The marketplace can enable commission for every commercial transaction that happens on the platform (e.g. eBay, Booking.com, Etsy, Uber, Alibaba). The percentage can vary a lot depending on the type of products or services, normally the commission is lower than 20%. One of the most typical monetization strategies that can be effective for startups with a small number of customers and sellers.
2. Listing fees
Many big marketplaces combine multiple monetization strategies and also charge listing fees (e.g. eBay, Etsy, Tachfetch). It’s a fee that makes product/service visible on the platform but it works well only for medium or large marketplaces with a wide audience. This model is suitable for the B2B segment too and usually, it’s more attractive than a membership fee. However, the listing fee doesn’t guarantee that a purchase will be made, so this monetization type is normally quite low-costing for suppliers.
3. Premium listings
Another strategy is charging vendors for being in the highest positions in search results (Craigslist and OLX). This model is similar to listing fees and is commonly used while scaling a horizontal marketplace. As for the commission model, the fee can depend on product category and amount.
4. Membership fee (subscription)
In this case, users are regularly charged to get access to the marketplace to find new customers or suppliers. Membership fee can be convenient for sellers of luxury products or services. Some examples of this monetization type are widely presented by home exchange (Love Home Swap, Home Exchange) or job hunting services (LinkedIn or StackOverflow Careers). The only problem of this model can be related to the lack of users, however, the owner can implement monetization fee with large discounts for the first time.
5. Lead fee
Lead generation means paying for connecting the contractor and the freelancer, the fee usually depends on the service provided (e.g. Thumbtack). There is no guarantee that the deal will have place but this model is more efficient than listing fees and it is spread in B2B and B2C segments. The main advantage of this system is that service providers can have a long-term relationships with the customers.
6. Exclusive services (Freemium)
Here the basic features are free for all users but if you want to upgrade, you need to pay for extra functionalities (e.g. Peerby). This model is often mistaken with a trial period where all features are for free but for a limited time. The freemium model allows you to attract customers easily and if they like the basic features they will likely upgrade to fully use the platform.
7. Variable commission and premium listing fees
Many companies (e.g. Google, Booking.com) don’t use fixed percentages for commission and premium listing fees, some variability and applying additional price for extra services is smart and will allow you to attract more customers and vendors. C2C platforms are more suited for this model, however, in B2C and B2B it may also work successfully.
While selecting the most convenient business model, it is necessary to analyze all pros and cons of each strategy depending on the niche of your marketplace, target audience, and average price of products/services. The main difficulty of marketplace is making a balance between vendors and customers. Unfortunately, there is no ideal monetization strategy, you should try different models and analyze the results. The most rational approach is to combine a few of them to attract a large audience and boost profits. Though the marketplace is a hard business, it provides multiple monetization opportunities.
Evercode Lab has a large experience in the development of eCommerce services of any complexity. Our company has successfully launched a marketplace Evermarket that combines the best offers in one place and can be used in various economic areas: trade, education, medicine, etc. If you have any questions left, please leave your contacts and our team will contact you as soon as possible.