July 10, 2020

Top Marketplace Business Models To Boost Your Revenue

The marketplace businesses need to have a clean marketing strategy and also you need to focus on which business model that will suit your business. Make sure that the business model that scales to endure long-term sustainability.

Before you get into the marketplace business 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.

Now let us analyze the various business models in detail.

1. Commission Model

commision model

The commission based revenue model is the most popular business model that gets 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, you will have various vendors and each vendor will be selling more products per day. So this is a good source of revenue.

How does it work?

The commission 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 and challenges

The main benefit is whatever passes your 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 model use cases

The best examples for commission 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.

2. Subscription Model

subscription model

Subscription based revenue model is one of the recently introduced business models. This model will get you a recurring payment from the customer either for the product or the service you provide them. 

How It Works:

This model 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 then gold. 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 and challenges

This marketplace 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 model. The challenge that this model faces is to have enough customers. You need to get more customers to get more subscriptions.

Cases 

Amazon Prime, Netflix are the leading marketplace platforms that use this model. These marketplace platforms give more benefits to the users who have subscribed like free shipping, additional discounts and many more.

3. Listing Fee Model

listing fee model

Listing fee marketplace business model 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 commission model this sounds better where in commission model the marketplace will get revenue only when the sale happens but in listing fee model one can earn for each and every ad placed on the platform.

Benefits and challenges

The key benefit is this model is quite cheaper compared to other 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 model use cases

Etsy, one of the leading marketplaces uses this 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.

4. Lead Generation Model

lead generation model

This revenue model has 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 request 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 business model.

Benefits and challenges

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 marketplace increases the 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 model use cases

Thumbtack, the leading marketplace platform uses this type of 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 Model

freemium 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

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 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.

The real boon that we have with the marketplace business is we are given multiple revenue models and we can select the one that perfectly suits our business type. If you are a start-up then it is good to have a single revenue stream. As the business grows you can combine many more revenue models and that makes sense.