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How to choose the right business model and revenue model for your online marketplace

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Marketplace businesses are long-term initiatives. To build a sustainable and successful marketplace, you need to find a business model with revenue streams that will finance its operations.

(Full article: https://www.sharetribe.com/academy/how-to-choose-the-right-business-model-for-your-marketplace/)

Here are the most common business models for online marketplaces:

Transaction fee (also called "commission" or "take rate").
Whenever a sale happens on your site, you charge either a percentage of the total size of the sale or a fixed fee. This is the most popular model for modern marketplaces and platforms like Airbnb, Etsy, eBay and Uber. You are able to extract more value per transaction by offering more value in the process. Use the other models only if this model doesn't fit your particular idea.

Membership or subscription fee.
If you can't act as a middleman of the transaction, you can consider charging your providers or all your users a monthly or a yearly fee. This is a good choice if your users are getting a lot of value from your marketplace but charging a transaction fee is impossible for some reason. Home exchange sites like Love Home Swap are examples of marketplaces using this model.

Listing fee.
Instead of charging per transaction, you can charge your providers for listing on your site. Many classifieds sites like Craigslist use this model (quite often some categories are free and others are paid). Etsy also uses this as an additional source of revenue. The downside is that you need a huge amount of listings for this model to generate meaningful revenue.

Lead fee.
If your marketplace's main function is to generate leads for businesses, you might consider charging the providers for getting access to customers. Thumbtack uses this model. It's too difficult for them to be a middleman in the recurring transactions between providers and customers, so they focus on providing the initial lead instead.

Freemium.
You could have a free base offering for most of your users and some paid features for your power users. These could include things like delivery, insurance, or providing more visibility. Etsy offers premium services like direct checkout to their power sellers for an extra fee.

Featured listings and ads.
The good old ads aren't the most common business model for marketplaces, as there are so many other potential revenue streams available, but in some cases they still make sense. A popular way to deal with marketplace ads is to allow the providers to pay to get their listings featured on your marketplace. This is another common strategy for classifieds marketplaces. Etsy also uses this model as an additional source of income.


Finding the right business model is mostly trial and error.



- Start with one, to avoid diverting focus.

- Be prepared to change it.

- Once growing, combine multiple revenue streams.

Published in: Business

How to choose the right business model and revenue model for your online marketplace

  1. 1. How to choose 
 a business model for your 
 marketplace
  2. 2. Marketplace 
 businesses are 
 long-term 
 initiatives
  3. 3. Pick a business model that scales
  4. 4. 6 different revenue models Read the full article 
 and more articles about marketplaces 
 on the Free Marketplace Academy
  5. 5. 6 revenue models 
 for marketplaces 1. Commission 2. Membership/Subscription fee 3. Listing fee 4. Lead fee 5. Freemium 6. Featured listing and ads
  6. 6. Commission
  7. 7. Commission Charge a commission from each transaction Benefits: • providers are not charged before receiving value • usually most lucrative for marketplace owner Challenges: • providing enough value for provider and customer • setting the right commission Used by: 
 Airbnb, Etsy, eBay, Fiverr, Uber, Taskrabbit
  8. 8. Membership/Subscription fee
  9. 9. Membership/Subscription Fee Some or all marketplace users are charged a recurring fee for access to the marketplace Benefits: • if value is high but facilitating payment is difficult Challenges: • Chicken and egg problem: how to find providers without customers and vice versa Used by: 
 LinkedIn, Studiotime, StackOverflow careers
  10. 10. Listing fee
  11. 11. Listing fee Some or all marketplace users are charged a recurring fee for access to the marketplace Benefits: • if providers have no need for ongoing subscription Challenges: • doesn’t guarantee value for providers so low fee • needs very large amount of listings to be profitable Used by: 
 Mascus, Etsy, Craigslist
  12. 12. Lead fee
  13. 13. Lead fee Providers are charged for each lead generated Benefits: • better value proposition for providers, “no cure no pay” Challenges: • only works if value of lead is high • once relationship between lead and provider is set, value leaves marketplace Used by: 
 Thumbtack
  14. 14. 1. Start building your audience Freemium
  15. 15. Freemium Free basic experience, with premium offerings (such as insurance & delivery). Benefits: • no initial threshold for using platform, easier to gain mass usage Challenges: • Difficult to offer premium services that tempt a good portion of users, otherwise not sustainable. • requires high volume of users
 Used by: 
 Peerby
  16. 16. Featured Listings & Ads
  17. 17. Featured Listings & Ads Listings are free, but being featured is paid. Benefits: • no initial threshold for using platform, easier to gain mass Challenges: • requires mass of users • conflict of interest, ads are usually a hindrance to users
 Used by: 
 Zillow, Freecycle
  18. 18. Mixing revenue models
  19. 19. Mixing revenue models Most modern successful marketplace employ different revenue models at the same time. Generally, owning the transaction is the best option:
 • scalable • revenue from all purchases through the site • low risk, high value for providers Supplementing this with other revenue streams can be very lucrative. Etsy uses both commission and listing fee. Mascus combines listing fee and premium services.
  20. 20. How to choose yours?
  21. 21. Choosing a business model 
 Finding the right business model is mostly trial and error. 
 
 • Start with one, to avoid diverting focus.
 • Be prepared to change it.
 • Once growing, combine multiple revenue streams.
  22. 22. Read the full article 
 and more articles about marketplaces 
 on the Free Marketplace Academy Build your own marketplace at sharetribe.com

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