Marketplace Business Models

‍Commission‍

A marketplace commission is the most common way for marketplaces to monetize. Similarly to Airbnb, whenever a sale occurs, the marketplace charges a percentage, fixed fee, or combination of a % and flat fee on each sale.

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Pros:

• No upfront-fees == low barrier for users to try
• Incentives are aligned as the success of the marketplace users is directly tied to the success of the marketplace

Cons:

• Revenue more affected by off-platform leakage
• More difficult to bootstrap early on as Gross Merchandise Volume (GMV) is usually small to start.

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Membership Fee

Charging monthly or annual subscriptions in order to access parts of the marketplace is a great way to develop a predictable and recurring revenue stream right away (so long as there is sufficient value-add for both the demand and supply sides in order to justify the payment).

However, new marketplaces have to counteract the anxieties potential customers face when presented with an upfront fee by providing trustworthy reviews and ensuring that the amount they are paying is worthwhile to the services they are receiving. Although your marketplace may not offer all the features you want it to early on, the core needs of your users can still be solved manually with a level of personalized customer service unattainable by larger competitors. A freemium model or free trial can also be used in partnership with the membership fee model to alleviate the financial friction of signing up.

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Pros:

• Revenue less affected by off-platform leakage
• More stable/predictable revenue stream early on

Cons:

• Risks losing potential clients who aren’t ready to commit to an upfront fee

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Listing Fee

Marketplaces that naturally have a low frequency of transactions (e.g. real estate, cars, boats, etc.) may benefit from the listing fee model. Suppliers will pay to have their products or service listings show up in certain categories or in premium sections of the marketplace (e.g. at the top of the page). Craigslist  is an example of a marketplace that charges a different fee to have a listing show up in different categories on its marketplace.

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Pros:

• Revenue less affected by off-platform leakage
• Good for marketplaces with naturally low-frequency transactions (e.g. “big ticket” items like houses, cars, etc.)

Cons:

• Only valuable when the marketplace already has high-traffic from the demand side.
• Supply may be driven away if listing fee is too high
• Low quality listings paid for by the supply-side may negatively impact the experience of the demand-side

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Lead Fee

‍Similar to the listing fee, the lead fee model charges the supply-side with the promise of connecting them to more leads. In the case of the lead fee model, the fee is charged on a per lead basis either by charging the supplier for the ability to contact the lead or once the lead has successfully made a transaction. In some cases, a bidding process may be involved if there are multiple suppliers interested competing for the same lead. Upwork, a talent marketplace, is one of the most well known marketplace examples that has utilized the lead fee monetization model.
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‍Pros:

• Suppliers only pay when they feel like they have a good change of closing a deal

Cons:

• Higher likelihood of off-platform leakage