So, you’ve come up with an idea to build a multi-vendor marketplace, and you want it to be successful. But how can you make it reliable and desirable for selling goods and services? Before we go any further, you should ask one crucial question: what is the best way to make money in your particular case?
To start with your online marketplace, you should look into other platforms. Consider both large and small, close-to-home online marketplaces. They’re likely to be the websites that show how you can make a profit. No matter the scale, most marketplaces have adopted very similar solutions.
This article looks at the most successful business models in e-commerce that make money for the marketplaces.
Commission Model
The commission model implies charging a fee or percentage for each transaction made on the website. The commission is also called transaction fee, take rate, or rake. A marketplace can take a commission from sellers or buyers, or both. That depends on which side is a priority for the marketplace owner.
Many successful platforms use the commission model, such as Amazon, eBay, Etsy, and Uber. Most transaction fees fall between 5% to 20%. Service platforms vary from 15 to 25% as the service will be lost if not sold, for example, a night in a hotel.
The commission model has many advantages. It saves the seller’s efforts to get as much traffic as if they were selling through marketing. It also eliminates the need for the seller to spend time building up their customer list and developing other sources of income.
The challenge here is that your platform needs to provide enough value for the users. Install a secure, easy and flexible payment system. This will build trust in your platform and encourage buyers to purchase more.
Subscription Model
The marketplace owner can offer access to the products and/or services on their website by subscribing users for a periodic fee. For example, after paying the subscription fee, sellers will have access to a database of buyers on the platform.
A great deal of marketplace success has been based on the subscription model. For example, such a model is used in home switch sites (Love Home Swap, Home Exchange) and dating sites (Tinder, OKCupid). LinkedIn and StackOverflow Careers use this approach for giving access to their talent base.
Another example is Docplanner. This is an international website that covers the countries of Europe and South America. They charge doctors for access to software solutions available on the platform. Their premium subscription includes online consultations, online payments, keeping medical documents, etc.
The subscription model is popular among service providers. They join the platforms that suggest easy handling of booking and activity planning (Eversports). At StyleSeat, the subscribed providers get paid even if their clients don’t show up.
The subscription model provides sellers with ownership and a sense of continuity. It eliminates the problems associated with trying to collect payment from an unknown, anonymous person. For buyers, this model is helpful because they can pay the sellers directly or in smaller amounts that are more manageable.
To be successful with the subscription model, offer discounts or free use for early adopters. Gaining enough user base leads you to a more profitable commission model.
Listing Fee Model
Here the website owner does not charge users for access but instead collects a fee for listing their products. The website takes this fee from the sellers for letting them post their products on the marketplace. The listing fees are useful when providers want to sell particular items without a permanent subscription.
A prominent example of a marketplace with this model is Craigslist. This is a selection of local websites. Vendors and service providers put their listings for free on this website. But in particular categories, as job and apartment offers in some cities, Craigslist raises a fee for each listing.
This model suits the marketplaces where articles are special and valuable. The sellers want to get more revenue from each item that they have listed. So they care about the quality and uniqueness of their products. For example, Etsy ensures that the vintage items listed by sellers are more than 20 years old and charges vendors $0.20 per item per 4 months.
The only drawback of this model is that it is much harder to measure the success of a website. For example, if your website sells something cheap like e-books, it is easy to tell how many sales you had. But with a listing fee model, it’s hard to know for sure. You could have 10,000 unique offers and 2 sales, or 100 uniques and 20 sales.
Freemium Model
Freemium monetization is a way to make money online by offering a free version of your service. This version includes limited features for everyone who visits your site. Upon gaining enough users for your website, you then offer a premium version with more features to those willing to pay.
For example, Hootsuite offers 30-day trials and demos. To access more features, users need to make monthly payments. Also, the platform offers custom solutions for separate prices.
How do you know if your users will respond to this approach? The only real way to find out is to test.
However, there are a few guidelines that can make the process easier. First, make sure that your free offer is very compelling. If you offer email but only deliver three messages free, you won’t make any money with this model. But if you offer unlimited email delivery for an extra charge, you may find success with this approach.
The problem with the freemium model is that the paid services need to be valuable enough and entice a broad audience to pay the fee.
Conclusion
You have many choices when it comes to making money from online marketplaces, both today and in the future. Choose a model that suits your platform best, or combine the approaches. What you decide to do now will influence your marketplace for years to come. I hope this guide has inspired you and given valuable ideas.
