The creation of marketplace-type platforms has been around for several years, and continues to enjoy steady and sustained success. However, bringing such a project to fruition necessarily involves solid expertise in the market concerned, as well as specific technical skills. In fact, new consumer trends and habits require marketplace designers to adapt nimbly in order to respond effectively to evolving and diversified market demands.
In this article, we invite you to explore 6 marketplace business models that will help you make your marketplace more profitable and generate regular revenues.
1. Registration Fees
Registration fees are straightforward: it’s a flat payment collected from your sellers when they request to sell through your marketplace. When you build a marketplace, if you choose this model business, you don’t need complex payment gateways, and your sellers pay you upfront. It’s also possible to defer the payment of registration fees.
Here are some tips for making this business model work, especially in the beginning:
- Ensure that the registration fees are affordable for your sellers.
- Emphasize the benefits your sellers will gain from their registration!
- Offer a personal approach to sellers who sign up.
Advantages of Registration Fees:
- Feasible from the early stages
- Simple implementation
Disadvantages of Registration Fees:
- Doesn’t scale well in the long term
- You have to be really convincing
2. Subscription
Over the last decade, companies have actively shifted from selling products and services to offering subscriptions. Why? Because recurring revenue is the lifeline of any business, including marketplaces. Some even consider subscriptions to be “THE” business model for marketplaces.
First, because subscriptions allow you to split a large payment into several small, affordable payments. Second, recurring payments are an excellent way to contribute to the funding and evolution of your business over a long period. By subscribing, you can maintain and improve your product as long as your users find it worth paying for.
The most important rule of subscriptions is simple: as long as your users derive more value from your services than it costs them to stay subscribed, they will continue to pay. The same goes for marketplaces: your sellers won’t hesitate to pay $10 per month if it brings them 10 times more.
If you are considering adopting a subscription business model, here are some tips:
- Offer a free trial if technically possible.
- Clearly describe what is included and how you will collect payments.
- Try to offer a few different plans with various options and a way to switch between plans smoothly.
- Have a plan to maintain your sellers’ engagement.
- Offer incentives for larger upfront payments (e.g., a 15% discount for an annual or monthly plan).
Advantages of Subscription Payments:
- Excellent long-term revenue model
- Often more affordable than one-time payments
Disadvantages of Subscription Payments:
- More complex to implement than one-time payments
- Difficult to implement in specific industries
3. Listing Fees
Product listing fees are one of the most common business models among marketplaces. These are fees charged to the seller when they list their products for sale.
There are several methods to calculate these fees:
- Flat amount, for example, $0.35 per product listing
- Amount based on price, for example, 5% of the product listing price
- Fees calculated by category, for example, $25 to list a product in the “Automobile” category
- Fees based on features, for example, + $5 for each additional product category
These fees can be charged once for each individual product or combined into a single invoice covering multiple products.
Here are some tips to consider when implementing this business model:
- Make it easy for sellers to pay the fees, especially if you want to encourage them to list many products.
- Provide sellers with a compelling argument to justify listing on your platform – for example, through statistics.
- If you use price-based calculations and work with expensive products, consider fee caps.
Listing fees will be very useful for marketplaces offering handmade items where sellers sell unique products, but they might not work as well in ordinary online malls. This business model is also popular among classified ad platforms that do not handle transactions and therefore cannot charge sales fees.
Advantages of Listing Fees:
- Simple and clear approach for sellers
- Works well for unique and handmade markets as well as classified ad platforms
Disadvantages of Listing Fees:
- Won’t work optimally in the early stages
- Not suitable for all industries
- No products = no revenue
4. Sales Fees
When you manage a marketplace with sales fees, you have a revenue source that brings you a small share of each sale, usually before the payment reaches the seller. Fixed sales fees and percentage-based fees (or a combination of both) are common.
The exact way you collect sales commissions from your marketplace sellers will depend on the payment flow you use. There are three common payment flows on an online marketplace:
- Direct payments, where the customer payment goes directly to the seller’s account. You collect the sales fees in the form of a reverse payment by invoicing your seller or automatically at the time of sale or at regular intervals, such as every month.
- Aggregated payments, where your platform collects payments from your customers and then distributes them to sellers in the form of payments.
- Split or parallel payments, where the payment provider splits the amount between your sellers and your platform at checkout.
There are different fee rates you can apply when building your revenue model:
- Fees applicable across the entire marketplace, for example, $0.35 + 3% on each sale
- Different rates based on plans or performance, for example, 1.5% for electric sellers, 3% for all others
- Individual rates for individual sellers – to be considered if you manage a smaller niche market
- Different sales rates for different product categories or even for individual products
When considering whether or not to implement sales fees on your marketplace, keep the following in mind:
- Sales fees vary depending on the growth of your sales, but they are not high at the beginning of the project.
- Low sales rates may be attractive to your sellers, but they may not be viable for you.
- When applying sales fees, remember to account for your own processing fees.
Advantages of Sales Fees:
- They are very attractive in case of scaling
- They work well in large online malls where quantity is more important than quality
Disadvantages of Sales Fees:
- More difficult to implement compared to other marketplace business models
- They won’t work well at the beginning when your platform doesn’t yet have many sales.
5. Sponsored Products
Promoting products and profiles is an excellent way to give your sellers extra exposure after setting up your marketplace. These promotions can take different forms, for example:
- Sponsored products on other pages, categories, in the cart, or at checkout
- Featuring on supplier profiles or the main page
- Promotion on blog articles and mentions in the newsletter
Sponsored products typically work best on product-focused marketplaces (like eBay or Amazon, where the product is more important than the seller), while featured seller profiles are a great way to attract customers to seller-focused marketplaces (where sellers sell unique or handmade products).
When it comes to collecting payments for promotions, you can choose several approaches:
- Charging sellers for individual product and profile promotions.
- Including product promotions in a more expensive membership plan.
- Setting up a credit system allowing sellers to buy credits in bulk and use them for promotions.
- Offering free promotions as part of a broader marketing campaign to attract new customers.
If you decide to include ads and paid promotions in your marketplace business model, here are some tips:
- Consider the shopping experience of your customers who may be wary of sponsored products – will you promote everything or implement some form of validation?
- Don’t forget the technical part of implementing sponsored listings – can your current system handle them from the start, or will you need to develop it beforehand?
- Avoid overloading your marketplace with sponsored listings to the point of making it unusable for the organic product shopping flow.
Advantages of Sponsored Listings and Promotions:
- Sponsored ads scale well with the growth of your market – the more visibility, the more sellers will be willing to pay.
- Promotions are a flexible monetization strategy – the more placements you can organize, the more combinations you can offer your sellers.
Disadvantages of Sponsored Listings and Promotions:
- Allowing promotions for low-quality products can harm your customers’ experience.
- Implementing featured listings may require custom development if your system doesn’t support it.
- You will need to convince your sellers that it’s worth it for them.
6. Third-Party Ads (Advertising)
This business model is a bit different from sponsored products or sellers. Here, you allow third-party advertisers to promote their products, services, or websites. Generally, the advertising approach is similar to the previous case – you have a certain number of ad placements and charge advertisers to publish their ads.
There are several ways to set up ads on your online marketplace:
- Using in-house ad software
- Using third-party services such as AdSense
- Managing ads manually
Depending on your needs and the capabilities of your platform, you will use one or more advertising models to collect payments from your advertisers:
- CPC/CPM (cost per impression)
- PPC/CPC (pay-per-click/cost-per-click)
- Cost per period, for example, $120 per day or week for the homepage ad
- Cost per post, for example, $250 per blog post
Here are some different types of ads and placements you might consider:
- Display advertising, such as graphics and banners
- Text advertising, for example, blog articles or newsletter mentions
- Mixed advertising, such as sponsored third-party product listings
Advantages of Ads:
- If implemented correctly, relevant native advertising can add value to your marketplace members.
- Advertising monetization scales as long as you can reach relevant advertisers in your sector.
Disadvantages of Ads:
- Poor quality advertising will negatively impact your users’ and visitors’ experience.
- Successfully implementing and managing advertising on marketplaces requires cooperation from several team members.
