Monetizing Marketplaces: Diverse Strategies for Sustainable Revenue

Marketplaces are hot at the moment. More people are starting and finding success in it. If you've always dreamt of being the intermediary between buyers and sellers, you should jump at the opportunity to own an online marketplace.

However, while creating marketplaces is not so hard, many people wonder which business model is the most effective. After all, the core challenge lies in striking the right balance between facilitating transactions and generating revenue without alienating either buyers or sellers. The ideal business model should seamlessly connect supply with demand while ensuring sustainable profitability for the platform. This delicate equilibrium often prompts marketplace owners to explore various monetisation strategies to enhance their revenue streams while maintaining user satisfaction and engagement.

Beyond the initial creation phase, marketplace owners are tasked with the ongoing challenge of optimising revenue streams while ensuring user satisfaction remains paramount. Thus, further monetization strategies have become an important topic for marketplace owners. As the digital marketplace landscape evolves, so do the services offered by the marketplaces. Each strategy offers unique opportunities and considerations, influencing the financial trajectory and user experience of the marketplace. With informed decision-making and strategic implementation, marketplace owners can navigate this landscape adeptly, unlocking the full potential of their businesses. 

This article will explore some of the top strategies for both newcomers entering the marketplace landscape and those seeking to enhance their existing offerings.

Choosing The Right Marketplace Business Model

Marketplaces have many monetisation strategies to choose from. Each strategy has its pros and cons, and none is a "one size fits all" model. 

Therefore, you need to carefully analyse all available models before choosing one that'll suit your business best. But how do you go about this evaluation, considering you can only implement one model at a time? Here are industry best practices you can always adopt to find the best fit for your business. 

As anticipated, various strategies will yield differing results based on the industry of each business.

• Detailed evaluation of industry and competitors: as expected, various strategies will work differently for businesses in different industries. Therefore, it's best to find what works best in your industry, and one surefire way to do this is by reviewing your main competitors to find what works best for them and how they're implementing it. If a strategy is not producing enough results for your competitors, you should consider adjusting their application process or ditching it completely. 

• Proper target market analysis: start by defining your target market. What's their geographic location and culture? These are important determiners of how your audience will react to your business model. One underestimated phenomenon that works all the time is the butterfly effect, whereby the littlest change in something as small as location can significantly alter the outcomes. 

Top marketplace monetisation strategies

Now that we're clear about the growing trend of marketplace monetisation let's review some of the best models available today. Hopefully, by reviewing the pros and cons of each model, you'll be able to choose one that best suits your business. Let's go!

Commission-based model

Beyond being one of the most popular models, the commission-based model is also simple and pretty straightforward. As the name sounds, it involves taking a percentage commission from each transaction. So, you'll monitor all transactions in your marketplace and take commission from buyers and sellers. Some of the most popular marketplace businesses, like Etsy, eBay, Uber, Bookings.com, and Fiverr, use this business model. 

However, fixing the right percentage commission can take a lot of effort. The percentage commission would especially vary based on the type of product/service that's been traded on your platform. It usually ranges between a low single-digit percentage (as in the case of Etsy, Dawanda, and Alibaba), a low-mid double-digit percentage (as in the case of Wyzant, Uber, and Lemoncat), and a high double-digit percentage, as in the case of Stock Photography. 

Physical products typically attract far less commission than service exchange because such products may get lost or damaged if not sold quickly. 

Benefits 

• Buyers and sellers know and agree to what they're expected to pay as a commission before trading on the marketplace, making it easier to implement.
• This strategy makes it easier for marketplace operators to maintain a particular income level because they can predict market movements. 

Drawbacks

• High commissions may discourage new buyers and sellers from jumping on new marketplace businesses. 
• Calculating the percentage commission to be charged on each transaction can be quite difficult for service-based marketplaces.

Subscription services 

Here's an option to consider if you're looking for a stable and predictable revenue stream. It involves charging a subscription fee that covers a particular period that buyers and sellers can access your marketplace. Subscription fees allow you to diversify your revenue streams while reducing your dependence on usage-based commission. 

However, this model means that transaction volumes and costs do not concern you. Your earnings may not necessarily capture the potential upside of bulky transactions. Therefore, finding the right balance between subscription and commission-based models is crucial to get the best of both worlds. 

One of the most efficient methods for implementing this model is to provide tools that help both sides streamline their workflows and processes. Doing this will help you achieve greater customer loyalty, which is the basis for subscription-based monetisation.

Benefits

• This is an easier strategy to implement since users just need to pay a one-off subscription fee for a particular period. So you won't need to calculate commission after every transaction. 
• It is pretty straightforward for both buyers and sellers, as it doesn't need any specialised calculations. 
• This strategy helps ensure that revenue generation is not dependent on sales volume. 

Drawbacks

• It's always difficult to convince users to pay a fee before getting a feel of what your marketplace looks like. 
• You still need to incorporate other models in the long run to maintain steady revenue.

Advertising and sponsored listing

The scepticism around this model is dying, and more marketplace businesses are turning to it as an important strategy for revenue generation. Big brands often prefer marketplaces that offer this model because it offers them an opportunity to engage potential customers. We can not overemphasise how effective and precise on-site ads can be for driving conversions. After all, the strategy leverages real-time data to choose which advertisements it should bring to which consumer and at what point of their purchase it should bring these adverts. 

Unlike the subscription and commission-based models we've discussed above, this approach focuses on generating revenue through promotional opportunities. So customers are not only paying to use your site, they're also sure that you'll make efforts to help them reach potential clients, depending on the amount they pay. 

If this is an option you'd want to explore, there are many ways to go about it. Many businesses choose display advertising, which is the familiar banner ads and pop-ups you see when you log into marketplace apps. You can also choose search result promotion, which typically involves having sellers and service providers pay to have their listing feature prominently in category pages and search results. 

Again, you can combine this option with other models, however, we recommend working with one until your business attains a certain traction before diversifying. 

Benefits

• The additional revenue stream you're getting from this model can easily complement other models both now and in the long term.
• Sellers will easily choose this model since it'll help improve their visibility and earn them new customers. 

Drawbacks

• This model can often impact user experience. Therefore, it's important to find the right balance so that potential buyers will not get put off by excess ads on their purchase journey. 
• Users will find irrelevant ads annoying and even discouraging at some point.

Freemium

The word itself is a combination of the words "free" and "premium." Many business owners prefer this model because it allows them to win the trust of potential users before asking them to pay for anything. 

In this case, marketplaces that use the freemium monetisation model will allow sellers and buyers to interact with their marketplace for free. But this does mean that the marketplace business won't earn at all. Instead, the idea is for users to experience the app and interact for free but pay to enjoy supplemental or additional features. 

This model tends to work best for marketplaces with small user-acquisition costs and high lifetime value. By offering this type of pricing, marketplace businesses can acquire new users quickly and easily. Then, offer the users access to premium features for an additional fee. Depending on your setup, you can even turn the freemium model into a subscription model where you'll offer premium features for your users. 

The main task is finding the right balance between premium and free features in a way that motivates users to want the premium version without feeling short-changed by what the free version offers. 

Benefits 

• It is easier to gain users' confidence since this model allows them to join and test basic features for free. 
• It's an easy way to build customer loyalty before charging them for anything. 

Drawbacks

• It is often very difficult to predict income levels, as you do not know how many initial subscribers will opt for the premium features. 
• Convincing users to move from free to paid version can be hard if they're already getting enough from the free version.

Optimising revenue streams for existing marketplaces

In the dynamic realm of e-commerce, maximising revenue remains a constant pursuit for marketplace owners aiming to ensure sustained growth and profitability. However, achieving this goal hinges on finding the delicate balance between revenue generation models and prioritising the creation of value for users.

In this section, we explore the essential needs of marketplace users, serving as foundational pillars upon which you can construct new revenue streams for your business. Each aspect, from harnessing the power of data analytics and insights to refining packaging solutions, optimising customer support, and fine-tuning product listings, plays a crucial role in driving revenue optimisation. Together, they pave the way for sustained success in today's competitive digital landscape.

Data Analytics and Insights

Many sellers often find themselves lacking in the essential service of data analytics and insights, a capability that frequently exceeds their capabilities. Fortunately, marketplaces, with their extensive infrastructure, possess the capacity to furnish businesses with this invaluable information in a digestible format. By offering comprehensive data analytics and insights about key business indicators, marketplaces empower sellers to make informed decisions and drive growth effectively. This access to actionable data not only fills a crucial gap for sellers but also strengthens the marketplace ecosystem, fostering a symbiotic relationship between platform and participants.

Leveraging the power of data analytics and insights serves as a fundamental strategy for optimising revenue streams within existing marketplaces. By harnessing this invaluable resource, marketplaces can offer sellers not only improved business outcomes but also cultivate a loyal base of sellers in the process. Empowering sellers with comprehensive insights facilitates informed decision-making, leading to mutually beneficial outcomes for both parties involved. This symbiotic relationship strengthens the marketplace ecosystem, driving sustainable growth and fostering a sense of partnership and trust among sellers and the platform.

Shipping and packaging solutions

Based on our research conducted with 500 marketplace sellers from Europe, a significant 59.31% express keen interest in dedicated packaging solutions. This statistic suggests that more established companies are actively seeking additional services to bolster their business operations.

Packaging solutions and shipping form an integral aspect of the marketplace selling process. Recognizing this inherent connection provides a solid foundation for offering supplementary services. By optimising packaging processes and negotiating advantageous shipping rates, businesses can wield considerable influence over their bottom line. Moreover, efficient packaging practices not only drive down operational costs but also elevate the end customer experience by ensuring prompt delivery and minimising product damage during transit. Additionally, delving into innovative shipping options like SIOC (ships in own container) can promote sustainability practices on a larger scale.

Check out our report "Sellers expectations towards marketplaces"

Customer support

Effective customer support serves as a linchpin in driving revenue optimisation for existing marketplaces. The provision of prompt and personalised support not only enhances customer satisfaction but also fosters loyalty, ultimately leading to increased sales. However, for many smaller sellers, this level of service may seem out of reach due to resource constraints.

That is why offering robust customer support channels as a part of the marketplace package can be a game-changer for small business owners navigating the marketplace landscape. Implementing features such as live chat, email support, and dedicated helplines ensures that queries and concerns are addressed in a timely manner. This accessibility to assistance is invaluable for sellers seeking to provide exceptional service to their customers.

Furthermore, proactive communication and post-purchase follow-ups further underscore a commitment to customer care. By offering to reach out to customers after their purchase, marketplaces can take a lot off sellers shoulders and gather feedback to address any issues promptly. This proactive approach increases the likelihood of repeat purchases for sellers and the marketplaces. 

Product listing optimisation

Positioning product optimisation as a service for marketplace sellers can be another highly compelling feature. By fine-tuning product listings, including descriptions, images, and keywords, marketplace owners have the potential to significantly enhance visibility, attract a larger pool of potential buyers, and ultimately boost conversion rates. Employing advanced techniques such as search engine optimization (SEO) and A/B testing further refines product listings to better align with customer preferences and the algorithms of the marketplace platform. Additionally, integrating user-generated content, such as reviews and ratings, fosters trust and credibility among buyers, thereby driving increased sales and revenue growth for sellers.

Conclusions

These days, marketplace business owners need to understand that customers are finicky and can abandon the process at any time. Therefore, it's important to choose not just a pricing model that guarantees consistent income but also guarantee services that are convenient for users. 

When it comes to monetising marketplace businesses, there are many ways to make money. However, it doesn't just stop in looking for one that guarantees profit. You must also find one that's sustainable. To beat the bottleneck of competition in the online marketplace industry, you must be innovative in every approach. While it's important to make money, avoid deviating too far from providing value for buyers and sellers. It's only when users get a sense of value that they become loyal, and it is only through their loyalty that you can get sustained income.

The comprehensive range of services that can be offered by marketplaces benefits both the platform itself and the sellers involved. This collaborative approach fosters stronger relationships, drives revenue growth, and enhances operational efficiency across the platform.

Looking ahead, marketplaces are increasingly embracing the direction of becoming unified platforms. By consolidating services and functionalities, they create a cohesive ecosystem that streamlines operations and ensures a seamless experience for sellers. This trend towards integration sets new standards for collaboration and innovation in the digital marketplace realm, paving the way for sustained growth and success in the evolving e-commerce landscape.