How to Choose a Startup Marketplace Business Model?

The impressive rise of marketplace websites makes them an alluring endeavor for startuppers. The volume of the segment is expected to reach $1064.90 billion by 2030, while an abundance of remarkable players represent breathtaking profitability and brand value. Thus, Amazon, Alibaba, and Shopify boast a market capitalization of $2,215 billion, $206.09 billion, and $146.29 billion, respectively. Therefore, many entrepreneurs are eager to seize the opportunities of this lucrative segment. 

But how do marketplaces make money?

The crucial step here is selecting a marketplace monetization model. The appropriate approach to profit generation defines the further growth of your organization. The wrong model can fail to attract users, attain resilient growth, and preserve profitability. 

Therefore, it can compromise the general viability of your project. On the contrary, the appropriate model empowers the digital marketplace platform to keep up with market trends, differentiate its offerings, and reinforce expansion.

In this article, we’ll guide entrepreneurs on their path to the model that guarantees a perfect fit to their demands and turns their ideas into rewarding online marketplaces.

What is a Marketplace Business Model?

Before we start delving into the intricacies of the selection process, let’s outline the marketplace business model definition. 

The online marketplace business model implies the way the site produces value for its users and owners including the profit generation methods.

Online marketplace platforms vary by form, commodities, target communities, and beyond. They can deliver services and digital products, target individuals or organizations, and encompass tiny segments or large industries. But whatever their focus is, the ability to prioritize the right marketplace monetization strategies is the cornerstone of their triumph.

So, how to choose a marketplace monetization strategy that would facilitate sustainability and growth?

There are diverse methods applicable to a digital marketplace. Explore them carefully for a wise choice, since it lays the foundation for your startup’s further resilience. Moreover, determine your marketplace monetization model in the early stages of the marketplace platform development, as it affects the website’s feature set and functionality.

Read also: How to Develop an Online Marketplace: From Idea to Launch

8 Leading Marketplace Monetization Models 

Your project can bring revenue in various ways. We’ve compiled a list of marketplace monetization models actively utilized in digital trade and exchange. You can apply them individually or fuse several ones to diversify the sources of your earnings.

1. Commission fee

The commission marketplace monetization strategy implies fees taken for every committed deal. The payment can acquire different forms, including a flat rate, a constant percentage, or a variable commission tied to the transaction’s sum.

Benefits

• Scalability. The larger your marketplace website, the more transactions it will accommodate, and the higher income it will produce.
• Favorable for all users. Either party pays only after receiving value on your online marketplace platform.

Things to keep in mind

• Decide whom and how to charge: sellers, buyers, or both. Take the fees in advance or after the transaction is completed, depending on the commodities your site trades.
• Determine the payment size. The trick is in attaining the proper balance between user appeal and retaining profitability. Explore the competitor’s practices and be prepared to adjust the amount if necessary.

Examples

Amazon and eBay apply the commission fee, charging sellers. This marketplace monetization method works perfectly in their case since these venues grant access to a colossal number of consumers. However, Blablacar takes the commission from buyers, as they primarily focus on captivating more drivers.

2. Listing fee

Another marketplace monetization model is the listing fee which implies vendor’s payments for posting their offerings on the platform. Specifically, each time sellers post a new proposition, they have to make a fixed payment to a venue.

Benefits

• A continual income regardless of the occurring transactions.
• A fixed and small size of listing fees hardly burdens the sellers, but instead allows them to forecast their budget.

Things to keep in mind

Sellers may be unwilling to pay listing fees if they are not confident of selling their commodities in your space. Therefore, your site should demonstrate a clear value to the vendors. A large consumer community would be a solid argument in your favor. 

Because of the lack of trust at the early stages of marketplace development, we recommend combining the listing fee with other online marketplace revenue models. 

Examples

The ad marketplace Craigslist takes selective fees only for ads from specified categories, bringing the largest ROI. Etsy withdraws a fixed listing fee for each piece introduced on the website. Sellers perceive it as a reasonable investment since the site enables access to an exclusive shopper audience.

3. Subscription fee

Under the subscription marketplace monetization option, platform users make regular payments to enjoy the site. This fee can apply to both sides of the trading process.

Benefits

• A subscription fee secures consistent and predictable revenues.
• Users’ costs are fixed regardless of whether they sell or buy within your space.

Things to keep in mind

This marketplace revenue model will pay off only if the users recognize the platform’s worthiness. Therefore, the owners should take care of granting decent value. 

Furthermore, the platform should maintain consumer engagement by actively involving users from both supply and demand sides. Some marketplaces offer a free trial term or justify the payment by granting access to premium content or features.

Another point of concern is retaining user loyalty since if the buyers drop off, vendors may gradually do the same. To keep both parties interested some platforms apply tiered subscriptions or allow price-sharing.

Examples

LinkedIn introduces Premium accounts available at a subscription fee. They offer features like advanced search filters, direct messaging, and information about the viewers of your profile. This approach works as the platform’s audience includes professionals eager to initiate enhanced opportunities for networking and career growth.

4. Sign-up fee

The sign-up fee is the monetization strategy for marketplaces similar to a subscription fee, yet it’s a one-time payment for accessing the website. Its primary purpose is to sort out serious participants, while the fee may include such services as onboarding and verification.

Benefits

• This marketplace business pricing model enables upfront income generation.
• The opportunity to get valuable services covered by the sign-up fee encourages users to join the venue.

Things to keep in mind

Paid access to the site may discourage new users unfamiliar with the platform’s advantages. Therefore, you should clearly convey the marketplace’s exclusive opportunities. 

Another thing that may disturb sellers or buyers is the failure to obtain sufficient ROI. The effective countermeasure is building trust by offering a money-back guarantee, a free trial period, or discounts.

Examples

Airbnb used to charge a one-time professional photography service fee for hosts. TaskRabbit requires service providers (Taskers) to pay a registration fee during the signing-up process. This fee is aimed to shell off non-serious applicants and covers background checks and profile activation.

5. Freemium

Freemium is a widespread marketplace business model that combines two concepts: free and premium. Under this method, users obtain a certain set of options for free, while exquisite functionality comes at a price. 

Thus, vendors may have a restrained number of free listings or uploaded images or post their offerings for free only in specified categories.

Benefits

• No investment is demanded until sellers/buyers recognize their benefit.
• Using the free functionality allows participants to check your marketplace, encouraging them to convert into loyal clients.
• A site owner obtains significant upselling opportunities for converting free users into paid ones.

Things to keep in mind

If you offer paid options, make sure they carry convincing added value. However, you should be prepared for numerous visitors willing to explore the free functionality of your marketplace. 

In the beginning, your returns can be rather unpredictable as it would be hard to forecast how many users would pay for broader opportunities. Finally, you should continually promote your extra services to maintain decent earnings. 

Examples

Shutterstock allows users to browse its library for free. However, access to high-resolution files or exclusive content is available with premium subscriptions or through pay-per-download options. The approach brings fruit since users can explore the platform without investing money, while premium features attract professionals who need extended access.

Houzz grants free profiles for home service providers, while paid plans like Houzz Pro include elevated visibility, marketing tools, and analytics. The model is motivating for service providers as it allows them to start their journey for free and scale with the growing client audience.

6. Lead fee

The lead fee is taken from vendors to grant them access to the prospect’s contacts. Essentially, it resembles the commission fee, with the only difference being that it’s withdrawn only when a vendor seeks direct contact with the client. The lead fee can be charged in different ways, either to reach the lead or after the deal is finished.

Benefits

• The vendors have a clear and attractive value proposition: they pay only for direct interaction with a potential client.
• The owner of the marketplace platform gets predictable income that is not necessarily tied to the deal closure. 

Things to keep in mind

This marketplace platform business model is perfectly applicable in the B2B segment and with service marketplaces. However, there is a risk that a vendor and a buyer will continue their communication beyond the site after conducting the first transaction. To prevent a marketplace leakage, you can set a fair fee or offer auxiliary services.

Example

Thumbtack, a home services marketplace, takes the lead fee from service providers, like plumbers and electricians, for connecting them to consumers who need their expertise. The fee amounts are versatile and depend on the job type, location, and competition. Providers pay for each lead, regardless of the outcome. The lead fee in this case promotes fast responses by service providers and their active engagement in communication.

7. Additional services

As the name implies, the additional services method charges users for auxiliary opportunities. They are optional and add worthiness to the platform’s primary functionality. 

Such services may include marketing and advertising options, payment processing automation, inventory management, shipping, premium account features, training, etc. It reminds the freemium model but offers pay-per-service features without premium subscriptions.

Benefits

• Diversifies the revenue sources.
• Facilitates user loyalty.
• Helps to drive income, since every auxiliary service is subject to an additional fee.

Things to keep in mind

This is one of the marketplace business model examples that performs best when mixed with other monetization approaches. If you operate in a field where extra services, like logistics, are required, you can earn by offering them at an additional price. 

Make sure to attain the appropriate balance between the free and paid options and establish transparent pricing, so that users perfectly realize what they are paying for. 

Examples

Amazon provides the FBA (Fulfillment by Amazon), where sellers can pay extra fees and enjoy Amazon’s warehousing, packaging, and shipping services. On eBay, vendors can buy promotional features like premium listings or featured placement of their commodities.

8. Featured listings and ads

The featured listings and ads model correlates with the additional services and freemium approaches. It involves providing special opportunities, namely increased visibility on the website and the availability of ads for sellers’ offerings. 

Benefits

• Consistent income streams from paid promotions.
• Sellers can obtain greater visibility according to their needs.
• Marketplace owners can extend advertising packages, scaling the model and increasing profits.
• Digital advertising helps to expand reach and make your business thrive.

Things to keep in mind

This marketplace platform business model will best suit businesses that operate in a distinct niche and minimize the distraction caused by ads. Thus, if you seek to deliver a superior experience for your users, ensure relevant ads. Like with the listing fee, the featured listings and ads model is best applicable in fusion with other methods.

Examples

Upwork represents paid featured accounts, with which freelancers can highlight their profiles and occupy higher positions in job searches. Etsy establishes Etsy Ads, where vendors can arrange ad budgets and select which offerings to highlight in search results and product pages.

Choosing Between Marketplace Business Models: Essential Factors 

How to build a marketplace platform that will guarantee a stable income and a flourishing business? Your project should deliver value and secure reliable revenue streams that suit your concept, your market, and your target community.

Here is the breakdown of the fundamental factors to consider when choosing between various monetization models.

Target audience

Marketplaces may focus on individuals, businesses, or combine both. You should identify your segment and explore it thoroughly to discover the behaviors, preferences, needs, and pains of your users.

For instance, B2C marketplaces may favor a mix of a commission fee and a featured listings model because of multiple transactions and vendors’ motivation to increase visibility. B2B platforms may prioritize a subscription model as it provides exclusivity, reliability, and trust that businesses praise.

Industry and niche

Researching your niche is another crucial factor when building an online marketplace. Your approach to revenue generation will depend on which industry sector or sectors you target. 

Thus, marketplaces operating in fiercely competitive segments, like ecommerce, typically prioritize scalability in their monetization methods, choosing commission or ads models to survive in the dynamic environment. 

Niche platforms offering specialized commodities can thrive with a subscription or additional services model by granting ultra-focused solutions.

Potential revenue streams

Custom marketplace development implies exploring various monetization strategies, testing, adjusting, and continually refining your approaches. Examine how prominent players establish and diversify their revenue streams and assess what works best in your industry. Ultimately, evaluate which models align with how users pay and how the marketplace earns.

The commission fee is an excellent method for large product marketplaces. Since the website handles millions of transactions, it ensures resilient revenues by charging a percentage from every sale. Service platforms, in turn, can gain from subscription fees, securing predictable long-term income.

Scalability

Assess the potential monetization options for marketplaces based on how they can scale along with the rising consumer demand. Scaling opportunities will depend on your industry and the target group. 

However, in general, commission models allow for easy expansion since income rises with the number of transactions. Subscription models grant predictable cash flow, though might restrain scaling unless you invent new levels or services. 

Lead fees are a good option for service marketplaces, but elevating demand may impose the need for automation.

Platform administration

Each monetization approach involves specific resource requirements to ensure seamless platform operation. To choose a marketplace revenue model that would operate smoothly with your site, you should carefully consider its resource needs for efficient platform management and user support.

Performance-oriented commission models require reliable tracking and payment systems. If you decide to implement a subscription fee, be sure to regularly update features and content. The freemium method may dictate high marketing expenditures and a dedicated team to support free users and encourage them to try premium offerings.

Technical needs

When building a marketplace platform, consider tech infrastructure and integration capabilities associated with your selected marketplace startup business model. The platform capabilities should fully support the features of the applied monetization method.

Revenue models vary by their functionality. Progressive approaches, such as featured listings and ads, dictate the need for complex algorithms and real-time tracking. If you are constructing a scalable model, include API integrations, CRM tools, and analytics features to keep performance under control. 

If you decide to go with a subscription, listing fee, or other simpler method, your solution should provide straightforward payment gateways and dashboards.

How to Choose a Marketplace Business Model: In Conclusion

Creating an online marketplace is a comprehensive and multifaceted job that requires careful preparation and planning. On your way to constructing a mighty and flourishing platform, make sure to choose a marketplace business model at the very beginning of your journey. Remember that it should perfectly support your concept.

What’s the core takeaway for the selection process?

Examine the revenue generation approaches, consider the fundamental selection factors, and continually revise and fine-tune your strategy.

A partnership with a professional software company will help you to implement your monetization model smoothly and enjoy the most favors. SDA specializes in online marketplace development solutions and builds prominent software products in many industries.

Contact us to craft an exclusive monetization model and make your project truly rewarding.