Financial Models to Generate Revenue through Online Marketplace
There is no doubt that an online marketplace is a recipe for success in the future. During the pandemic, many businesses ran into major setbacks and losses. Stores and shops were closed indefinitely and that is when the need for an online marketplace soared like never before. But the critical point that makes or breaks the concept of any new venture, is the strategy behind it. One major question arises, what are the approaches and financial models for your online marketplace that would assure low investment and high ROI.
Although it would be an ideal situation to keep Amazon’s and eBay’s as the benchmark, a more practical approach is to follow the patterns of the online marketplaces that are closest to your business abilities and aspirations. However, when you investigate their monetary model, you find out that regardless of the scale, all online marketplaces have carried out very similar solutions.
Here we will discuss some popular models adopted by most online marketplaces.
The Commission model:
This model is one of the most applicable models for all new start-ups and established online marketplaces too (Amazon, eBay, Uber, Airbnb, Etsy). When you run a marketplace with selling fees enabled, you drive a small portion of the transaction from itself, before it reaches the vendor. This can be based on percentages or can be flat as designed.
There are different common payment flows in an online marketplace, i.e., direct payments, aggregated payments and, parallel payments.
The cons of this model are that it is a difficult model to implement. It will also be not a great option if you do not have enough sales. Though it is a preferred model for the consumers as they only pay when they sell.
The Subscription model:
A subscription indulges into selling subscriptions to the seller. Here, the client is charged for accessing and using the platform. The incentive for a membership model offered by the online marketplaces provides a benefit to the end customer. In such models, the online marketplace doesn't top up the transaction, so neither the platform bears the cost nor the end consumer, instead, the seller bears the cost.
Think about it this way. Your customer will quickly accept a small subscription fee (annually or monthly) provided they are making much more $$$ from your platform. It will be a win-win situation for everyone.
The flip side is that it may not apply to all industries.
The Listing fee model:
The listing fee model is when a marketplace charges customers for posting ads or being listed on the platform. This is a very simple method where you can also do the use-as-you-go technique. The customers can upload as many products as possible, and they will be charged accordingly. It will provide flexibility to your customers and hence comfort.
The flip side is that your customer does not have enough products, you do not have much to gain then. And of course, this model is limited to some industries.
You may opt for either one of the modules depending on your industry or your brand awareness. Another way would be to get some expert advice from a subject matter expert, like CEBS.
For more queries about the online marketplace, contact CEBS or get a free customised demo.