Which Business Model To Choose To Join The List Of Top Online Marketplaces

Nov 22, 2018 by

Inspired by the most popular online marketplaces’ success, you can’t resist joining the global eCommerce industry. Yes, statistics demonstrate the striking trends:

  • Last year, customers spent over $1.5 trillion on online marketplaces;
  • Taobao gross merchandise value reached $380 billion;
  • Amazon net sales revenue exceeded $177 billion in 2017;
  • More than 50% of online sales take place on the marketplaces.

Consumers love shopping online; they prefer shopping online. So, for every business owner, this is a huge chance to profit.

To start your marketplace properly, you need to make several important decisions. One of the most significant ones is choosing the best business model for your online marketplace. Your revenue will depend on it completely. And there are three essential steps you should take:

  • Find up-to-date information about the most beneficial marketplace business models;
  • Analyze it;
  • Pick the model that fits your business needs.

It sounds pretty time-consuming, doesn’t it? To save your time and efforts, we decided to provide you with the relevant information about the top six business models you may find suitable for your business.

6 Most Popular Business Models for Your Marketplace Business Development

First of all, let us ask you a question. Why have you come here? Why are you interested in this topic? We suppose there are two possible options:

  • you either look for the way to start your own business,
  • or you need reliable information to develop a high-quality solution for your business partner.

These two cases have one significant thing in common. No matter if you are a business owner, business analyst or software engineer, you strive to constantly increase your profit. And this is what the business model is about. This is a set of practices and approaches for monetizing your online market place. This is a set of rules that define how you get your revenue.

And if it’s all clear, let’s proceed with the list of the best business models for your marketplace (in no particular order).

Model 1, Based on Commission

Requiring the commission fee for each transaction is a common case for marketplaces to get revenue. Depending on the type of the marketplace, the customer or the vendor either pays for a product or a service provided. The marketplace calculates the commission.

The commission can be paid either as a defined flat fee or as a percentage from a purchase. Both ways work well but remember not to charge too high fees if you have just started your business.

This model is one of the most popular ones in the modern online marketplace market. Such world-known names as Amazon, Etsy, and eBay use it for their business growth.

Commission Model in Pros:

  • The model is attractive for the customers and sellers as they have to pay a fee only when they get the actual value;
  • You as a marketplace owner have the access to the detailed information of how much money passes through the platform.

Commission Model in Cons:

  • This model requires a powerful start, which means you have to prove the actual value to the users before they start bringing their money to you;
  • It is quite complicated to define the size of a commission: the point is to offer attractive conditions to the users and at the same time make a good profit.

You can choose the commission-based business model if your marketplace is focused on pure retail. Additionally, it is a good choice if you work with small- and medium-priced products.

The model is a bad choice for those who work with expensive items. For instance, if you sell a vintage jewelry on your market place, it would be really hard for you to define a reasonable fee. Additionally, if your business is focused on the niche that involves no monetary transactions, you better look for another option.

Model 2, Based on Subscription Fee

Charging a membership fee is one more way to make a profit from the marketplace. In this case, you charge each provider for using your platform. There are clear reasons for that. Those people find their customers right on the pages of your online marketplace.

If you are familiar with platforms like LinkedIn or Match.com, you definitely know how the model works.

Subscription Fee Model in Pros:

  • The model is known for its great convenience;
  • It is quite easy to implement even if you are unfamiliar with how online marketplaces work;
  • The marketplace revenue doesn’t depend on the vendor’s performance.

Subscription Fee Model in Cons:

  • The marketplace should have enough users to implement this model;
  • You must provide the obvious value;
  • You can’t find vendors without customers and vice versa.

The model is suitable for you if you are an ambitious owner of B2B or B2C marketplace.

But unfortunately, this is not the one-fits-all solution. The marketplace with a small number of users can’t profit from this type of business model. Users see no reasons to join your platform, so they won’t pay you. What is interesting, it is a problem for well-established businesses, too. Even if there are thousands of active users on your websites daily, you still have to actively attract the new ones to increase the profit.

Model 3, Based on Listing Fee

And what if the vendors you cooperate with pay you for each listing they post? Yes, it is quite possible with the listing fee-based business model for the marketplace. This method is especially profitable for advertising platforms. Just take a look at Craigslist or Zomato to make sure this business model works well in particular cases.

Listing Fee Model in Pros:

  • You gain total control over the product listings;
  • You can attract new customers with free services and charge fees for some specific listings only;
  • There is a possibility to combine this model with another one.

Listing Fee Model in Cons:

  • No one will use the platform if a fee is too high;
  • You need to have a big number of users to make an actual profit from this business model.

This model is a great choice if you have the expertise in advertising. However, you can’t use it if there is a need to get an immediate income. It will take time to see the financial results of your efforts with this model.

Model 4, Based on Fee per Each Lead

What is the principle of this model?

  • A customer posts a request on the platform;
  • The service providers bid for the requests;
  • The highest bid wins.

According to this model, the service providers fight for a real customer ready to pay for their services.

Marketplaces like Thumbtack or Star of Service are based on this model.

Lead Fee Model in Pros:

  • This is the best option possible for the consumers and service providers;
  • The bidding can bring a lot of money to your platform;
  • The model provides opportunities for building long-term relations with platform users.

Lead Fee Model in Cons:

  • It is risky to use the model if the fee per lead is too high;
  • There is a risk that a bidder will build the relations with a consumer outside of your platform.

The business model based on lead fees is good for B2C and B2B businesses, but it’s not so popular among C2C marketplaces.

Model 5, Called Freemium

It is hard to implement some of the above-mentioned models if you work only with low-value items. As an alternative, you can offer the set of services for free and require a fee for the extended functionality.

Users love premium accounts and benefits they get clicking on the Upgrade Now button. The fee can be small. If your platform demonstrates the high-quality paid features, users will not hesitate to spend money on them.

Platforms like Peerby and Vayable are based on this model. The platforms offer basic functionality for free and charge fees for better visibility.

Freemium Model in Pros:

  • The model is quite flexible as users can always decide whether they need some particular features or not;
  • It provides a lot of opportunities for reputable businesses.

Freemium Model in Cons:

  • Platform development takes more time and requires the participation of skilled developers;
  • The paid features you provide must be unique as the competition is cruel;
  • The real value must be shown immediately.

This model is hard to implement. Use it if you have are liable software development partner. Besides, you need to have enough time to think through the strategy and good budget for the start.

Model 6, Based on Featured Listings

Many sellers pay for their websites to be shown at the top of Google’s search results page. The same mechanism can be implemented in your online marketplace. This is a great choice no matter what products you work with. At the same time, you should have a good marketing background to use it properly.

Zillow and Freecycle successfully use this model for their marketplaces’ growth.

Featured Listing Model in Pros:

  • It is quite similar to the advertising;
  • It is an attractive opportunity for users.

Featured Listing Model in Cons:

  • You should have many active users on the platform to make this model work for you;
  • You can’t be confident about the quality of the products you promote;
  • Customers usually do not like advertising.

Do you work in a specific niche? Do you sell a particular type of products? Then this business model will be a good fit for you.

Final Thoughts

There is a huge variety of business models you can employ to get the highest profit possible. Considering its own specifics, pros and cons, every model on our list is attractive in its own way for a particular type of marketplaces.

However, you need to make a choice. Take a deep breath and think through your strategy once more. Look through the information we provided one more time. Analyze your business goals and target audience. Find are liable business partner and join the list of the most popular marketplaces in 2019!

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