Digital marketplaces are a long-term initiative. These connect buyers to sellers. While there are various marketplaces online, these often cater to international or national-scale products.
Very few marketplaces are locally based. If you’ve recently taken out a business loan, you can also consider starting an online marketplace. However, the marketplace business model you choose will make a significant difference in your profits.
What is a Marketplace Business Model?
The marketplace business model for online services is very different from that of a business. Since you will not be selling any products directly, you cannot track revenue or sales in terms of units sold. Instead, you’ll have to opt for other metrics like accounts created, subscriptions bought, etc.
This can be explained with the help of an example: Amazon. Amazon is an online marketplace that connects you to different sellers of the same product. However, since Amazon does not have any of their products, they use ‘commission’ or ‘Amazon Prime’ to assess their growth.
Since your online marketplace won’t sell any product that you have made and instead will connect buyers and sellers, you have to rely completely on your users to assess your revenue. Your user base would then be divided into two clear categories: buyers and sellers.
This makes it important to select the right type of marketplace model for your services. Once you’ve launched a digital marketplace for any service, it will take double the time and money to make any changes to the initial model.
This may require you to take out a business loan or even redirect funds from other departments. This means you need to give a lot of thought to which marketplace model you will be utilizing for your business.
Which Marketplace Business Models are Popularly Used?
Once you have built your marketplace platform, there are various methods to generate revenue. These depend entirely on the model you choose. Most businesses opt for one of the marketplace business models given below.
Commission-based Model
This type of model allows you to take a small commission out of each transaction. The commission can be a fixed amount or a fixed percentage of the transaction. This allows you to run a flexible marketplace, and as the popularity of your marketplace grows, so does your profit.
However, the biggest challenge with this model is deciding the commission amount. Low commissions may not yield you profit; however, high commissions may discourage users from signing up.
Membership and Subscription Model
The subscription model allows you to charge both buyers and sellers that want to use your platform. You can use the same subscription rates for both groups, or you can use different subscription rates. This model allows you to charge per month, per quarter, or even on a per-year basis.
However, the biggest challenge in setting up this marketplace is that you need to provide an excellent user experience. Without it, your user may not re-subscribe, and you will lose revenue.
Freemium Model
The freemium model is one of the most utilized models for online marketplaces. It usually includes a small trial, and upon completion, the user needs to sign up to continue availing of the services.
The ‘free’ version usually provides the most basic services to the users, while the premium version provides more authentic features that can ensure a better customer experience.
The freemium model can also be used to limit the seller’s listings (to five or ten). If they wish to add more products to their store, they will then need to subscribe to the premium version. Other types of this model involve limiting features the seller or buyer can use.
Featured Ad Placement Model
The featured ad placement model allows you to charge your sellers to promote their products. Once the seller has created an online store, they will have the opportunity to promote their products by adding advertisements to your homepage, headers, footers, etc.
However, for this promotion, you can charge the seller. Three methods can be used:
- Pay per click (PPC)
- Pay per sale
- Paying for a specified term (ex: 1 week, 3 days, etc.)
This model allows you to be in control of your revenue and promote both your marketplace and your seller at the same time.
Sign-up fee Model
The sign-up fee model is an older, less used but just as successful model. This allows you to charge buyers and sellers a small fee for signing up for the platform.
Once they’ve paid the fees, they can continue accessing the platform free of any cost. Businesses that utilize this model usually don’t charge any other sales commission or subscription fee to the user.
Listing Fee Model
The listing fee model is a rare model used by marketplaces. This model allows you to take a small percentage from every product that is listed on the platform. This model is ideal if you’re setting up a marketplace for expensive products like cars, real estate, etc.
This model cannot be utilized for marketplaces that feature small products because the commission earned is rarely enough to supplement the business. Since the transaction rarely occurs on the platform, you cannot charge any additional commission.
Can You Combine Different Models?
The simple answer is yes. Since you’ve taken out the shop loan, you have complete control over which model you choose and how much you charge your users. However, your fees can make a great impact on the revenue you earn. Therefore, the decision to select a marketplace is not easy.
Each model has its benefits and disadvantages. For example, when you decide to get a Kirana store loan to set up a shop, you often complete detailed background research. Similarly, to set up and select a marketplace business model, you should do thorough research.
If you’re looking for experts who will help you with financial backing as you set up your online marketplace, you should opt for Ziploan. We provide business loans to set up all types of businesses and stores. Visit our website and find a loan for your business!
Apply for Working Capital Loan
Frequently Asked Questions
A Two-Sided Marketplace business model is a platform for economic exchange between two distinct user groups that provide each other with the benefits of a large network.
Vertical marketplace offer products of the same type from various vendors They sell various types of products from different suppliers. The hybrid marketplace has its own products and products from other companies. This gives a platform for participants to complete their transactions.
1) Subscription model
2) Bundling model
3) Freemium model
4) Razor blades model
5) Product to service model
6) Leasing model
7) Crowdsourcing model
8) One-for-one model
Marketplaces make money by charging sellers when someone views, clicks on, or purchases their item, or any combination of these actions, Mela said. Marketplaces must also consider the order in which products should appear in search results, which involves balancing financial gain and the shopper’s experience.
A marketplace is a platform where vendors can come together to sell their products or services to a curated customer base.
It’s when a company sources directly from brands & sellers and stock it.
Market Model: It is merely an online platform connecting buyers and sellers and has no inventory of its own. Inventory Model: The marketplace owners own the products and also manages the complete end-to-end sales process. The inventory of the goods is owned and sold by the e-commerce entity directly to the customers.
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