To build a sustainable and successful marketplace platform, you need to find a business model that will finance its operations.
If you are running a non-profit or a hobby project, funding the development and maintenance of the site can be done through donations or from your own pocket. However, in most cases, funding eventually needs to come from the community you are serving—the users of your site.
One of the most common reasons why startups fail is that they pick a business model that does not scale to ensure long-term sustainability.
There are six different marketplace business models that most online marketplaces use:
- Membership/subscription fee
- Listing fee
- Lead fee
- Featured listings and ads
In this article, we review the different options for revenue streams and help you choose the right marketplace business model for your marketplace idea.
The 6 most common marketplace business models
1. Commission: The classic marketplace model
The most popular revenue model for modern marketplaces is to charge a commission from each transaction. When a customer pays a provider, the platform facilitates the payment and charges either a percentage or a flat fee.
The biggest benefit of this revenue model is that providers are not charged anything before they get some value from the marketplace. This is really attractive to the providers. At the same time, from the marketplace's point of view, this model is usually the most lucrative: you get a piece of all the value that passes through your platform. The best-known marketplace platforms—like Airbnb, Etsy, eBay, Fiverr, TaskRabbit, and Uber—all use commissions as their main business model.
The biggest challenge in getting the commission model to work is to provide enough value for both the customer and the provider. If your users do not get enough value from your platform, they will find a way to go around your payment system, and you will not get paid. How do you provide this value? We dive into the question of how to discourage users from going around your payment system in chapter 4 of this guide.
Another challenge with the commission model is pricing. How big should the commission be? Should it be the same for all users? Should I charge the customer, the provider, or both? Should I first have a lower commission to get people to join my platform and raise it later? Chapter 5 helps you decide your marketplace pricing: how much commission or other fees you can charge your marketplace users.
My recommendation is to use the commission model as your main revenue stream whenever feasible. I anticipate more and more marketplaces adopting this revenue model in the future.
There are, however, scenarios in which it is not feasible for the platform to facilitate payment transactions. In these cases, the commission model does not work. Examples include:
- When the size of the typical transaction is huge. With car or real estate sales, for instance, it's difficult for the marketplace to justify the commission.
- The marketplace has lots of different types of offerings. It becomes impossible to design a transaction process that provides value for all of those cases. Traditional classified ads are a good example of this.
- The invoicing process is too complex for the marketplace to facilitate. This is common in business-to-business (B2B) and some business-to-consumer (B2C) marketplaces.
- Money is not exchanged at all on the platform. For instance, if the marketplace is about dating, finding people to hire, bartering, or sharing something for free, there's no monetary transaction involved and thus no way to charge a commission.
In these cases, you need a different type of marketplace business model.
2. Membership fee or subscription fee: Monetize engaged marketplace users
A membership fee (sometimes called a subscription fee) is a revenue model where either some or all of a marketplace's users are charged a recurring fee to access the marketplace. With this model, the typical value proposition for providers is that the platform helps them find new customers. For customers, it helps them save costs or find unique experiences. The membership fee is a good choice if the value you provide is high and a typical user will engage in several transactions, but facilitating payments is challenging or impossible.
Typical examples of consumer-to-consumer (C2C) marketplaces with membership fees are home swapping sites (Love Home Swap, Home Exchange) and dating sites (OkCupid, Match.com). Oftentimes, these sites vet all the subscribers in order to guarantee quality matches and create a sense of exclusivity that justifies the fee.
In the B2C market, the membership model is common in recruiting. For instance, LinkedIn and StackOverflow charge companies a subscription fee to get access to their talent pools. Studiotime, an "Airbnb for record studios", is an example of another niche where membership fees work as the main business model. With B2C companies, the platform is typically free for customers but requires a paid subscription for providers.
A membership fee can also be a good initial business model for B2C marketplaces that eventually want to charge a commission but don't yet have the tools in place to facilitate transactions in their particular niche. Venuu, an "Airbnb for event spaces", started with the membership model in order to get revenue upfront, even before launching their site. Later on, when they had validated their business plan and had the resources to build an invoicing system, they moved to the commission model—a revenue model that was much more lucrative for them.
The challenge with the membership fee model is that it makes the "chicken and egg problem"—how to find providers without customers and how to find customers without providers—even worse. You need to have enough users on your platform to make it valuable for both providers and customers, and a mandatory payment discourages users from signing up. One way to get around this is offering heavy discounts for early adopters or even lifting the fee completely to build the initial user base.
3. Listing fee: The classifieds marketplace model
Some marketplaces charge a fee from providers when they post new listings. This model is typically used when providers get value based on the number of listings they have on the site, and the potential value per listing is big.
This marketplace business model is quite common with classified ads. The value proposition of the website is really simple: it aggregates a massive volume of listings to a single online destination and guarantees lots of visibility for those listings. Classified ad platforms typically don't even try to facilitate the transaction.
Perhaps the most well-known example in this category is Craigslist. It is a collection of local sites where people can post listings about anything they want, whether it's about selling goods, services, jobs, finding an apartment, dating, or something else. Generally, posting a new listing to Craigslist is free—this is how they managed to reach critical user mass—but in certain categories (namely, job and apartment listings in some cities), they charge a fee for each listing.
It can sometimes be useful to use several business models on the same site. For instance, Etsy is an example of a B2C marketplace that uses the commission model but also charges a fee to post new listings. Etsy's reasoning for this is likely that its liquidity (the probability of a certain item being sold) varies a lot. While there are some hugely popular items on Etsy, most items probably never get a single sale because Etsy's total volume of listings is massive. By using both the commission model and the listing fee model, Etsy gets revenue from both popular and not-so-popular items.
A listing fee is better than a membership fee in cases where providers don't want a continuous subscription and only want to sell certain items. This is the case with Mascus, a B2B classifieds site for expensive machinery.
The challenge with the listing fee model is that it doesn't guarantee value for providers, and thus the fee cannot be too high. This results in the platform being able to capture only a relatively small portion of the value going through the site. A sustainable business model that depends solely on listing fees thus requires a very large volume of listings. Additionally, since paying a listing fee does not guarantee that the item is sold, the marketplace will have a harder time proving that it provides actual value to its providers.
4. Lead fee: Generate revenue through introductions
Lead fees are somewhere between the listing fee and the commission models. In a typical lead fee model, customers post requests on the site, and providers pay in order to make a bid for these customers. The model gives a better value proposition than the listing fee model: you only pay when you are put in touch with a potential customer.
The lead fee model only works if the value of the lead is high. For this reason, this model is not common in C2C marketplaces. A typical use case is B2C or B2B services, where each new lead can lead to a long-lasting customer relationship with multiple deals. A recent well-performing example of this model is Thumbtack, a B2C marketplace for all kinds of local professional services, from plumbers to guitar teachers. In 2021, the company was valued at more than $3 billion.
However, while Thumbtack has been doing well with the lead fee model so far, their problem is that the providers no longer use Thumbtack with existing customers—instead, they build the relationship outside the platform once they have the lead. This is why Thumbtack decided to build invoicing, payment, and scheduling tools for professionals. In the future, they may move towards the commission model to extract more value from the transactions they help facilitate.
5. Freemium: Charge for additional features and services
How can you monetize a marketplace where people share low-value items for free? The Dutch startup Peerby has built a C2C platform where people can borrow things from each other at no cost. The basic experience is free for all the users of the platform. Peerby has decided to monetize by offering premium services. They have two main offerings: insurance (the provider can request that the customer while getting the item for free, pays an insurance fee that guarantees the item will be replaced if it is damaged or stolen) and delivery (the customer can pay a small fee to get the item delivered to their door instead of having to go pick it up from the provider).
The logic behind the freemium model is that the core offering is free, but after you get your users hooked, you offer paid value-adding features. The challenge with this model is that these paid services need to provide enough value to be tempting to a good portion of your users. If only 1% of your users are interested in your premium offering and everyone else uses your site for free, it's probably not enough for a sustainable business model. Coming up with a premium service that is interesting for a wide enough audience can be very tricky. Because of this, many platforms use premium services as additional revenue streams. For example, Mascus offers premium web page services to its customers to complement its listing-fee-based business model. Etsy complements its transaction and listing-fee-based model by offering premium services like direct checkout, listing promotion, and shipping labels to its power sellers and has recently seen strong growth from this revenue stream.
In some cases, a marketplace can start offering premium services as an add-on but eventually shift its entire business model to focus on the paid services. Vayable started as a pure peer-to-peer marketplace where individual people offer unique experiences to others, but after failing to get enough traction, it decided to pivot to build a concierge service for custom vacations. The downside of this approach is that premium services are often a less scalable option when compared to the pure commission model. This is often due to the amount of staff that is required to provide the premium services. Vayable only made the shift because they were not able to get the commission model working well enough.
6. Featured listings and ads: Leverage visibility on your marketplace
Featured listings are a way for providers to buy more visibility for their offerings. If this model is used, listing on the site is typically free, but providers can pay to have their listing be featured on the homepage of the site or at the top of a certain category. An example of this model is Gumtree, UK's most popular classified ads website. Etsy provides featured listings as one of its premium services.
This marketplace business model is relatively close to pure advertising models—ones where you show ads (such as Google AdSense) to your users. Featured listings and ads are both popular revenue streams for classified ad sites. They are often seen on real estate marketplaces (like Zillow) or free sharing platforms (like Freecycle).
The challenge with these models is that, again, they require a significant amount of users to generate meaningful revenue. When you're in the business of selling eyeballs, the revenue you generate per user is likely a lot less than if you can extract value from your transaction process. Moreover, when you're placing ads on your site, you're serving two audiences with conflicting interests: from a user experience point of view, ads are almost always a hindrance, and your users would generally be happier without ads. If you want to offer the best possible experience for your users, this business model is not your best option.
Ad-based models work best when you have a really specific niche, and there are commercial providers that are interested in tailoring their offering for that specific audience. For instance, Häätori, a Finnish wedding marketplace for used wedding dresses, lets individuals use the site for free. They monetize by allowing wedding planners, photographers, and other providers of wedding-related services to buy ads on the site. The content of these ads is very relevant for the users of the website, making them less annoying.
Which marketplace business model should you choose
Modern marketplaces employ many different business models. In general, the best revenue model for most is to "own the transaction" and charge a commission from all purchases made through the site. This approach is very scalable and oftentimes quite lucrative.
However, in some cases, the commission model does not make sense, so alternative models are needed. Trying out multiple business models to find the best option for your concept might be a good idea. In the beginning, you should have only one revenue stream in use at a time to avoid diverting your focus. Eventually, when your platform grows, it might make sense to combine several revenue streams to build a marketplace business model that takes into account everything that is happening on your site.
For more useful definitions of marketplace terms, from business model to market structure concepts, visit our marketplace glossary!
Build and launch your fully functional marketplace in one day — without writing a line of code!How does a marketplace make money? ›
In a commission model, the firm receives a fee for every completed sales transaction. Both can comprise variable and fixed fees. The advertising model builds on fees that are paid for an opportunity to access potential customers by firms that are not direct users of the marketplace.What is the business model of a marketplace? ›
It describes the manner in which a product or service is created, how it's sold, who it's sold to, the products' profit margins, and how the business is competitive in the marketplace. Though they aren't the same, a business model is similar to a business plan.How does B2B marketplace make money? ›
Most of the marketplaces charge a commission from the transactions on their platform. However, this business model is lucrative only when your platform facilitates the cooperation between service provider and customer. Users will pay a transaction fee if they get a lot of value from what you offer.Is sharetribe open source? ›
Sharetribe Go is not technically open source, but its source-available license is very similar to the common MIT open-source license. The source code can be used and modified for free to create an online marketplace business.How do online sellers make money? ›
- Start dropshipping. → Click Here to Launch Your Online Business with Shopify.
- Try print on demand.
- Make money with affiliate marketing.
- Start a YouTube channel.
- Become an influencer.
- Create an online course.
- Publish an ebook.
- Start a blog.
With the commission model, a marketplace gets money from each transaction it processes on the platform. You can charge either the seller, the buyer, or both, collecting either a percentage from each deal or a flat fee. The commission model is one of the most widespread.
- Business-to-business marketplaces. A B2B marketplace connects organizations (consumers) with other businesses (vendors), for instance, retailers, wholesalers, or manufacturers to purchase from them. ...
- Business-to-consumer marketplaces. ...
- Peer-to-peer marketplaces.
A two-sided market exists when both buyers and sellers meet to exchange a product or service, creating both bids to buy and offers (asks) to sell. This can occur when two user groups or agents interact through an intermediary or platform to the benefit of both parties.What is marketplace model and inventory model? ›
Market Model: It is merely an online platform connecting buyers and sellers and has no inventory of its own. Inventory Model: The marketplace owners owns 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.
Establish trust with KYC services
B2B marketplaces should consider doing background checks on nodes on both sides of the marketplace so that you can establish trust in your brand. Trust is key. In the last 6 years, KYC (know your customer) companies have become more available and make it easier to do this.
B2B marketing is the way businesses generate demand from other businesses for their products and services. Just like B2C (business to consumer) marketing, B2B marketing includes many types of content, and it can take place across multiple online and offline channels.What is an example of a B2B marketplace? ›
You could probably correctly guess that Amazon Business would be a great example of a B2B horizontal marketplace. The company sells everything from office supplies to IT products, industrial supplies, and wholesale purchasing. And it doesn't pigeonhole itself in any one industry — it's a jack of all products.What is the easiest marketplace to sell on? ›
- Shopify. Shopify is the easiest and most reputable way to create your own store. ...
- Amazon. ...
- eBay. ...
- Handshake. ...
- Bonanza. ...
- Ruby Lane. ...
- Etsy. ...
Amazon.com is leading the global e-commerce market, with a revenue of US$131,019 million in 2021 worldwide, followed by jd.com with US$118,515 million. Third place is taken by apple.com with a revenue of US$51,950 million.Is sharetribe flex free? ›
Your Flex marketplace is free to develop. Monthly fees apply only once you're ready to invite your first real users in. Flex's monthly fee consists of a subscription fee and a transaction fee that is based on your monthly transaction volume.What is sharetribe Flex? ›
Sharetribe Flex is a complete solution for building a powerful online marketplace for rentals, services, events or experiences. Flex provides you with all the necessary marketplace infrastructure out of the box.What is cocorico marketplace? ›
Cocorico is a web-based open source marketplace solution world's first solution specifically designed for selling services and rentals online for companies around the world. Companies often sell services via marketplaces - think Blablacar, Fiverr, AirBNB etc.How do I grow my marketplace? ›
- HARDEST SIDE FIRST. ...
- NICHE AND REPEAT. ...
- SUBSIDIZE THE VALUABLE SIDE. ...
- INFLATE THE SUPPLY-SIDE WITH AUTOMATION. ...
- BUILD SUPPLY/DEMAND AS AN EMAIL LIST. ...
- HOST MEETUPS. ...
- BUILD A SAAS TOOL. ...
- GIVE SOFTWARE TO THIRD PARTIES WITH DEMAND/SUPPLY ACCESS.
- Find a great marketplace idea and validate it.
- Choose your marketplace business model and pricing level.
- Build your Minimum Viable Platform (your marketplace MVP).
- Build your initial supply.
- Launch your marketplace to the first customers.
- Track your key metrics and grow your business.
- Choose a Viable Industry.
- Define Your Unique Value Proposition.
- Assess Your Market Size.
- Design Your Distribution Model.
- Choose The Right Business Model and Assess the Economics.
- Build a 10x Better Product.
- Build Trust on Both Sides.
- Safeguard & Grow Your Realm.
- Jewelry. Yes, jewelry is still among the best things to sell that make money online. ...
- Watches. ...
- Your wedding dress. ...
- Baby items. ...
- Home décor items. ...
- Holiday decorations. ...
- Furniture. ...
- Handmade items.
- Deliver food with DoorDash.
- Dog sit and dog walk with Rover.
- Do projects on HomeAdvisor.
- Resell on eBay.
- Sell your own products on Etsy.
- Start freelance writing for blogs.
- Create an online course.
- Build a podcast following.
- Pick up freelance work online. ...
- Test websites and apps. ...
- Pick up tasks on Amazon's Mechanical Turk. ...
- Take surveys for money. ...
- 5. Make money from your blog as an affiliate. ...
- Sell your wares on Etsy. ...
- Get advertising revenue from your blog or YouTube channel. ...
- Become an Instagram influencer.
In short, the online marketplace is an eCommerce platform where sellers offer their products for sale, while buyers can purchase products from multiple different sellers. The marketplace handles all the payments and can generate its own revenue by collecting fees.Do multi vendor marketplaces make money? ›
Many popular multi-vendor marketplaces earn a good amount of money by charging minimal sign-up or registration fees. However, vendors have to make a small payment when applying to sell their products through your marketplace platform.Can you really make money with eCommerce? ›
It doesn't matter whether you're looking to earn $10,000+ every month, or you're just trying to save up some extra cash for a rainy day. As long as you're running your ecommerce business effectively you'll be able to reach whatever financial goals you set for yourself.What are the 3 types of marketplace? ›
Marketplaces fall into three main categories when grouped by their target audience: business-to-business (B2B), business-to-customer (B2C), and peer-to-peer (P2P), sometimes referred to as customer-to-customer (C2C). Let's look closely at each type to learn its concept, business models, and common challenges.What are the four 4 types of e-marketplaces? ›
- Independent e-marketplace. An independent e-marketplace is usually a business-to-business online platform operated by a third party which is open to buyers or sellers in a particular industry. ...
- Buyer-oriented e-marketplace. ...
- Supplier-oriented e-marketplace. ...
- Vertical and horizontal e-marketplaces.
Food delivery marketplaces are a common example of three-sided marketplaces, in that they are comprised of restaurants, delivery drivers, and consumers. Multi-sided marketplaces are often harder to get off the ground because they need to acquire and retain additional sides of the marketplace.
Instacart has a four sided marketplace because they have the retailer who is actually accountable for the inventory and pricing and content. They have the in-store shopper, which is the gig worker, picking up the delivery. The customer. And also brands who advertise on that platform.How do you grow a two-sided marketplace? ›
- Choose a Niche. ...
- Start doing things that don't scale. ...
- Build a community. ...
- Create content. ...
- Preserve and don't give up.
Inventory Model– This is when a marketplace e.g. Amazon, sources volumes of inventory from brands & sellers and stocks it in its own warehouse. The e-commerce marketplace owns the inventory and sells it directly to the customers, managing the logistics and every aspect involved in the e-commerce business.Is Amazon a marketplace? ›
Amazon Marketplace is an e-commerce platform owned and operated by Amazon that enables third-party sellers to sell new or used products. Using Amazon Marketplace, third-party sellers gain access to Amazon's world-wide customer base.What is a marketplace e-commerce entity? ›
An e-commerce marketplace entity means an e-commerce entity, which provides an information technology platform on a digital or electronic network to facilitate transactions between buyers and sellers.How do I log into sharetribe? ›
To log in and access your marketplace, you have to go to your marketplace subdomain and log in there. If you don't remember what subdomain you have chosen, please check your email inbox for the Welcome to Sharetribe email that we sent to you after you validated your email.What is cocorico marketplace? ›
Cocorico is a web-based open source marketplace solution world's first solution specifically designed for selling services and rentals online for companies around the world. Companies often sell services via marketplaces - think Blablacar, Fiverr, AirBNB etc.