Build a Profitable Online Marketplace with the Right Marketplace Business Model
Many entrepreneurs have realized the immense potential of an online marketplace. Rather than building a marketplace from scratch, it is best to choose a feature-rich multi-vendor marketplace software. That will enable you to get the marketplace up and running within no time. However, before you start your marketplace you should have your business model in place. That will determine the success or failure of the marketplace.
There are several types of marketplace business models and understanding each model will help you make an informed decision. Here are a few most commonly used business models for an online marketplace.
As the name suggests, in this business model, you collect a flat fee from the sellers who want to sell their products or services via your marketplace platform. It is one of the most uncomplicated business models.
You can charge the sign-up fees before you have a flourishing marketplace. Of course, you would have to convince the sellers to join your platform. Otherwise, you can offer them a deferred fee payment option that they can pay after making their first sale. If your business idea is good, most vendors you approach will be more than ready to pay a small amount as a joining fee. Just make sure that the fee is affordable and vendors realize the benefit of being on your marketplace platform.
Subscription-Based Business Model
This marketplace business model will generate recurring payments and could be a good option if you are looking for steady revenue generation each month. Rather than charging a large sum, you can easily break up the amount that sellers pay you monthly for using the online marketplace platform. This will ensure a steady cash flow each month that you can use to improve the marketplace after getting feedback from the vendors and buyers.
The key to a successful subscription-based business model is providing value to the vendors. You can offer them a trial period before the subscription hits in. That way, the vendors can test the marketplace and if they like what they see, they will continue selling on your platform. The subscription rate will be dependent on the industry. So, it is advisable to do your research before you implement this business model.
Product Listing Fee
On a two-sided marketplace, this is one of the most common business models. This is considered the apt business model for a marketplace that offers one-of-a-kind products or is unable to process transactions. It is easy to implement and you will not have to create convoluted payment options. You can charge a flat fee for listing products or services or you can charge a variable amount based on the number of products the vendor wants to list.
The fee is collected just once for each product and thereafter the vendor does not pay unless they list a new product. The key is to convince vendors why they should pay to get listed on your platform. Of course, this business model will not be the right one for a new marketplace as you will not have the traffic to convince sellers to collaborate with you.
This is the most ubiquitously used marketplace business model. Here, you earn a certain percentage from each seller when they sell a product. How you collect the money from the seller will depend on how kind of payment flow that you implement in your marketplace. The payment can go directly to the seller and then your share is disbursed weekly or monthly. Or, your platform collects the payment and then deducts your share and transfers the balance to the vendor. The last method is to get the payment processor to divide the amount between your marketplace and the vendor.
You can have different sales fees for different sellers. For instance, you can charge a higher percentage to power sellers and a lower amount to the rest of the sellers. This business model can be a little complicated to implement but if you do it right, you should be able to generate a steady cash flow each month.
Payment Processing Fees
This is a great business model if you are rental marketplace software or your vendors offer subscription-based products or services. Here, you can charge a fee for processing payments across your marketplace platform. When you do this, you will own the transactions and it has the potential of raking in a lot of money for your marketplace platform.
Vendors may not be happy about paying a payment processing fee but if you can convince them, you will be able to make a significant amount. Just remember that you need to sort out the technicalities of implementing this business model, and it should be implemented when you decide to scale your business. That is when it will yield the right results.
Sponsored Products and Profiles
If your marketplace has good traffic, you may want to implement this business model, where you charge the sellers for promoting their products or profiles. Many sellers will like this model as it provides them exposure and visibility and they do not have to worry about getting lost among the hundreds of other vendors.
You can charge vendors an amount for featuring their best products on your homepage and at the checkout page, or you can place banners and ads on the homepage or selected webpages. This can increase sales for the seller and they will have no qualms about paying for it. Remember, this business model will work only if you have substantial traffic as listing specific products and seller profiles makes sense then. Just make sure that any product you promote or recommend should be of high quality. Otherwise, it will reflect poorly on your marketplace.
Ads from Third-Party Advertisers
Rather than promoting your sellers, this marketplace business model enables third-party sellers and brands to advertise their products or services on your marketplace platform. You will have to create ad placements on your marketplace and charge advertisers based on the placement they choose.
There are different payment models that you can choose from. Some of them include cost per impression, pay-per-click, cost per period, and cost per post. Just remember that if you add third-party ads on your site, your visitors will be leaving your marketplace when they click on the ad. That could mean a loss of revenue. So, weigh the pros and cons of this business model before you decide to implement it.
These are some of the marketplace business models that you can implement on your platform to generate revenue. Remember, most of these models may not be apt for new marketplaces that are just starting out but if you plan these models carefully and prudently, you will be able to generate a steady flow of revenue within no time even if your platform is new.