When you start an online marketplace, it is important to have the right business model in place. These marketplaces have immense potential to thrive and flourish and ensuring you choose the right business model in place will make sure that your business is a success from the word go.
While there is a range of marketplace business models, it is prudent to spend time understanding each model so that you can choose the right one. Here are some of the most popular models that you should be aware of:
Fee for Listing Products
This is a common business model for marketplaces that offer unique products. It is also the right choice for marketplaces that do not want to process payment transactions. Not only is this model easy to implement but you will also save yourself from having a complicated payment option. It has a straightforward payment structure wherein you charge a flat fee for listing the products on your platform. Alternatively, you can charge a variable amount depending on the number of products each vendor wants listed.
In this marketplace business model, your platform receives a one-time payment when a vendor lists products. The next payment will occur when new products are listed. This business model can be challenging for new marketplaces as you would need to convince vendors of the benefits of listing products on your platform. Remember, if you do not have a high volume of traffic as is the case is with a new marketplace, onboarding vendors will be tough.
Sign-up Fees Model
Here, vendors pay you a fee when they register to sell their products. It is considered a simple business model and even a new marketplace can use it. The key lies in convincing potential sellers to sign-up but thankfully, there are ways to attract vendors without a problem.
You can incentivize sign-ups by deferring the fees until the vendor or seller makes their first sale. If there is potential for your marketplace, you should not have a problem attracting sellers to collaborate with you and pay the sign-up fee. Remember to keep the fee affordable and ensure you provide value to potential sellers.
This business model ensures you get recurring payments from vendors each month. Instead of charging a large one-time payment, you break it up into multiple small payments that your site levies each month. It not only makes it attractive for sellers but it can also ensure your marketplace generates a steady flow of revenue.
Remember, sellers will be attracted to this marketplace only if they perceive value. So, to make it more attractive, you can provide vendors with a trial period that enables them to test out the marketplace and its features before you start charging them the subscription fee. You can use feature-rich multi vendor marketplace software to ensure that sellers like what they see and will not leave your marketplace. However, you cannot use this business model for every industry. So, it is a good idea to research the industries you want to cater to before you use this model.
Fees for Sales
This model is, perhaps, one of the most commonly used business models in today’s online marketplaces. The marketplace earns a specific percentage from the seller when they make a sale. You can ensure that you implement the payment flow through your marketplace so that you can deduct your share before you transfer the remaining amount to the vendor. Or, you can invoice the vendor weekly or monthly to credit the payment to you.
You can create a tiered payment model, wherein your charge power sellers more than you would charge other vendors. Of course, you should weigh all the pros and cons of this business model before you implement it. If done correctly, you will be able to generate steady revenue each month.
Lead Fee Model
This model is primarily used in B2B and B2C marketplaces. Here, the sellers pay you when you get them in touch with prospective customers. It is a great way to choose quality sellers and ensure the credibility of your platform. It offers more value to vendors as they get access to potential customers with whom they can forge a lasting relationship that generates more than one sale.
This model comes with its own share of risks as once sellers build a relationship with customers, they move outside the marketplace and continue their association. Should this happen, it will deprive you of a lead fee as the seller may claim that they did not make a sale through your marketplace. So, it is prudent to consider this business model carefully before you decide to implement it.
Fees to Sponsor Products and Profiles
A marketplace that has sizeable traffic will benefit from this business model. Rather than charging vendors an outright fee, you charge them to promote their products or profiles. This is a good way to generate revenue if you are using rental marketplace software. When you have a significant volume of traffic, vendors would be more than happy to pay your platform to get exposure. It allows them to stand out in a crowded marketplace and get noticed by potential customers.
You can feature the best products on the homepage or place banners and ads on the homepage and/or specific webpages. Doing this will boost the seller’s sales and once that happens, they will be more than happy to pay your platform. Without substantial traffic, this business model will fail. Also, if you are using this model, ensure that you focus on vendors who offer high-quality products. Otherwise, it will ruin the reputation of your platform as your marketplace will be held responsible for poor quality.
The Bottom Line
These are some of the most commonly used business models. As you may have realized that most models are designed for marketplaces that already have a presence online. However, with the right planning, you can easily tweak some of these business models to suit the needs of a new marketplace. Remember, sellers and vendors will collaborate only if they benefit or perceive value. That is what you should look to be doing and creating with the help of a good marketplace software that can be customized to provide a feature-rich experience to all the stakeholders.