Defining Pricing and Monetization for Marketplaces
All you need to know to understand or setup your pricing and monetization model
Welcome to this week's deep dive. This time we will cover marketplace pricing and monetization in detail — a fundamental aspect of ensuring the sustained success and growth of online marketplaces. Whether you are launching a new marketplace or looking to refine the monetization strategy for an existing one, understanding how to effectively monetize your platform is crucial for achieving long-term viability and profitability. If you are a Product Manager working in a marketplace, it is key that you know all the monetization models available and the ones that your company is using (even if you don’t work in marketing).
This article will be especially useful for early-stage or later-stage marketplaces (PMs and founders) that want to increase their effective take rate or introduce alternative monetization services. Let's dive in 🌊
Index:
How Marketplaces Monetize
The Monetization Framework
Marketplace Monetization Examples by Vertical 🔒
E-commerce Marketplaces
Service-based Marketplaces
On-Demand Marketplaces
How to set up your Take Rate step by step 🔒
Setting Up Your Take Rate
Key questions for setting up your Take Rate
How to set up Additional Monetization Services 🔒
Setting Up Your Additional Monetization Services
Key questions for setting up Additional Monetization Services
What about B2B Marketplaces 🔒
Unique Monetization Considerations
Features Distinct to B2B
Conclusion and Key Takeaways 🔒
Recommended Resources & Further Reading 🔒
How Marketplaces Monetize
Marketplace monetization refers to the methods by which platforms generate revenue from transactions that occur within their ecosystem. Common monetization models include take rates on transactions, subscription fees, advertising, and offering additional services. It's essential to choose a model that aligns with the nature of your marketplace and the needs of your users.
Take rate
Fee or % of the transaction value that goes to the marketplace for brokering the transaction between buyer and seller.
It could be buyer-side (the user pays the take rate i.e. fees you pay ordering from Uber Eats) or seller-side (the seller pays the take rate i.e Uber driver paying Uber 20-25% of the revenue from their rides)
Most of the time visible to the customer/user (i.e. you can see the amount that Airbnb or UberEasts is charging per transaction)
Only charged if the transaction was completed
Usually includes services like payment gateways, refunds, fraud, support/help, and others
Key point: the value of the take rate has to be less than the cost + effort for the seller to get the buyer or vice versa (i.e. it’s easier, faster, and cheaper for you to get food from Uber Eats instead of searching for an open restaurant nearby, calling them or ordering online on their site, and managing with them all the potential issues with the delivery or the service)
Additional Take Rate
Subscription fees
Fee per user/family/group paid monthly or yearly in exchange for discounts/premium service/priority/no delivery cost, etc…
It could be buyer-side (the “power users” pay a subscription i.e. Uber One) or seller-side (the “power sellers” pay a subscription for marketing services or being on the marketplace)
Usually includes fee waivers, discounts, and premium services.
Key point: the value of the subscription has to be less than the cost for a user to order a specific number of times in the platform (i.e. if you use the marketplace weekly or even 3 times a month you save money and eventually you can see that value accruing)
Advertising/Promotions (Audience Monetization)
Involves promoting third-party products or services within the marketplace platform.
Typically displayed prominently across various sections of the platform to maximize visibility.
May include flexible ad placement options (only visible for the supplier), allowing businesses to target specific user segments based on behaviors or preferences.
Key point: Advertisements should enhance, rather than detract from, the user experience while providing genuine value to the platform, the advertiser, and the users
Other Services (White-glove services, premium services …)
Encompasses a diverse range of supplementary offerings such as customization options, extended warranties, white-glove services, or professional consultations to enhance the overall user experience.
May include add-on services that complement the core marketplace offerings, providing users with tailored and premium experiences tailored to their specific needs.
Key point: Additional services should align with the overall value proposition of the platform, enhancing user satisfaction while fostering a sustainable and compelling user experience (i.e. InHome delivery service from Walmart enhances the customer experience by delivering the groceries directly into your kitchen with their own staff)
The Monetization Framework
When considering how to monetize your marketplace, it's important to establish a clear framework. One effective framework involves understanding the value your platform provides, evaluating user behaviors, and considering the competitive landscape. This framework helps in identifying the right monetization methods that balance revenue generation with user satisfaction and marketplace growth.
Effective Take Rate = Take Rate + Additional Take Rate
Net Marketplace Revenue = GMV x Take rate + Revenue from other services
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