Monetization Strategies for Marketplaces

April 3, 2020

You are making everyone else money – now it's time to look out for yourself.

The weird thing about running a marketplace, especially in the beginning, is that everyone on the platform makes more money than you. When I started MentorCruise and maybe made $100 or $200 per month from the platform, I had mentors on the platform making upwards of $500 every month. That was weird.

I want to show you a few ways to monetize your marketplace, then: taking a commission is not the only way! Some of these are great to experiment with from Day 1, and some more only become a viable option with scale, so hang in there!

Become a Supplier

As a marketplace, you are creating easier access to a certain supply, which wouldn’t have been as easily accessible without it. A key to that are good suppliers, which will in return often make a lot more money than the platform.

The easiest workaround to this is to become a supplier yourself. This has been quite a successful tactic, when looking at the history of some of the biggest marketplaces, since it allows you to:

  • Earn good money as a supplier
  • Fill up the marketplace
  • Experience the product from a supplier view
  • Learn about your customers

This is definitely a Day 1 tactic, and also has allowed me to earn a few bucks on top of the platform revenue by mentoring others myself.

Take a commission

The golden standard is to take a commission. As a marketplace, you are connecting a supplier with a customer, so on whichever side there is a benefit, you would take a commission.

For example, eBay makes it extremely easy to sell products thanks to the network effects, but buying those products is not much different from doing so through any other website, so the fee is often taken as a part of the final sales price.

Airbnb on the other hand makes it extremely easy to book an apartment to stay in and slightly easier for the landlords to rent it out. That’s why the fee for owners is often under 3%, while the fees for customers is usually around 10% or more.

By taking a percentage

A common way of taking a commission is to take a percentage of the sales price. This works usually well, because your suppliers ends up with a bigger check, and so do you. Percentages really depend on how much you, and how much your supplier is offering. For example, Upwork sources all projects and takes care of the application process and charges 20% for that. Airbnb facilitates access to short-term rental, but for a landlord it would be quite easy to source short-term rentals in a more unstructured way, so the fee is a little lower.

By putting a fee on top

The second way to do things is to put a fee on top of what you are going to pay out to a supplier.

For example, at MentorCruise Sessions we promise mentors a certain amount per session that they do, and put a little markup on top for the public display. The difference goes to us.

This is nice because it brings some more flexibility to things. You can experiment with different pricing strategies, enable discounts or promotions, and your supplier still receives their flat fee.

Charge for Access

If you are curating a source of suppliers which is hard to find and hard to get access to, you might be able to get away with charging for access to these suppliers alone. The good thing about this is that you will not have to enable any restrictions on the marketplace, and it turns the marketplace from being purely two-sided to…. one-and-a-half sided?

GrowthMentor is doing this, for example, as they have created a resource of growth coaches, which are usually almost impossible to talk to. Plus, many of these mentors are ready to provide services for free or non-monetary payments (network, exposure). That’s why on GrowthMentor you can pay recurrently for access to the bigger resource, and then use that resource (i.e. schedule calls with mentors) either for free or one-time payments.

If you are in a situation like this, where you are creating access to a unique resource on one side, and have a resource looking for exposure or networking on the other side, this may be suitable.

Scale: Promotion and Exposure Offers

As a marketplace grows on the supplier side, it will get harder for suppliers to get seen, especially if they are looking to build reputation or it’s about a product that is available multiple times on the market.

The most prominent example of this is ebay. As a seller on a global marketplace, you are entering a price and service fight with all other sellers. If you are missing the social proof (reviews) to back yourself up, or it’s simply a product that is more of an impulse buy than something that people search for, then promoting it could be useful.

It gets really interesting in cases like ebay, where promotion leads to a win-win. ebay does not charge the promotional fee, unless the item is sold. The promotions are backed up by data, and on average lead to a x% higher sales price. Makes sense to the supplier, makes sense to the platform.

Maturity: Premium Tiers and Exclusive Access

Especially in consumer marketplaces, navigating a marketplace can quickly become a game. Sellers want to sell the most, get the best ratings. People who are creating courses want to become the best course providers for a skill. Everyone wants to get the best ratings, the most sales, the biggest tips. It becomes competitive.

For platforms, this is interesting, because it becomes crystal clear who your best suppliers are, and who is providing the best service.

This is interesting because it allows you to curate a premium tier, for example for enterprises or wealthy customers who appreciate the added luxury. That’s why Uber Black exists, that’s how Airbnb Plus was founded and how arc is getting access to so many freelancers.

Pricing strategies are probably the thing I am most excited about when it comes to marketplaces in general. Wouldn’t it boring to just charge a recurring fee and be done with it?