Running a marketplace can be a very profitable venture. There are numerous ways to monetize your marketplace, and the method you choose will very much depend on what works for your niche, your vendors, and your site’s customers. As your marketplace grows, and traffic and demand to sell on your site increases, the options available to generate revenue will also expand.
In this article, we consider a selection of strategies that you can implement to monetize your marketplace. We will discuss how each approach can make you money, and look at how other marketplaces are already using these strategies successfully. Let’s get started…
Vendor Membership Fees
Charging your vendors a membership fee to sell on your marketplace can be an effective way to monetize your website. This could involve a one-off fee for joining your site as a vendor, or a monthly subscription.
If you opt for a recurring monthly fee, consider providing a number of membership packages to cater for the needs of all your vendors. Plans could differ based on factors like the number of listings a vendor can publish. Or higher priced plans may provide additional benefits like prominent listing space, or priority support.
UK based marketplace OnBuy offers two seller membership packages to vendors who would like to sell products on their site. Let’s take a look at the features these packages provide…
- Standard Seller Package (£19 a month) – Unlimited product listings, support and PayPal seller protection.
- Partner Seller Package (£39 a month) – All the features from the Standard Package, as well as prominent listing positions in search results, homepage deal slots, newsletter featured deals, and more.
By providing a basic and an advance plan, vendors can choose the features and pricing structure that best suits their needs.
This model of monetization will work best if your marketplace is already an established brand with high levels of traffic regularly visiting your site. If your vendors can see the value in adding their products or services to your marketplace, they will be willing to pay to do so.
Freemium Customer Membership Fees
On the flip side to vendor membership fees is the option of charging the customers a membership fee. To understand whether to charge your vendors or customers, you must identify where the demand for your marketplace lies. Are the customers prepared to pay to access the services or products? Or do the vendors need your marketplace to connect with their target customer base? Once it is clear where the demand lies you can charge accordingly.
If you opt to charge customers a membership fee, following a freemium customer membership model can be an effective strategy. This helps you to monetize your marketplace whilst preventing the alienation of those potential customers who don’t want to pay to view.
In this instance, customers can browse and even shop on your marketplace for free, but certain features will be unavailable to them unless they upgrade. This could be access to premium listings, special offers, an ad-free service, and additional app features, to name a few options. By providing core features for free, visitors to your site are likely to become avid customers, leading to sign-ups to your premium membership plan.
A good example of this freemium model is Shutterstock, a high-end online digital image marketplace. Customers can view all the images available to purchase, and buy images in bundles of five. However, if customers want to download multiple images, then signing up to a premium monthly subscription plan is advisable to ensure the best price per image.
Some large marketplaces charge a listing fee for every item a vendor lists for sale on their site. For emerging marketplaces, this isn’t a good strategy, as you want to encourage as many vendors to join your site as possible. But, once your website becomes popular, then charging listing fees can be very profitable.
A great example of this is Etsy. When Etsy was in its infancy, listings were free, to encourage vendors to list their products. However, once Etsy became well known, with large amounts of traffic visiting daily, it introduced listing fees. It now charges vendors $0.20 for each item listed.
eBay also charges a listing fee, or insertion fee as they call it. However, they gift sellers up to 50 free listings each month, or more if you have your own eBay store. These free listings are an effective way to encourage vendors to initially sign up, and to then continue to place listings on eBay.
Another effective way to monetize your marketplace is to charge vendors to place premium listings on your website. A premium listing would be given a key position on your website, making the listing more visible to customers, in comparison to other similar listings.
Featured listing positions could include…
- On the homepage
- At the top of a specific category
- On the first page of search results
- In advertising space in a sidebar of a relevant page
Premium listings can also contain extra information, including larger images, extra text, further social links, and other features to help the listings stand out from the crowd.
Again, Etsy is a good example of a marketplace offering its vendors a premium listing service. Vendors can pay Etsy to promote their listings, helping to highlight the listing in search results.
A common approach used by many marketplaces is to charge a commission on every transaction that occurs. This is often a preferred option for vendors, as they aren’t out of pocket before they have even made a sale.
Transaction fees can be charged as a flat rate or percentage of the sale. Most marketplaces that have implemented this monetization model charge a percentage fee. However, if your market sells big ticket items then vendors will not be happy to pay a huge percentage in commission fees, making a flat rate fee a better option. eBay UK offers a combination of both options, charging a 10% commission fee, which is then capped, ensuring sellers never pay more than £250 per item.
Airbnb charges both hosts and guests a service fee for each booking. Hosts are generally charged a 3% commission fee, and guests up to 20% of the booking subtotal. It is also important to note that Marketplaces selling physical goods instead of services generally charge lower transaction fees. Global giant Alibaba, for example, charges transaction fees of between 5 and 8%.
Advertising on a marketplace works in a similar way to that of premium listings. Vendors, or third-party businesses with products and services related to your site’s niche, can pay to display adverts in prominent positions on your marketplace.
Amazon allows vendors to create adverts to promote their products, brand, and/or store. Although the adverts are all displayed in key ad space, vendors are only charged an advertising fee when the ad is clicked on.
When displaying ads on your marketplace, be careful they don’t interfere with the user experience your site provides. Too many ads, or adverts not in any way relevant to your audience, can cause visitors to become disenchanted with your site, and consequently lower returning visitor numbers.
Final Thoughts on How to Successfully Monetize Your Marketplace
As you can see, there are numerous strategies that you can implement to help you to successfully monetize your marketplace. The monetization model you choose will depend on your niche, and the type of vendors and customers you are dealing with. Remember to look at where the demand is (customers or vendors) and then charge accordingly.
As your marketplace grows, your monetization options will also broaden, and it is important that they adapt with your business to ensure you generate the maximum amount of revenue. So, now you know the options available, which methods will you use to monetize your marketplace?
Looking to create a marketplace? Then check out Vendify, the new community marketplace platform from the clever theme developers here at Astoundify.