How to choose a business model

for your marketplace

Marketplace businesses are

long-term initiatives

Pick a business model

that scales

6 different revenue models

Read the full article

and more articles about marketplaces

on the Free Marketplace Academy

6 revenue models for marketplaces

1. Commission

2. Membership/Subscription fee 3. Listing fee

4. Lead fee 5. Freemium

6. Featured listing and ads

Commission

Commission

Charge a commission from each transaction

Benefits: • providers are not charged before receiving value • usually most lucrative for marketplace owner

Challenges: • providing enough value for provider and customer • setting the right commission

Used by: Airbnb, Etsy, eBay, Fiverr, Uber, Taskrabbit

Membership/Subscription fee

Membership/Subscription Fee

Some or all marketplace users are charged a recurring fee for access to the marketplace

Benefits: • if value is high but facilitating payment is difficult

Challenges: • Chicken and egg problem: how to find providers

without customers and vice versa

Used by: LinkedIn, Studiotime, StackOverflow careers

Listing fee

Listing fee

Some or all marketplace users are charged a recurring fee for access to the marketplace

Benefits: • if providers have no need for ongoing subscription

Challenges: • doesn’t guarantee value for providers so low fee • needs very large amount of listings to be profitable

Used by: Mascus, Etsy, Craigslist

Lead fee

Lead feeProviders are charged for each lead generated

Benefits: • better value proposition for providers, “no cure no

pay”

Challenges: • only works if value of lead is high • once relationship between lead and provider is set,

value leaves marketplace

Used by: Thumbtack

1. Start building your audience

Freemium

FreemiumFree basic experience, with premium offerings (such as insurance & delivery).

Benefits: • no initial threshold for using platform, easier to gain

mass usage

Challenges: • Difficult to offer premium services that tempt a good

portion of users, otherwise not sustainable. • requires high volume of users

Used by: Peerby

Featured Listings & Ads

Featured Listings & AdsListings are free, but being featured is paid.

Benefits: • no initial threshold for using platform, easier to gain

mass

Challenges: • requires mass of users • conflict of interest, ads are usually a hindrance to

users

Used by: Zillow, Freecycle

Mixing revenue models

Mixing revenue modelsMost modern successful marketplace employ different revenue models at the same time.

Generally, owning the transaction is the best option:

• scalable • revenue from all purchases through the site • low risk, high value for providers

Supplementing this with other revenue streams can be very lucrative. Etsy uses both commission and listing fee. Mascus combines listing fee and premium services.

How to choose yours?

Choosing a business modelFinding the right business model is mostly trial and error.

• Start with one, to avoid diverting focus.

• Be prepared to change it.

• Once growing, combine multiple revenue streams.

Read the full article and more articles about marketplaces

on the Free Marketplace Academy

Build your own marketplace at sharetribe.com