Getting the revenue model right is one of the first things you need to think about when starting an online Marketplace. The big players in the online marketplace industry, for example, Amazon or Etsy,  have each adopted a different strategy of pricing in order to surpass their competitors, in the end, to be as attractive as possible to their target vendors. 

The core of getting the revenue model right is creating value and tapping into your seller's priorities.  For example, some sellers want to focus on getting exposure as a new brand and reach as much traffic as possible.  Other vendors, would like to focus on stability and a low-risk solution. 

In this article, we are going to break down some of the most popular revenue models in an online marketplace and dive deeper into their pros and cons. 

Commission-based model

The commission-based model is one of the most popular revenue models due to its simplicity. Some of the most popular online marketplaces such as Amazon or Airbnb use the commission-based model.

Advantages

It is a great solution for online marketplaces of all sizes. Whether you are a startup or a well-established company, This Revenue model offers transparency of pricing and low risk. As a new online marketplace, this Revenue model solves the problem of investment risk because users only pay, when their item is sold. 

Challenges

The challenge that comes with the commission-based revenue model is the risk of marketplace leakage. If vendors do not see enough value in the online marketplace, they might choose to pursue their customers directly. 

In order to succeed in the commission-based model, your online marketplace platform should offer clear benefits for your vendors, for example, automation of the ordering process,  facilitating the delivery,  having excellent usability, and an aesthetic design.

Subscription model

This Revenue model is based on a fixed regular fee to access the platform collected on a weekly or monthly basis by your marketplace.

Advantages

As a startup, this Revenue model is great as it allows you to forecast your monthly revenue. It does not come with as much risk as to the commission-based model.  It is also a good way to filter your vendors and attract sellers that are in line with your concept, as they are the ones who will be willing to pay a monthly subscription. 

Challenges

The biggest challenge with this Revenue model is getting enough customers to commit to a monthly payment.  You need to make sure to provide enough value for your vendors to see the benefit of investing a fixed amount. This challenge can be resolved by offering free trials,  discounts on the first month of subscription,  or a money-back guarantee. 

Freemium model

This Revenue model offers both free and premium features. Usually starts with a free subscription, which then can be upgraded by the vendors For an additional fee. 

Advantages

This is a great solution for a marketplace that is looking to expand its customer base and quickly access new leads.  It is easily accessible and helps with gaining trust and building a community prior to requesting payment.

Challenges

The biggest challenge here is to offer the very compelling benefits of paying the extra amount for a given feature. As an owner of the online marketplace, you need to be very that your features are in line with the needs of your target audience. For example, a food delivery marketplace will need excellent delivery tracking, a seamless order management system and POS, in order to convince your users to upgrade. 

Mixed-Revenue model

The most successful online marketplaces often combine several revenue models to ensure more than one stream of income.  For example, Amazon or Etsy use a mixed combination of listing fees and commission fees. 

Advantages

The most obvious advantage of this model is assuring numerous sources of revenue,  reducing risk, and quick monetization on the featured listings. 

Challenges

The challenge is to balance the fees that are being charged. Both vendors and customers will quickly get discouraged if the fees seem unfair or overpriced. 

To conclude 

All revenue models have their advantages as well as challenges. The most important aspect regardless of the model you choose for your marketplace is providing enough value and quality to the vendors that you are partnered with, as well as the end customer. 

Your features need to be compelling enough for your partners to see more benefits in using your marketplace, rather than selling directly. 

This can include offering a variety of payment methods that would not be possible on their direct website, offering excellent delivery services, or an exceptional website and application usability.

If you have an exceptional idea for a marketplace but struggle with the aspect of technology and design, a platform such as Ordering can help you to bring your vision to life and make sure that you find sellers to partner with within no time.