Marketplace Settings
Jan 10, 2024
In this section, you will set up assumptions about how your marketplace works. Specifically, we will walk through establishing a fee structure and create assumptions around the frequency and volume of listings in your marketplace.
Make sure you have the marketplace option activated (see Setting up Your Revenue Model), and you have established average transaction values in the the "Transactions (Virtual Product / Service) Business Model Assumptions" section (see Setup Pricing: Online Marketplace).
To get started, scroll down to the Marketplace Settings portion of the "Transactions (Virtual Product / Service) Business Model Assumptions" section.
Do Buyers or Sellers Drive Transactions?
The first checkbox in the Marketplace Settings section is an important one.
Checking or unchecking the "Will sellers create listings in the marketplace?" box tells the model which user group drives the number of transactions that are created in your marketplace. Checking the box will set up a model where sellers are the users who create listings. Unchecking the box will set up a model where buyers are the ones creating listings.
(Here we are the term "listings" to mean an entry that is posted on a marketplace to reach customers or providers. This could be a product, service, rental property, job offer, rideshare request, delivery request etc.)
Since answering this question isn't always obvious, let's consider a couple examples.
Seller Driven Marketplaces:
E-commerce (e.g. eBay, Amazon): sellers create product listings for buyers
Asset-sharing (Airbnb, Turo): Owners (i.e sellers) create listings for renters (i.e. buyers)
Service (e.g. Rover, TaskRabbit): Dog Walkers and Taskers (i.e. sellers) list services for app users (i.e. buyers)
Buyer Driven Marketplaces:
Ride-sharing (e.g. Uber, Lyft): Riders (i.e. buyers) create requests (i.e listings) for drivers (i.e. sellers)
Freelance (Fiverr, UpWork): Clients (i.e. buyers) post gigs (i.e. listings) for professionals (i.e. sellers) to bid on.
Marketplaces are growing increasingly complex (ex. freelance marketplaces, like UpWork, now allow freelancers and clients to create listings) but you should check this box when listings are primarily created by sellers in your marketplace. Please contact me if you are unsure about whether or not to check this box.
Launching your Marketplace
In most cases, you will want to launch your marketplace only after acquiring enough users to make it sustainable. After all, it would be questionable to call your platform a "marketplace" if it only has two active sellers.
There are two ways you can set a launch date. The first way is to check the box to "Launch After Acquiring Critical Mass of Sellers" and enter the number of sellers you think are required to launch. The model will set a launch month based on how long it takes for you to acquire that critical mass of sellers, which is determined by your sales funnel assumptions in a later part of the model.
The second way is to manually set the launch month by simply entering your desired month to launch:
Again, based on the your sales funnel and buyer acquisition assumptions, the model will calculate how many sellers and buyers you are likely to have by the time you reach your desired launch month. It's a good idea to revisit these settings after you've refined your assumptions for acquiring buyers and sellers.
Set Transaction Fees
Startup Virtue gives you flexibility in determining how your marketplace generates revenue. However, the primary mechanism for monetization is transaction fees (settings for listing fees and subscriptions are covered below). Check or uncheck the boxes in the "Transaction Fees for Your Marketplace" section to tell the model whether you plan to take a percentage of each transaction amount and/or charge a flat fee per transaction.
For each Tier and year, input the transaction fee percentage and/or a flat fee amount. The calculated fields will report the total fee per transaction and express the transaction fees as a percentage of the total GMV.
Listing Volume and Frequency
The volume of listings in your marketplace depends heavily on the number of users on the platform (which we will set up soon) but it also depends on the number, frequency, and duration of listings created and completed by users.
First, enter the average number of months between listings per seller (or, if buyers create listings, per buyer). Enter 1 to indicate that buyers/sellers create new listings every month. Entering 2 means each buyer/seller creates a new (set) of listings every 2 months, and so on. In most cases, sellers create listings every month; however, you may have a marketplace where, on average, sellers only create a few listings per year (Ex. individuals on eBay who occasionally sell miscellaneous items they find around the house).
Next, define the completion timeline for transactions in your marketplace. Enter the number of months it takes for each transaction to complete. Entering zero means that transactions are started and completed in the same month. Entering 1 means the transaction takes one month to complete. In most marketplaces, transactions will start and end in the same month. However, if you have a marketplace for long-term vacation rentals, for example, the duration could be 1 month or more.
Finally enter the percent of listings that fail or are canceled per month. Note that this is different from unfilled listings (i.e. listings that are not completed due to a lack of buyers). Think of this as the percent of listings that are started but not finished. In the forecast, your company will not earn revenue for the share of listings that fail or are canceled.
Settings for Sellers
In this section, you will set up parameters for how sellers engage with your platform.
Start by entering the number of months it takes to onboard each new seller (if applicable). It is common for some time to elapse between when sellers register with the platform and start making sales. For example, freelance professionals on UpWork might take one month to set up their profile before completing any work. Next, enter the average lifespan for each seller in months. This will determine your monthly churn for sellers.
If buyers drive transactions in your marketplace (see Step 1 on this page), you have the option to set the average number of listings each seller completes per month. For example, if you have a rideshare app, drivers might complete 50 listings per month. If sellers drive marketplace transactions, this field is not applicable.
Next, scroll down to "Fees for Sellers" and check each box to activate whether your marketplace charges any setup, listing or subscription fees to sellers. These settings represent levers for generating more revenue outside of transaction fees. You will be able to leverage similar fees for buyers in the next section.
Setup fees are charged one-time whenever a new seller onboards to the platform. Listing fees are charged once for every new and repeat listing (regardless of whether the listing is filled or completed). Subscription fees are recurring charges per seller (Ex. Airbnb Plus for hosts). You can adjust the percentage of total sellers who opt for a subscription.
Settings for Buyers
As we did with sellers, let's adjust the settings for how buyers interact with your marketplace. This section includes many of the same fields as the seller settings. First set the average lifespan for each buyer in months. The grey calculated fields will calculate the implied monthly churn per year based on your inputs.
Next, decide whether you want to customize the average number of transactions that buyers complete per month. The model will default to one transaction per month per buyer. To increase this number, check the box and, for each year, enter the average number of transactions per buyer per month.
Next, scroll down to "Fees for Buyers In Your Marketplace" where you can activate setup fees and/or subscription fees to buyers. Setup fees are charged one-time whenever a new buyer joins the platform. Subscription fees recur monthly per buyer (Ex. Uber Pass) for the duration of a buyer's user lifespan. You can adjust the percentage of total buyers who become subscribers.
Acquiring Buyers
Startup Virtue includes three methods for forecasting the acquisition of buyers to your marketplace (seller acquisition is covered in the sales funnel section of the model).
The first method is simple: enter the number of buyers on a waitlist to join the marketplace once it launches. This is an easy way to account for potential buyers you have previously engaged (perhaps via a newsletter or social media) who are eagerly waiting to register. If you already have an active marketplace, enter the current number of active buyers on the platform. This will set the current number of active buyers for month 1 of the forecast.
The second method is paid acquisition, either through a marketing agency, paid ad campaign, channel strategy etc. Check the box to indicate you will pay to acquire buyers for your marketplace, then enter the month you plan to start acquiring buyers. Next, enter the estimated cost to acquire (CAC) each buyer and the monthly budget for this effort. You can include a budget growth rate to increase your marketing spend month-over-month.
The grey calculated fields will summarize your total annual marketing spend and the number of conversions per year.
The third method is organic acquisition, which represents any content marketing strategy that attracts new buyers via unpaid search engine results. Activate this sales strategy by checking the box, "Will you Acquire Buyers Organically?" and enter the month you start acquiring buyers with this method.
Then enter the number of unique website visitors you expect to have in the first month of this effort. If you already have an established platform, enter the latest unique traffic figure for buyers. Next, enter a month-over-month growth rate for unique site visits and a conversion rate. The grey calculated fields report the number of unique site visitors and conversions per year.
Marketplace Metrics
This section covers key indicators to tell you whether your assumptions in the sections above are creating conditions for a balanced and sustainable marketplace.
The first indicator is the ratio of buyers to sellers. The following table displays the projected number of buyers and sellers active in your marketplace at the end of each year. These numbers are based on your buyer and seller acquisition assumptions.
Getting the right ratio is highly dependent on the particular dynamics of your marketplace. For example, a stable e-commerce platform might have 2-3 buyers for every seller, whereas a sustainable rideshare community might have 20-30 riders for every driver. The ratios might look a lot different if users bid on listings (Ex. an average of 100 providers bid on one project from a single buyer) or if relatively few sellers can meet the demand of the buyer community (Ex. one software developer sells the same AI agent to 200 different buyers per month). Use your best judgement to determine the right mix of buyers and sellers and make adjustments as needed.
The listing outcomes table shows the proportion of total listings that are 1) completed, 2) canceled/failed, or 3) unfilled due to a relative lack of buyers. Completed listings are those that are created in a given month, matched with a buyer/seller and completed (resulting in revenue to the platform). Canceled or failed listings are started but not completed (resulting in no revenue). This outcome is directly controlled by the "% of Listed Transactions Which Canceled per Month" variable (see the Listing Volume and Frequency section above). Unfilled listings result from a relative lack of buyers in the marketplace to consume/purchase the number of listings created by sellers.
The match rate (also known as the utilization or success rate) indicates the rate at which buyers are successfully matched with sellers, and vice versa. You will notice that the match rate decreases as the number of canceled and unfilled listings increases.
Having some unfilled listings is common and expected in any marketplace. In the model, any listing that is not completed due to a lack of buyers in one month is added to the total current listings in the next month. Eventually, once the platform achieves an optimal mix of buyers and sellers, the proportion of unfilled listings should decrease and stabilize. Still, you may want to make adjustments to your assumptions to minimize or eliminate unfilled listings in your forecast. How you make these adjustments depends on whether your marketplace is seller- or buyer-driven and whether you want to increase, maintain, or decrease revenue as a result.
To decrease unfilled listings and increase revenue, you can either increase the number of buyers in the marketplace, increase the number of transactions completed per buyer, or both. To decrease unfilled listings while maintaining or decreasing revenue, you can either decrease the number of sellers in the marketplace, decrease the average number of listings per seller, or both.
Since these instructions will be slightly different for everyone, Startup Virtue has a set of dynamic instructions under "How to Adjust Listing Outcomes". These instructions will change based on the particular settings in your marketplace. This feature is designed to provide guidance specific to your situation.
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Now that you've set up your pricing and marketplace settings, you're ready to set revenue targets (optional) or move right to the sales funnel section where you will set up assumptions for acquiring sellers. Or head back to the Guidance page.