Questions

I'm running a two sided marketplace. Should I charge a subscription fee on the supply side or take a commission off each transaction?

4answers

I have participated in marketplaces that charge for access (subscription fee) and ones that do per transaction charges. I have found that I prefer the per transaction charges as I am essentially paying a commission for the lead / opportunity, which is much more palatable. I have worked with platforms that charge a fee for leads, which is more akin to a subscription fee. The problem is that you are asking providers to pay for the hope of making money where as on the per transaction you are asking providers to pay for actual revenue.

Elance and Upwork have a hybrid model that also seems to work well. You can bid on so many jobs for free and pay a percentage of revenue. They have higher levels where you buy more credits to bid. On Elance I started on the free level and had success so now I subscribe. This is an interesting form of the freemium model.

Hope this gives you some insight. Let me know if I can be of further help.


Answered 5 years ago

From what I have read and experienced the best marketplace startups start by seeding the supply side with home grown information, content, products, etc. and then generate some success stories with those in order to attract more supply. I'm a believer that you do not "tax" the supply side until you have some critical mass. There are many ways to go about this and it can be niche specific. Transaction businesses work when you already have a fairly good transaction volume, so that's going to be your goal. Happy to discuss further.


Answered 5 years ago

Would you like to compare & contrast our two side marketplaces? If so, I'd be happy to chat for 10min today.

Def healthy to have a call comparing models, strategies, goals, milestones etc. Fair warning though, I see nothing wrong with leaving some money on the table when it translates into rapid adoption, higher user involvement and greater loyalty...

Warm regards,

Gregg M. Kennelly


Answered 5 years ago

After running a successful marketplace business for the past few years, I can honestly say that it truly depends on your industry and the spending habits of your customer.

With LawTrades--a marketplace to buying and selling legal services-- we experimented with both models and ended up taking a hybrid approach that was not purely subscription nor was it only transactional. We can delve more into this during our call.

However, if you're working with professional service providers, going the subscription route means that you really must deliver some significant deal flow to your buyers (aka lead gen) since they're paying up front. If you're just starting out, this could make the infamous chicken and egg problem worse.

By choosing the transaction/commission model, in order for that to work, you need to OWN each and every transaction.

By that I mean, make it very difficult/unreasonable for a buyer to take his transaction with the seller off the platform.

For example, sites like Clarity are especially prone to this because in order to facilitate a transaction the buyer and seller need to first know each other before any transaction occurs. This causes a problem because once they do get to know each other, they can just directly connect on Linkedin or another channel, leaving the platform out of the cut.

Also, if you don't build out some really good tech and create an awesome workflow management system, they might leave because of that too. oDesk/Upwork is an example of a really good workflow management system.

So those are a few things to consider but I really need to understand the nature of your marketplace before advising which route to go with.

Maybe a hybrid approach could work better for you like it did for my business--happy to hop on a call to discuss further.

Best,
Raad


Answered 5 years ago

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