The most important decision that has to be made while building an online marketplace platform is the revenue model. Every business needs profit and they depend on the revenue they generate. So, they need to strengthen their revenue sources that will get them better profit. The revenue model should be more promising and should assure better returns to the marketplace owners.
Many on-demand marketplace platforms have failed to survive and sustain in the market due to their poor choice of revenue model. In this article, we will clearly explain to you all revenue models along with their pros and cons. You need to choose wisely and be benefited.
Types of Service Marketplace Revenue Models
Commission-based revenue model
The most commonly used revenue model is the commission-based model. The service provider will offer his services to his customers through the service marketplace platform. For each service order, the admin will get the commission value that is agreed initially by the service provider and after deducting the commission fee the service provider will receive his payment.
The commission fee can be a flat price or can charge a certain percentage on the order value. In some cases, the marketplace platform will charge commissions from both buyers and service providers. The commission slab can be changed with the consent of the service provider.
Pros
- The seller/service provider will pay only when his product/service is sold.
- This revenue stream is quite predictable for users.
- Users can easily attract more sellers/service providers to their marketplace platform.
- On every transaction, the admin can monetize.
Cons
- Setting the price percentage is difficult as the seller should also be satisfied with the commission fee.
- Admin needs to offer higher value to sellers.
Examples of service marketplace platforms that use this revenue model are Airbnb and Uber.
Listing Charges Model
There are platforms where non-monetary transactions take place. This revenue model will be the perfect choice for those marketplaces. Sellers or service providers will be charged for their listings that are posted on the on-demand marketplace platform. The admin will charge sellers for each ad that they post on the service marketplace platform.
In a commission-based model, you may fail to get revenue from poor-performing service providers who do not make any order with your service platform. But with this listing model, you can easily make a profit on all ads and you may bother whether they get orders or not.
Pros
- Listing fee costs are low for the service provider when compared to other revenue models. So service providers show more interest in choosing the service marketplace platform that has listing fees as its revenue model.
- The quality of service will be enhanced as service providers pay for advertising their service and this will increase the reputation of your service platform.
Cons
- The return is not guaranteed for service providers and many of them may not show interest in taking a risk.
- As the listing fee is low, the admin cannot earn much like other revenue models.
Service marketplace examples for this revenue model are Etsy and Overstock.
Membership/Subscription Model
This is a very old revenue model, initially started with the publishing industry where users will subscribe to a magazine and will get them on a monthly or yearly basis. This has taken a digital transformation and now most service platforms follow this revenue model for their business.
Users are charged a subscription fee on a monthly or yearly basis and they can get services over that subscription period. When a service platform enters into a subscription model, it will not interfere in any of the transactions that take place between customers and service providers.
Pros
Fixed monthly income is guaranteed and the admin can be benefited.
Customers can be satisfied as they can access the platform without paying every time.
Cons
- Offering data security has always been a challenge.
- The service platform needs to provide better content value that will meet the subscription value.
Service marketplace platform examples for this revenue model are Netflix and OkCupid.
Freemium Model
This type of revenue model is a combination of free and premium services. Users can access the service platform for free and when they need to access additional resources then the platform will be charged by the service platform.
This is like giving a free trial version with limitations and to proceed with the software, users need to pay and get. This revenue model is being widely used as the model supports wide features that are cost-free and customers get attracted easily.
Pros
- Users can easily generate leads and conversion happens quickly as customers are already used to the platform.
- No restrictions in posting and listing with this model
Cons
- Converting customers from free to pay is the difficult part as you need to justify by offering greater options in the premium package.
- Proper and enough value should be offered to free customers that will make them more comfortable in staying with your service platform.
Craigslist is one of the leading on-demand marketplace platforms that use this revenue model.
Advertising & Featured Ads Model
The most promising revenue model is the advertising and featured Ads model. Several monetization strategies are combined in this model. Third-party vendors are allowed to have their business ads being posted on this marketplace platform.
This revenue model is quite different from others as it allows third-party to post their ads in the marketplace. Users can use third-party services like Google AdSense to post other ads in their service marketplace platform.
Pros
- Gets more traffic to your online service marketplace platform.
- There is no need to share the revenue with the third-party advertisers as you do with referrals and affiliates.
- More sellers will join this revenue model as they need not pay the platform.
Cons
- Un-related advertisements that are posted in your marketplace will affect the user experience of your visitors.
- More planning is needed to successfully implement this revenue model.
Zillow is the perfect online service marketplace example for this revenue model.
Lead-Fee Model
When a marketplace platform may not get payment transactions done through it then this revenue model will be a perfect choice. The platform allows service providers to browse potential service seekers and get orders easily. Service providers need to pay the platform for viewing the potential buyer.
The platform can also have the option of charging service providers when they successfully get orders from the lead. Service providers feel comfortable staying in this revenue model as the platform can support them in finding their genuine leads.
Pros
- More service providers are attracted to the marketplace.
- All you need is to get sellers’ genuine lead and the rest is taken care of by sellers.
Cons
- Returns are not guaranteed for sellers as you will just provide leads alone.
Thumbtack is an example of using this revenue model.
Mixed Revenue Model
Multiple revenue streams are connected in this revenue model. Users can have the benefits of all revenue models under a single platform and returns are highly guaranteed. Although there will be several challenges that this revenue model needs to face but still sellers, admin and customers will all be benefited.
Pros
- Greater profit is assured to the admin of the service marketplace platform
Cons
- Need to balance in charging sellers and customers so that they will not lose their interest in the platform.
Amazon and Etsy also use this revenue model for their marketplace platform.
Conclusion
Figuring out the right revenue model is the key responsibility of any admin of the platform as it will have a serious impact on their business. After analyzing your core product or service you need to fix your revenue model only then you can earn better returns.