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Marketplace Business Model: How do online marketplaces make money?

Home » Blogs » Marketplace Business Model: How do online marketplaces make money?

There might be three major reasons that you are here reading this Marketplace Business Model Blog:

(1) You heard or read something about Marketplace’s business model and you want to know more about it. Maybe you’ve heard about how Amazon or Etsy or Airbnb is earning good money. And now you want to understand how they’re earning so much.
(2) You have read or heard about someone who started a marketplace business and you want to know how they are going to earn the investment back.
(3) Or you have got an amazing marketplace startup idea but you want to know how exactly it works.

If yes, then I can guarantee you that this blog can change your mind.

Marketplace businesses are booming in this digital era like anything. But most of the marketplace businesses are failing because they lack a proper understanding of the business model.

With this blog, My only objective is to cover everything that you need to know before starting your own online Marketplace business model.

Let’s start from the basics;

What is a marketplace business?

The marketplace business can be defined as an online platform that connects vendors with the customers directly.

The vendors will list their products or services on the platform and the customers will search for their requirements and connect with the vendors.

An online marketplace provides an easy and affordable option to local businesses who can not afford to invest in eCommerce apps.

So, you must be wondering what is a marketplace business model?

In very simple terms, An online marketplace business model is where you decide how you are going to earn from your business

Why marketplace business models become a trending choice to start a business?

The marketplace business model has created its fix on the top place in the list of startup business ideas. And the reasons behind this are:

(1) The business owner doesn’t have to own any inventory. You just have to find vendors in your area who want to take their business on the digital platform.

(2) You don’t have to worry about office space rent at the beginning you can work virtually from your home.

(3) No major investment is required at the beginning. All you need is a website and a mobile app to kick start your business.

How do online marketplaces make money?

Now comes the most important and interesting section: marketplace monetization.

So you have an amazing idea and you’re hundred percent sure that it will work.

And your target audience will love it, but what will you get from it? Do you have a plan to earn from your online marketplace business? If yes, then it is perfect. But if no or if you have any doubts then I have a list of some ways you can monetize your marketplace idea.

5 Types of Marketplace Business Models

(1) Featured listings with ads
(2) Commission
(3) Freemium Option
(4) Membership/subscription fee
(5) Listing Fees

Let’s have a look at each method one by one to get a clear picture.

And then you can decide which one is more suitable for your business:

Featured listings with ads – Marketplace Business Model

Marketplace Business Model Lising Ads

Have you ever noticed while searching on Amazon that some products ranked higher even with fewer reviews and ratings? You’ll see “sponsored” written above these products. What does that mean?

These businesses are paying some extra money to Amazon to get their product on top of the search results.

Most of the online marketplaces have this option for their vendors which is a win-win business model.

The chances of customers buying from these sponsored products increase and the platform earn from the ad fees.

This business model is a lot closer to digital advertising like Google Adwords.

Where you pay Google some amount to get your business rank higher than your competitor.

Commission Based

Commission Base marketPlace Business Model

This is the most common and lucrative business model for vendors or service providers.

In a commission-based business model, your vendors or providers will have to pay a commission to you only when they are warning something.

Most of the time, the startups don’t have that much budget to pay for advertising or platform fees.

For such businesses; a commission-based business model is the best option. So how does this work?

Let’s understand this with an example; consider you have a marketplace of music instruments.

There are some small local vendors as well as some big brands selling on the platform. So Alex buys a guitar of $250 then the vendor might earn $240 and you’ll earn $10.

This depends on the commission percentage you’ve decided. If you’ve decided your commission percentage to be 5 percent on every sell then you’ll earn $50 on every $1000.

So, all you have to do in the monetization method is; decide a commission percentage and keep it the same for every vendor.

Freemium Option

Freemium Option

This business model is for the users or buyers of the app instead of the sellers or providers.

In the freemium business option, you’ll provide core services to the users for free and wait for the users to get hooked.

After that, you can ask them to upgrade their membership to a paid version where they’ll get more value.

Remember when Amazon introduced its Prime version to the users? At first, the platform was all free for every user. But once we all started using it more and somewhere got dependent they introduced the Prime version.

Users can still shop from the app for free, but prime users get quick deliveries, better discounts, etc.

So, if you think your business can also have a freemium option then try to keep the fees of premium accounts minimal at the beginning.

And plan all the things you can provide to your premium users.

The benefits should be strong enough to lure the users. You can provide free delivery, a 10% percent discount on every purchase or custom note, or a freebie, it can be anything.

Membership Or Subscription fees

Membership Fees Model

A subscription fee or membership fee model is where the users have to pay a fixed or recurring fee to use your platform.

This business model will work only if you are sure that your marketplace provides value that is worth the fee.

If your business provides a unique experience, product, or service that people will pay eagerly for then this is the best option for you.

This model is common in recruiting businesses like LinkedIn and dating sites like OkCupid.

Again there’s a huge challenge with this model; how you’ll find customers without providers or how you will find providers without customers.

So first you need a proper plan to attract the consumers and the providers.

Listing fee

Listing Fee Business Model

The final way to monetize your marketplace business is by charging a fixed fee from the providers or vendors for every listing.

This model is beneficial if the providers have a huge listing for their business and they are earning good money from each listing.

The best way to understand this model is to check the business model of Craigslist.

General listing in Craigslist is free so people can check the website for anything, cycle, dating, goods, groceries anything.

But some categories have a listing fee like job and apartment listing. So in this way, the company is attracting the crowd and then charging a fee to categories that are valuable and people will pay for it.

You May Read This Also:

  • How to Create a Marketplace App that can take over the E-Commerce Market.
  • 8 Steps On How To Build A Successful eCommerce Website
  • Over To You about Marketplace Business Model!!

    So that was my explanation of the online marketplace business model and how do online marketplaces make money.

    I hope my blog has encouraged you to start your own marketplace business. Now it’s your turn to take the decision.

    Do you want to start your own marketplace business? We are here for you.
    Marketplace App Development Company

    Talk to our team to understand the process and time required to develop a marketplace business app. Even if you still have some confusion, you can contact us and our App Development Experts will resolve all your queries.


    Kush P

    Kush Patel is the Chief Technical Officer and Managing Director of Echo Innovate IT – a software development company. He is responsible for the overall operations of the company and has played a major role in making Echo innovate IT the top-notch IT services provider and transforming it into a globally trusted web and app development company.
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