In recent years, online marketplaces have become a popular way for businesses to sell their products and services.
In 2021, $3.23 trillion was spent globally on different online marketplaces.
With that, there are several different revenue models that these marketplaces use, each with its own advantages and disadvantages.
There are various ways an online marketplace makes money, from charging commissions on sales to selling their own branded products.
The difficulty lies in finding the balance between ensuring customers have a great experience while maintaining reasonable costs and prices for vendors so they keep coming back.
Last week, we talked about four Amazon-sized eCommerce marketplaces.
This post will compare the commission rates charged by those marketplaces.
But first, to level set, let's talk about these online marketplaces' most common revenue models.
Commission-Based Marketplaces Provide Sellers an Easy Entry Point
The commission-based marketplace model is one of the most popular options for marketplace platforms.
In this business model, the marketplace takes a percentage of each sale as a commission.
For example, if the marketplace takes a 10% commission rate, they will earn $100 for each $1,000 sale a vendor makes.
Commissions can either be a flat rate or a fixed percentage and can be charged either to the seller, the buyer, or both.
This revenue model makes it ideal for marketplace platforms because of its scalability.
As the transactions in the platform increase, so does the commission earned by the marketplace operator.
An advantage of the commission model is that sellers and buyers are not charged a commission until a sale is made, making it an easy start for new entrants.
This means they operate for free until they get value from the marketplace.
If you want to your marketplace to grow quickly, consider a commission-based marketplace!
Subscription Models Provide Consistent Revenue for Online Marketplaces
A subscription-based model charges customers (sellers or buyers) for a product or service on a recurring basis.
Sometimes, subscription models offer a free monthly trial so users can test out the product or service before committing.
Subscription charges are typically done monthly or annually.
Data from McKinsey & Company found that 15% of those who shopped online subscribed to an eCommerce service.
Subscription-based products and services have been catered to almost every lifestyle and budget.
Providers value subscription-based models because marketplace operators have a predictable revenue each billing period.
The challenge with subscription models is constantly bringing value to subscribers, so they continue paying for the product or service monthly.
Want stability in your marketplace platform? Look to bring in a subscription.
Freemium-Based Starting Point Allows Sellers to Test Drive First
The freemium revenue model involves providing a free basic product or service for potential buyers to test drive.
They then go on to charge a fee for more advanced features and functionality.
In addition to the free product, a freemium-based online marketplace may also provide free marketing tools and resources and a community of like-minded sellers.
By offering a free product, freemium-based platforms can attract more users and increase sales and turn a profit while providing an enhanced customer experience.
The freemium model is also popular among people because freemium doesn't put pressure on users to convert (like a trial does)!
They can join the marketplace and use its basic features without paying.
While it's mostly used in the software as a service area, an online marketplace that uses a freemium approach might allow vendors to sell their products for free until they reach a certain threshold.
Freemium models can sometimes be costly to the marketplace provider if they provide too many services for free.
So be careful!
Listing Fee Models Adopted by Marketplaces Like eBay
The Listing Fee Model for online marketplaces is one of the easiest ways to allow sellers to start selling products in an online marketplace.
This business model involves charging a fee to list items on an online marketplace.
The fee amount varies depending on the value of the product or service being sold on the marketplace.
This revenue model can be preferred for marketplace platforms since the marketplace operator does not take the risk that the product has to be sold before they make money.
One big online marketplace that uses this model is eBay.
Listing on the platform is free for the first 250 items (freemium), but they charge a $0.35 insertion fee per listing after that.
Featured Ad Placements Bring Revenue to the Marketplace and More Buyers to the Sellers
Featured Ad Placement, also known as Sponsored Content, is a revenue model where individual sellers or small businesses pay a fee for their products to be featured.
Often featured ad placements are put in an online marketplace's search results or other high-traffic pages.
This gives the sellers' products more visibility in the marketplace, which could theoretically bring in more buyers.
Under the featured ad placement model, businesses only pay when users see their ad on a platform or app.
A Closer Look At The Top Five Online Marketplaces' Commission Rates!
Now that we have discussed the top five revenue models let's move on to comparing the commission rates of Amazon and the four other massive online marketplaces in the world!
The first one is Amazon.
The platform mainly uses a commission-based model for its marketplace, but it's not the only revenue structure Amazon uses.
When it comes to its commission rate, Amazon typically charges 6%-15% depending on the category of the item sold.
The company calls these Referral Fees.
For example, under the category Clothing and Accessories, the Referral Fee percentage is 17%, with the minimum Referral Fee amount of $0.30.
In conjunction with commission rates, Amazon also uses a subscription-based model via Amazon Prime to monetize the buyer relationship.
The platform offers a free one-month trial to Amazon Prime, but it costs $14.99 per month after that initial free month or $139 per year.
Amazon's managed to monetize both the buyer and the seller relationship!
The next one is Rakuten.
Like Amazon, Rakuten mainly uses a commission model, but it also comes with Subscription and Listing Fees.
The platform charges a Monthly Account Fee of $39 and a Listing Fee of $0.99 per item.
Commission-wise, the website charges 8% to 20% depending on which category the sold item belongs to.
For example, Rakuten charges a 15% commission on products sold under the Sporting Goods category.
Similar to Amazon, many commission items can range up to 15% and above!
Dubbed the Amazon of China, the third giant eCommerce marketplace on the list is Alibaba.
Alibaba mainly focuses on wholesale.
It serves as a middleman for large suppliers and retailers who want to source products from the platform.
Alibaba.com differs from Amazon because this platform does not charge a commission fee for items sold on its marketplace.
Instead, what it has is a form of Freemium Model through its Gold Supplier memberships.
Suppliers on the platform can list up to fifty items for free for the basic account.
However, to become a verified supplier and gain the buyers' trust, these companies can choose to upgrade their membership to become a Gold Supplier.
Gold suppliers pay from $1,999 - $6,999 a year for their membership and are given additional perks.
Aside from the verified supplier status, they can also upload unlimited products and are granted access to the 180-day traffic accelerator and minisite creation.
They are also given a keyword ad spend budget of $500, depending on which tier they purchased.
While the membership provides value, the Gold memberships are steep!
The fourth online marketplace is Mercado Libre, Latin America's number-one marketplace platform.
When it comes to their commission on their Global Selling Program, Mercado Libre has different charges depending on the country.
In Brazil, the platform charges a Seller Fee of 12% - 16%, depending on whether it's a classic or premium listing.
They don't have seller fees in Chile, Colombia, and Mexico, but the Additional Per Unit fee is applied to low-cost products sold.
Aside from this, there are no other fees charged to sellers.
The commissions are lower but they are some add-ons with Mercado Libre as they target different countries
Shopee, the Southeast Asian eCommerce titan founded in 2015, has a different set of fees for its sellers.
First, the platform charges a commission fee of 2.24% to 5.60%, depending on the seller type, item category, and programs joined.
On top of the commission fees, Shopee also charges a Transaction Fee, which is also 2.4% of the item's sale price.
If the seller joins any of the company's Coins Cashback or Free Shipping Programmes, there are service fees as well.
In that case, they will have an additional Service Fee of 3.36% - 5.6%, regardless of whether their buyer availed themselves of the promotion or not.
Table 1: Comparison Of Commission Rates And Other Fees
Other Revenue Models Used
6% - 45% depending on the item category, called Referral Fees
Subscription via Amazon Prime of $14.99 per month or $139 per year
8%-20%, depending on the item category
Subscription Fee of $39/month; Listing Fee of $0.99 per item
Freemium Model via Gold Supplier Memberships of $1,999 - $6,999 a year
Seller Fee of 12%-16% in Brazil; Additional Per Unit Fee of CLP$600 in Chile, COP$2,100 in Colombia and MXN$25 in Mexico
2.24% to 5.60%, depending on the seller type and item category
Service Fee of 3.36% - 5.6% for sellers who signed up for Cashback and Free Shipping Programmes; Transaction Fee of 2.24%
Determining the right commission models is crucial for any marketplace company that wants to generate a steady income.
Online marketplaces often use a commission-based model, where the platform charges a percentage of the transaction value.
This model works well because it aligns with the platform's interests – the more transactions there are, the more revenue it generates.
However, as proven above, other massive marketplaces also combine other revenue models with commissions, such as listing fees or membership.
While commissions dominate the marketplace model, often ranging from 5 - 20%, there is no one-size-fits-all business model.
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