How Do Online Marketplaces Make Money?

January 20th, 2023 | 6 min read

Everyone wants to make money! And so do online marketplaces. Today, we'll cover three main ways how your online marketplace makes money. Why cover the various methods?

We'll cover three main ways you can use an online marketplace to make money.
Deeply understanding how an online marketplace makes money will also help you evaluate the sustainability of your business model.

While we'll go through various means of creating income for your online marketplace, one way is for you to take better care of your sellers or service providers, as Shopee did. For e.g. you could do this by offering protections and guarantees to your sellers to feel more secure and confident when doing business on your platform.

This can include things like protection against fraud, chargebacks, or even a guarantee that the marketplace will cover the cost of any disputes or returns.

Shopee offers Shopee Guarantee, which protects both the sellers and buyers on the platform. For the seller's part, it guarantees a refund for lost parcels if they have a record of shipping the package. For the buyers, their payment would not be released to the seller until they have clicked on Order Received confirmation.

Great security for the buyer! Another great way to drive revenue for your online marketplace.

But let's not delay; here are three main ways your online marketplace can generate revenue.
 

You Can Charge Fees for Those Using Your Online Marketplace

One of the easiest ways for online marketplaces to make money is to charge fees! Fees to sellers and or buyers using your platform. The largest segment of your online marketplace revenue often comes from transaction or commission fees.

The largest segment of your online marketplace revenue often comes from transaction or commission fees.

You can see this seen in most large marketplaces like Uber and Etsy. The bulk of their revenue comes from commissions.

In 2021, Amazon made $31.76 billion in subscription services alone.

In Etsy's case, as an example, they're labeled as Listing and Transaction fees. The platform charges $0.20 per item for listing on their website or mobile app and takes 6.5% as a transaction fee for every sale made. Commission and listing fees can be ideal for product marketplaces, but they may not fit a dating website where a subscription model may better fit.

Have a think - what commission and listing fees can you charge?

You Can Make Money by Providing Advertising Options in Your Online Marketplace.

Your online marketplaces can also generate revenue with advertising. Yclas provides advertising options in our online marketplaces out of the box (including the ability to charge fees and commissions).

Offering to advertise allows the marketplace to monetize the traffic that they receive on their platform. Advertising can be a significant source of revenue if you have a large and engaged user base.

Offering to advertise allows the marketplace to monetize the traffic that they receive on their platform. Advertising can be a significant source of revenue if you have a large and engaged user base.

Ads and sponsored listings are good options if you already know there's a steady flow of traffic into your platform. Paid-per-click listings have the added benefit that your online marketplace isn't responsible for the sale.

According to Insider Intelligence, retail media revenue (eCommerce ads) in the United States is projected to reach $60 billion by 2024.
  • In another Statista survey in 2021, it was found that in the United States, 31% of Amazon users found sponsored ads on the marketplace helpful, while 11.5% found that the displayed ads aligned with their shopping habits.
  • In Feedvisor's 2021 Amazon Consumer Behavior Report, shoppers in the age range of 27-40 are reported to always or frequently purchasing the first product listed on an Amazon search engine results page.

Back to the example of Shopee. The Southeast Asian eCommerce giant offers five types of ads that include Product Search, Shop Search, Discovery, Boost, and Display Ads. Ads are poised to be the next big moneymaker for the platform!

You Can Make Money by Providing Aligned Services Like Order Fulfillment

What else can you provide? Some marketplaces make money by offering fulfillment along with their basic marketplace services. By offering fulfillment services, your online marketplace has the potential to attract more sellers to list their products on the platform.

By offering fulfillment services, your online marketplace has the potential to attract more sellers to list their products on the platform.

An increase in the number of products available for purchase ultimately drives more traffic to the platform and ultimately leads to more sales.

  • The vast majority (nearly 90%) of sellers on Amazon utilize Fulfillment by Amazon (FBA) for fulfillment. FBA is the most commonly used fulfillment method among third-party sellers on Amazon, with 89% of sellers utilizing it.
  • According to a Voxware study, if a store fails to deliver an order within two days of the promised delivery date, it is likely that 69% of shoppers will not shop with that retailer again. Fulfillment helps with increasing shipping speeds and customer loyalty.
According to a Voxware study, if a store fails to deliver an order within two days of the promised delivery date, it is likely that 69% of shoppers will not shop with that retailer again. Fulfillment helps with increasing shipping speeds and customer loyalty.

KJM Cosmetics, a local brand in the Philippines, experienced a 30% increase in their conversion rate by choosing to outsource their order fulfillment.

Since KJM is based in the southern part of the country, shipping fees to the capital, Manila, cost a lot. This is significant because most of the brand's customers are based in the Northern part of the Philippines. The costly shipping rates caused prospective customers to hesitate or abandon their carts.

Since moving a significant bulk of their stock to a fulfillment company's warehouse in Manila, KJM Cosmetics was able to increase conversion and get approximately 70% savings on shipping fees.

Summary

So which way? Which way to make money with your online marketplace?

We've listed several ways in which an online marketplace can generate revenue for the platform. These could be through charging fees to sellers and or buyers for using their platform, offering sponsored listings and advertisements, or offering a secondary service such as fulfillment services.

Revenue can be through charging fees to sellers and or buyers for using their platform, offering sponsored listings and advertisements, or offering a secondary service such as fulfillment services.

Some questions to consider:

  • Where do most of your online marketplace revenue come from?
  • Are there other ways in which your online marketplace can earn money that should be explored/used more?
  • What other possible revenue streams can your online marketplace tap into?

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