Airbnb's commission-based business model has killed it over the past years (yep, who hasn't heard of them)!
By relying on its hosts to provide the properties (and some super cool ones, check some cool ones out here) Airbnb focused on the following:
- Creating a user-friendly platform
- Attracting customers to their platform
And avoided (just as necessary, I might suggest):
- Managing properties
- Maintaining properties
- Acquiring properties
In short, they avoided property management!
Instead, Airbnb earns revenue through the fees charged to hosts for each booking (Airbnb made about $8.4 billion in revenue last year, sheesh, …).
Instead, Airbnb earns revenue through the fees charged to hosts for each booking (Airbnb made about $8.4 billion in revenue last year, sheesh, …).
The commission-based model allowed Airbnb to offer unique accommodation options to travelers worldwide (ever check out the OMG! category).
Why review whether a commission model might fit your online marketplace?
- Learn to Evaluate Business Models: Understanding commission-based models can help you evaluate online marketplace business models. With that understanding, assess your marketplace potential (e.g., are you going to buy a private jet or a toy plane!)
- Learn to Understand Industries: Having a good grasp of commission-based models will assist you in understanding factors that drive marketplace success.
- Learn How to Evaluate Marketplaces: Knowing the advantages of commission-based models will assist you in evaluating which commission models align best with your goals.
eBay is a great commission story. Like Airbnb, eBay operates on a commission-based model. This model has allowed eBay to scale its business quickly as the platform does not bear inventory costs.
eBay is a great commission story. Like Airbnb, eBay operates on a commission-based model. This model has allowed eBay to scale its business quickly as the platform does not bear inventory costs.
But more about this later. Please fill up your cup of coffee, and let's learn why you may want to consider a commission model for your online marketplace.
Create Your Own Marketplace Fast
- Launch your own marketplace niche fast
- Easily connect your own domain name
- Create your own categories quickly
- Create custom fields specific to your requirements
You'll Attract More Sellers with a Commission Model in Your Online Marketplace
Choosing a commission-based model for your online marketplace can attract sellers or providers (stay away from the sleazy spammers).
Commission-based models incentivize sellers to offer high-quality products and services as they only pay fees on actual sales.
Risk-averse entrepreneurs often find this attractive (who would have thought).
You are probably thinking, commission-based models in online marketplaces, why bother? Wouldn't it be easier to charge people an amount upfront? Wouldn't I be getting more money upfront if I charged a fee?
You are probably thinking, commission-based models in online marketplaces, why bother? Wouldn't it be easier to charge people an amount upfront? Wouldn't I be getting more money upfront if I charged a fee?
The thing is, the variety of products and sellers in a commission-based marketplace is often unmatched.
Just imagine. An online commission marketplace will have a better chance of experiencing that bustle of activity that makes your marketplace feel alive. Your transactions will be heard through the ding of email orders arriving. You'll feel the energy as your sellers focus on loading your marketplace with services and products! There's no risk for them to try!
A commission-based online marketplace is like a bustling farmers' market.
Farmers join the local market because they can sell without taking on much risk. Sellers join a commission-based online marketplace because they can offer their products without much financial risk. The commission-based model creates a mutually beneficial relationship between the marketplace and the seller.
Farmers join the local market because they can sell without taking on much risk. Sellers join a commission-based online marketplace because they can offer their products without much financial risk. The commission-based model creates a mutually beneficial relationship between the marketplace and the seller.
Commission marketplaces are all over:
- 51% of the top 100 marketplaces thrive by taking a commission from the transactions they process. (Sharetribe)
- 6.5% is the commission fee charged by Etsy for every transaction. (Etsy)
- 20% is the flat commission fee charged by Fiverr to its freelancers (Morgan Media)
Etsy successfully attracted a large and diverse group of sellers with its commission model. Etsy attracted (mainly women) sellers who offered a wide range of handmade and vintage goods. Everything from jewelry, clothing, and home décor (around 7.5 million users, can you believe that?)
Etsy also put in place several resources and support systems to help sellers succeed, including:
- A comprehensive seller handbook
- A seller community
- Access to marketing tools
Want to offer a commission-based marketplace?
- Invest in a user-friendly platform (try Yclas!)
- Offer training materials
- Offer excellent customer support
- Create a community with regular communication
- Provide opportunities for interaction and collaboration
Scale Faster with a Commission-Based Online Marketplace
Scalability is one of the benefits of using a commission-based business model in the online marketplace.
With a commission model, you focus primarily on the following:
- Platform development
- Marketing
You skip the inventory or production and, with it, the costs.
Now, you might be thinking – is the scalability that big of a problem? Don't I then at least have control over my products then? What about quality control?
Now consider this:
- Imagine how nice it would be not to deal with inventory or production
- You wouldn't hear the complaints of people in production
- You wouldn't watch in fear as your bank account dwindles due to inventory costs
You would feel your shoulders relax as you see cash preserved (and you can afford that next family holiday the kids keep bugging you about).
Scalability is important.
Take Etsy; no inventory means time to focus on the platform. Platforms and apps. Etsy's app has been downloaded 2.5 million times! (Statista)
Take Etsy; no inventory means time to focus on the platform. Platforms and apps. Etsy's app has been downloaded 2.5 million times! (Statista)
Also, look at Fiverr. Fiverr is a popular online marketplace for freelancers and creative professionals.
Fiverr also operates on a commission-based model.
Freelancers get 80% of the total order value paid by the buyer for each project they complete through the platform.
The commission model allows Fiverr to scale its business quickly. Inside of handling inventory, Fiverr earns every time a project is completed.
As a result, Fiverr's become a leading provider of freelancing services, offering a diverse range of services to businesses and individuals globally.
As a result, Fiverr's become a leading provider of freelancing services, offering a diverse range of services to businesses and individuals globally.
Want to take action? Ensure you can scale? 
- Attract a diverse range of sellers through targeted outreach
- Offer competitive commission fees
- Creating a supportive and inclusive community for sellers
- Invest in customer acquisition
- Continuously iterate on the platform to make it user friendly
Commission Business Models Give You Lower Upfront Costs
Another reason why as an online marketplace operator, you might consider a commission-based business model because you'll have lower upfront costs.
As the operator, you're already working with existing products through your sellers.
Imagine the beautiful modern platform you might have if you invest all your resources into the platform instead of inventory and products. You'll have your friends wanting to join! And talk about your platform the next time you get together with them!
Instead of inventory, invest in customer acquisition:
- $160 per new customer acquired. That's how much Amazon (the eCommerce giant that uses a commission model as one of its sources of revenue) spends on customer acquisition. (HuntClub).
Instead of inventory, invest in the platform:
- 4-6 months is the typical length of time needed to develop a marketplace website (Syndicode).
Although, check out Yclas' marketplace platform for potential quicker deployment.
Poshmark also leverages commissions. Poshmark is an online marketplace that specializes in fashion and clothing.
By operating on a commission-based model without inventory, where sellers pay a fee for each sale, Poshmark keeps its costs low.
By operating on a commission-based model without inventory, where sellers pay a fee for each sale, Poshmark keeps its costs low.
Whether selling vintage clothing, designer items, or their wardrobe, Poshmark focuses on its platform. They are using their platform to reach a large and engaged audience of fashion-conscious buyers.
Want to lower upfront costs with a commission-based marketplace?
- Develop a prototype commission-based structure
- Compare your commission structure to your competitors
- Consider penetration pricing strategy as a start-up (meaning create a commission structure lower than your competitors)
- Re-evaluate your commission structure quarterly
Closing Summary
Choosing a commission-based business model for your online marketplace can offer numerous benefits, including:
- An increased amount of sellers
- Scalability
- Lower upfront costs
By reducing the costs associated with inventory and production, a commission-based model can allow marketplace operators to focus on the following:
- Developing a high-quality platform
- Improving the customer experience
Additionally, by aligning the interests of the operator and sellers, the commission-based model can drive growth and success for both parties.
How about you?
- Do you prefer paying for transaction fees in online marketplaces over subscriptions or other revenue models?
- How do you view commission fees in an online marketplace?
