10 Best Monetization Practices for a Successful Online Marketplace in 2024

So, you have decided to build an online marketplace. You have validated your idea, analyzed your marketplace demand, and gotten inspiration from competitors. You have also chosen your platform business model, weighing the pros and cons.

If that’s so, let’s stop at the last point, namely a business model, and dive deeper into ways to monetize your product. This article covers the most commonly used monetization models to run a thriving online marketplace. We will show how the most recognizable marketplaces, such as Etsy, Alibaba, Airbnb, Indeed, and others, use these strategies.

What is the monetization model?

In simple terms, the monetization model is a company's method of earning money. This concept closely relates to the business model, but they are different. Let’s draw a line between them.

• The marketplace business model describes how a company delivers value to customers. It reviews the company’s products, services, target audience, and costs.
• Marketplace monetization strategy is a set of methods that generate revenue for companies' products or services.

Therefore, two companies may have the same business models, but their approaches to monetization strategies may vary.

Top monetization models for marketplaces

Various revenue models successfully work for different marketplaces. Each strategy works for particular industries and points of marketplace growth. Hence, let’s dive into marketplaces' most common monetization strategies. This way, you can easily choose your marketplace's most profitable revenue approach.

Commission model

Both new and well-established platforms widely use the commission monetization model. This revenue-earning model gets a part of every transaction completed directly on the website. Another option is when the marketplace owner charges a fixed fee. To sum up, there are three types of commission fees:

• Charging a vendor for each transaction completed on a platform;
• Charging a buyer for each successful payment;
• Charging both for each transaction on a marketplace.

The commission amount depends on the item sold and varies from 1% to 50% when we talk about a unique product, such as stock photography. One more thing to remember is that the commission percentage on a service is higher than on a material product.

The commission revenue model works at once and scales perfectly. However, you can combine several types of monetization to make your business more profitable. After all, it is the most favorable monetization method for marketplaces, and it works perfectly fine for any marketplace type and size.

Advantages and challenges

Speaking of the advantages of the commission model, they are as follows:

• Users only pay a commission after deriving value from the platform, mitigating risks for buyers and sellers.
• The commission model helps alleviate the chicken-and-egg problem by attracting sellers and buyers, increasing conversions.
• The marketplace earns a commission from each transaction, ensuring revenue whenever a deal occurs.
• Encourages quality transactions as users are motivated to conduct meaningful exchanges that result in value.

On the other hand, the commission model also has challenges when implemented. Here they are:

• The marketplace must deliver sufficient user value to incentivize transactions, as users may seek to bypass the platform if the value is lacking.
• Incentives like invoicing, insurance, or order tracking can be incorporated to address this challenge.
• Maintaining a delicate balance between charging a commission that sustains the platform and ensuring it remains competitive in the market.
• Dependence on transaction volumes; fluctuations in user activity can directly impact revenue streams.

Use scenario

The commission model is helpful when you start a marketplace and try to win your users’ interest and trust. After you engage the critical mass, your user base will likely grow exponentially.

Meanwhile, the commission might not be suitable for business models with high transaction amounts. These include online marketplaces selling cars, boats, real estate, and other expensive products.

Additionally, the commission model is challenging to apply to platforms that offer diverse products, share content, or find specialists. It does not suit B2B and B2C platforms with complex invoicing systems.

Example

As mentioned, the commission model is widely popular among various marketplaces. For instance, it is used by Uber, Amazon, Booking.com, eBay, Rakuten, Etsy, Airbnb, and others.

Read also: How to Build an Outstanding P2P Website Like Etsy

For example, Airbnb charges a guest fee under 14.2% of the booking subtotal. For hosts, the commission typically makes a 3% flat fee and a 14% - 16% host-only fee of booking subtotal. We can see that this strategy works. Check the revenue results for Airbnb below:

Related reading: Top Online Marketplaces in Australia 2024: All You Need to Know About Leaders

Subscription model

A subscription, or membership, fee is a strategy when customers pay to access the marketplace regularly. It includes monthly or yearly fees for a particular set of features. Besides, new sellers should also pay a membership fee if they want access to superior benefits.

When using a subscription fee, ensure your online marketplace provides unique value, goods, or services. If you give customers content that is not easy to find on other sites, the membership strategy will work for you. Otherwise, you may lose your potential clients.

Advantages and challenges

Adopting a subscription model can be a fruitful decision for certain marketplaces. Here are the advantages it can bring:

• Predictable revenue stream. Compared to commission fees, a subscription model provides predictability in earnings over a specific period.
• Inclination towards payment. Users are more likely to pay smaller amounts to access the platform, provided that the services offered are valuable to them.

On the other hand, it may not be suitable for all marketplaces. Therefore, it has evident disadvantages or challenges:

• Balancing fee amount. Setting the subscription fee at an optimal level is crucial; too high a price can deter users, while too low a fee may result in reduced income.
• Perceived value. Users may hesitate to pay a subscription fee unless they clearly understand the value proposition of the platform, emphasizing the importance of demonstrating value.
• Reputation building. Offering discounts and free trials can be effective strategies for attracting users, particularly if the platform's reputation has not been established yet.

Use scenario

The subscription model works best with marketplaces that offer access to a database of potential clients or partners. They include dating websites, recruiting platforms, or portals connecting people to share homes. This way, the subscription model feels natural to pay for people to get access to a wide pool of information.

Example

HomeExchange is a premier service facilitating home exchange vacations worldwide. It is an excellent example of using the subscription revenue model. The platform’s subscription makes $220 a year.

In return, their users get help in case of canceled requests and property damage. They also give the members a 10% discount if they renew their subscription before the expiration date. This comes along with access to exclusive Facebook groups.

Freemium model

This online marketplace revenue model implies that you offer essential services for free. In addition, you suggest advanced or premium services for a fee. They, in turn, offer an extended functionality, more features and other benefits.

This method aims to grow the user base with the core value of your marketplace as an introduction. Later, vendors are ready to pay to get additional features beneficial for their business.

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Advantages and challenges

Freemium model is widely popular in different types of solutions. In marketplaces particularly, it has its own advantages and challenges.

Advantages:

• Easy user attraction. The freemium model allows to attract users by offering free features, reducing entry barriers, and fostering user loyalty.
• Network effect. As more users join the platform due to its free features, the network effect amplifies, attracting more interested sellers.
• Potential for growth. With a growing user base, the platform can capitalize on increased visibility and opportunities for expansion.

Challenges:

• Balancing free and paid services. Finding the right balance between free and paid offerings is challenging to ensure profitability while minimizing churn.
• Profitability concerns. Maintaining profitability while offering free services requires careful planning and management to sustain the business model.
• Value proposition. Paid services must offer clear value and benefits to users to encourage them to upgrade from free plans, requiring continuous innovation and improvement.

Use scenario

The freemium model helps when you start a marketplace. Combining this approach with other marketplace monetization methods is helpful. You can support it with featured listings or ads if your marketplace business model allows for it.

Example

Peerby would be a fitting example of the freemium model in marketplaces. Peerby allows users to join and use the platform for free, both for lending and borrowing items within the community.

However, a paid membership offers additional features and benefits, such as access to a reservation system, profile verification, full support for queries, and a warranty covering borrowings and rentals against damage, loss, and theft.

Read also: How UX Design Solves Online Marketplace Issues

Lead fees

When transactions occur outside the platform, a lead fee may be the right solution for you. It means that your buyers have to pay to get access to details about the potential clients or individual deals they are interested in. Thus, your marketplace leads the performer to a potential buyer.

Lead fees can help you if you build an online marketplace that offers services such as cleaning, design, music teaching, and others.

There are two main options to charge lead fees:

• Collecting the fee to access each lead. In this case, you charge providers for access to the lead’s details regardless of the deal's success.
• Collecting the fee for successful deals. With this option, you collect a fee if the deal is made. You will need control over the right fee collection to see how deals go through.

Advantages and challenges

• Tangible results. The lead fees model connects providers directly with prospects, ensuring tangible results and value for buyers' investments, unlike advertisements or listings.
• Promises value. Buyers feel assured of value when investing money in lead fees, enhancing trust, and incentivizing participation on the platform.

Challenges:

• Finding balance in pricing. Setting lead fees at an optimal level is challenging; high fees may deter providers, leading them to seek direct cooperation with prospects outside the platform.
• Preventing provider leakages. Maintaining competitiveness and flexibility in pricing is crucial to mitigate risks associated with high lead fees. Also, employing invoicing, insurance, and payment tools can help prevent provider leakages.

Use scenario

The lead fee model suits best if your marketplace is either contract- or service-based. It means that your website connects service providers and their potential clients. It works fine for B2C or B2B marketplace business models as each made deal promises to grow in long customer relationships.

Example

Indeed, a hiring platform can serve as a perfect example of a lead fee revenue model. The platform charges from $0.10 to over $5 per click on a job posting.

Further reading: How Much Does It Cost to Build a Website Like Indeed

Selling fees

Selling fees are another popular revenue model among internet marketplaces. Like with the commission, you get a piece from each transaction. The difference is that you get a percentage of selling fees before the vendor receives the payment.

There are three payment selling fee strategies:

1. Direct payments. A customer pays directly to a seller’s account.
2. Collective payments. Your marketplace charges buyers' costs and sends the revenue to sellers as redemption.
3. Parallel payments. Your website payment settings divide a customer’s expense between a seller and the platform at the checkout phase.

You can introduce selling fees at a fixed rate as a percentage of each sale. Also, particular rates can be based on the sellers’ ranks on your platform or fees for specific product categories.

Advantages and challenges

• Stable revenue stream. The selling fee model guarantees a consistent revenue stream as sales on the marketplace platform increase.
• Scalability. Selling fees scale proportionately with sales, ensuring profitability grows as transaction volumes increase. For instance, at a rate of 5%, profit would be $5 for a $100 sale and $50,000 for a $1,000,000 sale.

Challenges:

• Tiered pricing structure. Implementing different levels and rates for selling fees requires careful consideration to ensure fairness and attractiveness to sellers.
• Need for a broad customer base. A wide-ranging customer base is essential for the selling fee model to function effectively, as it relies on a high volume of transactions.
• Supporting strategies. To facilitate the adoption of selling fees, complementary strategies such as subscription fees or fee discounts may need to be introduced to incentivize sellers and maintain competitiveness.

Use scenario

One of the most important things to remember is that this monetization strategy is effective in the long run. It does not produce the desired result in the early stages. It works for online marketplace business models where quantity matters. So, first of all, you should gain the audience and their trust.

This revenue model is great for marketplaces with tiered membership. The monetization approach allows for setting an appropriate amount of selling fees. It also works well for large retail stores, as the number of sales is substantial.

Example

eBay charges two main types of selling fees. These are an insertion fee when a seller lists a product and a final fee when the seller sells the product. The digit of the fees depends on the item sold, its category, and its format.

Annually, eBay reports its full-year revenue results. In 2023, the online marketplace delivered $10.1 billion, including selling fees.

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Listing fees

A listing fee is an amount that a marketplace charges a seller when they publish their items.

This strategy works well for handcrafted or slow-selling goods, but it’s not suitable for all types of online platforms. Why is it so? The main reason is that online marketplaces may propose items that have never caught a buyer’s eye.

If an ecommerce marketplace solution charges only a commission fee, it will not get revenue from several transactions. However, with a listing fee, an online platform can profit from slow-selling products or even goods that might never be sold.

In addition, an ecommerce website needs to be significant and recognizable and show value to buyers. In this case, vendors will be ready to pay listing fees.

Advantages and challenges

• Flexibility in charging. The listing fee model offers flexibility by allowing platforms to set fees for specific items or categories, accommodating varying seller needs.
• Quality assurance. Providers pay per listing, incentivizing them to maintain high-quality offerings to maximize revenue from each listing.

Challenges:

• Lack of buyer guarantee. Vendors pay listing fees without a guarantee of purchase from buyers, necessitating the need to set low fees to retain vendors, potentially impacting revenue.
• Dependency on user base. To increase profitability, a large user base is essential, as higher volumes of listings are needed to generate significant revenue.
• Value proposition. Combining listing fees with commissions can provide value to sellers and increase marketplace revenue, but balancing these models is crucial for success. Offering a trial period with unlimited listings can also help maintain vendor interest.

Use scenario

This marketplace revenue model applies great with marketplaces selling unique items. For instance, a platform offers hand-craft products. The strategy is also common with classified or ad platforms. The marketplace business model does not imply selling products in this case. Thus, you cannot collect transaction commissions.

Listing fee model suites a marketplace with an established lead flow. Choose this strategy if your platform has a strong reputation and has formed the user base. Also, make sure that this strategy works efficiently in your industry. If similar marketplaces do not use it, you better opt for another revenue model.

Example

Listing fee model is a widespread revenue strategy used by two-sided e-commerce websites. For instance, Etsy is one of the most well-known marketplaces for handmade items. For instance, in 2022, Etsy’s revenue was around $2,560 million.

Horizontal online marketplaces, including Etsy, mainly implement regular and premium listings. On the site, payments for merchants are required. They must pay listing fees for each product announced. At the same time, the company makes its fees and taxes policy transparent.

Read also: Online B2B Marketplace Development: Step-by-Step Guide

Featured listings

Websites selling particular types of assets, like boats, cars, and real estate, use this monetization strategy. Featured listings ensure providers’ items will be more visible to buyers on the platform. You can place featured articles on the first page of your platform.

Featured listings work as markers. They rank vendors’ offerings to the top so customers can see them without effort. Naturally, sellers start with listing fees. Later, they can upgrade to the premium option when the marketplace scale is achieved.

There are several types of featured promotions used in marketplaces:

• Promoted products listed on other pages or in different categories;
• Featured suggestions that appear in the cart and during checkout;
• Sponsored vendor profiles displayed on the main page;
• Featured blog posts or newsletters.

Featured listings are an excellent way to catch buyers’ attention. Still, they should resonate with buyers’ interests and improve their experience with your platform.

Advantages and challenges

• Flexibility. Featured listing fees offer flexibility in revenue generation, allowing for various combinations of featured items to be promoted.
• Stable and significant profit. For established marketplaces with a broad customer base, featured listing fees can provide a stable and substantial source of revenue.

Challenges:

• Relevance and quality. To maximize the effectiveness of featured listings, it's crucial to ensure they are relevant to users' needs and promote high-quality products, addressing potential challenges in maintaining user engagement and satisfaction.
• Ensuring stable profit. Balancing free and paid customers can be challenging, as free users typically outnumber paid ones, requiring careful management to maintain profitability.

Use scenario

Featured listings are a good choice for platforms with various categories of products and unique items. This strategy works well for a well-established marketplace with a constant flow of users. Also, you should use it along with another monetization approach as support.

Examples

As an example of this revenue model, we can name TradeRV, an online marketplace for campers in Australia. It offers to feature a listing within a package for $149. Other packages offer standard or higher appearance of your listing.

Another example is the Rightmove platform. It is the leading website for selling real estate property in the United Kingdom. The premium listings are promoted for £50 per property, and the Featured property mark requires £180 per month.

Advertising

This marketplace model allows third-party advertisers to promote their products and services. It means they pay for publishing ads on your marketplace.

You can opt for other revenue streams if you have a well-thought advertising approach and a significant user base. The ways to promote goods may vary and usually include graphics, banners, and text.

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• Brand awareness and increased sales. Effective advertising raises brand awareness and contributes to sales growth.
• Clear value proposition. Ensuring advertisements do not overwhelm customers helps maintain the value of the platform, encouraging repeat visits.
• Personalized experience. Providing a personalized experience through advertising can establish a stable source of profit for the marketplace.

Challenges:

• Relevance and bypassing. Consumers seek more relevant brand experiences and may use technology to bypass ads, potentially leading to the loss of potential customers.
• Balancing needs. Balancing the needs of buyers and sellers in advertising can be challenging, as sellers aim to target specific customer groups while customers prefer personalized ads.
• Quality control. Ensuring the quality of third-party advertising is difficult, necessitating measures to limit third-party commercial offers to certain website positions.

Use scenario

This method is proper when you have the strong trust of users in your marketplace value. So, foreseeing a niche in your online marketplace business model is advisable. In this case, service providers or sellers will be more interested in payments for ads on your platform.

Also, it is advisable to have ads as an additional revenue stream along with another monetization model.

Example

An example of a marketplace using ads is the Finnish wedding platform Häätori. It is free for customers. Meanwhile, the marketplace platform lets wedding service providers to buy ads. As advertisements offer wedding services, website users are more interested in them.

Read also: How to Build a Multi-Vendor Marketplace Platform From Scratch

Signup fees

Signup fees are a popular marketplace monetization model. You charge users a fixed payment for access to your platform. It's simple and doesn't require complex technical solutions. Users pay from the start.

For this model to bring profit, you need to persuade providers with a specific value to join your platform if you are at the start. It will be easier for you to make the most of this model if your marketplace has both buyers and sellers on board. Also, it is helpful to find an affordable signup amount for your sellers.

Advantages and challenges

• Suitable for starter online marketplaces. Subscription models are beneficial for new marketplaces with low sales volume.
• Simplicity of implementation. Subscription models are straightforward to include in your marketplace from a technical perspective, facilitating revenue model development and profit forecasting.

Challenges:

• Lack of scalability. Subscription models may not scale well, necessitating the need for additional monetization approaches to support growth.
• User reluctance. Users may be hesitant to sign up for a fee, requiring clear demonstration of the benefits of the marketplace. Offering free trial periods can incentivize customer engagement.

Use scenario

This model is great in the early stages of marketplace growth. This fee grants users access to premium marketplace features and high-quality products, creating a sense of exclusivity and justifying the investment. The revenue generated from signup fees helps sustain the marketplace and fund further growth.

To use it in the long run, combine it with another online marketplace revenue model. In a scenario for signup fees, a marketplace offers an exclusive membership program with a fee.

Examples

The signup fee is collected by ClickBank, a global marketplace that connects vendors from over 200 countries. The platform charges a one-time activation fee of $49.95 when a vendor’s first product on ClickBank is approved.

Another example is Anytime Fitness. It is a 24/7 fitness franchise that embraces 500 clubs in Australia and 4,500 clubs worldwide. The average cost of monthly membership is $41 in the United States, and $53 in Canada. Club dues, monthly fees and any additional charges are specific to each independently owned gym.

Further reading: 9 Best Payment Solutions for Online Marketplaces in 2024

Mixed online marketplace revenue model

It is a widespread practice for marketplaces to combine two or more monetization models. This enables the platforms to generate revenue through several resources. Advantages and challenges

• Diversified revenue streams. Implementing multiple marketplace revenue models enables growth of user base and profit.
• Stable revenue flow. Supporting several monetization strategies ensures a steady income stream for the platform.
• Balanced charging. By balancing charges between buyers and sellers, the platform retains more customers' interest.

Challenges:

• Building the right strategy. Developing an effective monetization strategy requires careful consideration of all revenue streams to be applied.
• Integration of models. Combining different models like freemium and commission requires seamless integration and management.

Use scenario

In a mixed online marketplace revenue model scenario, the platform combines subscription fees, transaction commissions, and advertising revenue. Users can subscribe for exclusive benefits, sellers pay commissions on transactions, and third-party vendors advertise to the user base. This diversification maximizes revenue while catering to different user segments and business needs.

The mixed revenue method allows for flexibility in charging users and helps back up revenue flows. Thus, this approach suits growing and established online marketplaces with various business models.

Example

Amazon successfully implemented several monetization models. The platform introduced two selling plans for $0.99 per unit sold and $39.99 per month with an unlimited number of sold items. Among other costs that sellers pay to the platform are referral, selling, and premium services fees.

Codica’s expertise in building marketplaces

Choosing the right monetization strategy is one of the vital aspects of your marketplace’s success. Typically, it is advisable to choose it at the product discovery phase. At this stage, our analysts discover the business potential of your project. Also, Codica analysts will help you to choose the most profitable strategy depending on your specific marketplace niche.

Another essential factor is choosing the right development partner. Your marketplace will thrive with the right monetization strategy and our professional approach.

At Codica, we know that future users will help you grow your marketplace. That is why we focus on creating user-friendly solutions. For this, we apply proven technologies to develop your platform.

At all stages of development, we involve experts that tackle the needed tasks. Therefore, corresponding teams deliver a marketplace according your ideas and requirements, boasting user friendly marketplace design and tech standards.

Here is how we built the online marketplace for boats in Australia. This website is Australia’s helper in selling boats and marine equipment. The founder of the platform needed to improve business results and promote it to users and advertisers.

We enhanced the inventory management system that handles ads from Australian dealers. Also, our team introduced the function of choosing paid packages. This increased the number of ads listed by private sellers and dealers.

The platform uses featured listings to promote particular items from sellers. Also, the website shows thematic ads. As the ads promote marine vessels, the buyers are interested in them.

We care about each project and use our knowledge to bring your marketplace to success. Check our portfolio to see how we delivered this marketplace for boats as well as many other platforms.

Takeaways

Every marketplace owner should pay particular attention when choosing the proper monetization strategy. It plays a crucial role in generating a profit on the platform.

Before deciding on a revenue method for your future online marketplace development, we recommend following these steps:

1. Analyze the market and competitors.
2. Define the business model of your future online platform.
3. Choose the right monetization model depending on your website niche.

In short, it is always a good idea to start with a single monetization method making it a priority. Later, as your business scales, combine other strategies to find out what marketplace revenue models fit your business.

If you have a marketplace idea in mind, contact us. We know how to make your solution stand out among competitors and bring the best experience to your users.