An online marketplace, also known as an e-commerce marketplace, is a type of multi-channel e-commerce site. Third parties provide products and services, and the marketplace operator processes the transaction between buyers and sellers. Success can be difficult to gauge in a marketplace, since it represents a classic chicken-and-egg problem. You can’t attract buyers without sellers, and you can’t get sellers without buyers. The key performance indicators (KPIs) for measuring marketplace success include the following:
- Customer Acquisition Cost
- Long-term Valuation
- Gross Merchandise Value
- Buyer Concentration
- Seller Concentration
- Net Promoter Score
Liquidity is proportional to the ratio of the number of transactions on the platform and the number of consumers and sellers. It’s essentially the efficiency with which your marketplace matches buyers and sellers. You can monitor your liquidity by measuring the rate at which listings are converted into transactions within a given period of time. A marketplace with low liquidity will experience difficulty in attracting more users, and the existing users will eventually find other marketplaces with better listings.
Liquidity is the business momentum that sustains the marketplace’s growth. The existing user base will attract more users once it reaches a critical level, resulting in self-sustaining growth. This achievement increases liquidity to the point that your marketplace can be easily scaled up.
2. Customer Acquisition Cost
Customer Acquisition Cost (CAC) is the total cost of gaining a new customer, including advertising and marketing costs. The number of customers acquired during a given time period is one way to estimate CAC. A high CAC is one of the most commons reasons for a new marketplace to fail. A decreasing CAC improves the marketplace’s profit margin improves, making it more economical to gain new customers. CAC is most effective for measuring a marketplace’s short-term success.
3. Long-term Valuation
Long-term valuation (LTV) is the total value of a customer’s relationship with a business over the lifetime of that relationship. This metric is best used as a long-term measure of marketplace success. A low LTV can stifle short-term growth, even when the CAC is also low. This scenario occurs when a customer’s value is less than the cost of acquiring that customer, which could mean your business model isn’t viable.
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4. Gross Merchandise Value
Gross Merchandise Value (GMV) is the total value of the goods or services sold during a given time period. It’s often confused with revenue, although revenue is actually a percentage of GMV. One method of calculating GMV is to multiply the number of transactions by the average value of each transaction. Marketplace owners should track this KPI carefully since it’s one of the primary indicators of growth for a marketplace.
5. Consumer Concentration
Consumer concentration refers to the concentration of revenue in a business’s customer base. It’s usually expressed as the percentage of total revenue that comes from the top 20 percent of consumers. Consumer concentration is a critical profitability KPI because a high value increases the risk of your marketplace losing market share, especially when the majority of income is from the top 20 percent of your consumers. This increase in risk means that a marketplace must respond to a rising consumer concentration.
6. Seller Concentration
Seller concentration is the concentration of sellers by geographical location. It’s a profitability KPI, but seller concentration also measures a effectiveness of a marketplace’s network. A marketplace relies on its network to gain buyers and sellers, which is essential for gaining market share. Seller concentration is particularly significant when it shows a high concentration of sellers in a particular area.
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7. Net Promoter Score
Net Promoter Score (NPS) measures the loyalty of a marketplace’s customers. The value of this KPI ranges from -100 to +100, such that a score of -100 means that 100 percent of customers are detractors of the marketplace and a score of +100 means that 100 percent of customers are promoters. Customers are categorized according to a question like “How likely are you to recommend our marketplace to friends or colleagues?” which typically requires a number from 0 to 10 as the response. Customers who respond with a 9 or 10 are promoters, while those who respond with a number less than 7 are detractors. NPS indicates your marketplace’s reputation and level of customer satisfaction.