Marketplace Economics
A marketplace sells nothing of its own. Buyers spend with sellers, and the marketplace keeps a cut of every order. An investor asks four things of one: how much of each dollar it keeps, what an order leaves after the costs that come with it, whether a cohort of buyers spends more or less as it ages, and how long a buyer takes to repay what it cost to acquire.
What is a take rate? The share of gross merchandise value (GMV) a marketplace keeps as revenue. The headline commission is not the answer: incentives paid to buyers come off it, and what is left after payment processing, refunds and support is the contribution an order really makes.
Four steps on one marketplace, marked together. The marketplace model runs the same arithmetic for five years of buyer cohorts and takes it to EBITDA.
The terms
- Average order value
- $48
- Commission charged to sellers
- 20.0% of GMV
- Buyer incentives
- 2.0% of GMV
- Payment processing
- 3.0% of GMV
- Refunds and trust and safety
- 0.3% of GMV
- Support and operations
- $0.75 an order
- Marketing cost per new buyer
- $60
| One cohort | Year 1 | Year 2 | Year 3 | Year 4 | Year 5 |
|---|---|---|---|---|---|
| Share still active | 100% | 35% | 32% | 30% | 29% |
| Orders per active buyer | 3.0 | 7.5 | 8.5 | 9.5 | 10.0 |
Step 1 · What it keeps
GMV is what buyers spend. The net take rate is the share the marketplace keeps after the incentives it pays to win the order.
Step 2 · What an order leaves
Net revenue on one order, less processing and refunds on its value and support on the order itself.
Step 3 · Does the cohort hold up?
Orders per buyer acquired is the share still active times their frequency. A cohort’s GMV retention in its second year is that figure over the first year’s, at the same basket.
Step 4 · When does a buyer pay back?
Add up contribution per buyer acquired, year by year. In which year of tenure does it first cover the marketing cost of acquiring them? Answer 6 if it does not within five years.
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Download the model
- Marketplace model: GMV, take rate and contribution · free Excel, formulas live