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#Marketplaces | 18 min read | Updated: 2/23/2024

7 Different Types of Marketplace Business Models That Actually Work

Updated: 2/23/2024
, Chief Strategy Officer of Sloboda Studio
#Marketplaces
18 min read

What exactly is the measurement of marketplace success? The number of users or amount of invested money? Nope, it is your revenue. Nowadays, there are different product marketplace business models to make profits that can help entrepreneurs earn:

  1. Commission
  2. Subscription
  3. Listing fee
  4. Freemium
  5. Featured listings and ads
  6. Lead fee
  7. Mixed  

To make the right choice, you should know about all the pros and challenges that each marketplace business model has and which marketplace revenue model each marketplace giant uses, and why.

How To Choose The Correct Marketplace Business Model

Nowadays, marketplaces use different business models to make profits. In our many years of experience building online product marketplaces, we have discovered that the best revenue model for most is to charge a commission from all website purchases. This approach is scalable and quite lucrative.

However, there are instances where the commission model is unsuitable, so alternative business models to make profits are needed. 

At the start, it is good to have only a single revenue stream in use at a time. When the marketplace grows, try combining different revenue streams to create a product marketplace business model that takes into account everything that is happening on your site.

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What Is the Difference Between Retail and Marketplace Model?

The retail business model involves a seller offering products or services directly to consumers, controlling the inventory, pricing, and customer experience. In contrast, the marketplace model connects multiple sellers with consumers, providing a platform for transactions where sellers manage their inventory and pricing, and the marketplace facilitates transactions and may provide additional services.

Our Expertise in Developing Online Marketplaces

Sloboda Studio has been developing online marketplaces for over 7 years now. Our team has built more than 10 marketplaces. 

Greater Vacation Rentals

Greater Vacation Rentals

Greater Vacation Rental is an online rental marketplace for users to book vacation accommodations. The client’s business goal was to build an online rental marketplace that is similar to Airbnb.

In the span of 3 months, we transformed our client’s idea into an MVP where users are able to:

  • list and advertise their properties;
  • reserve or book accommodation;
  • make payments on the website itself;
  • leave reviews about their experience.

Our team also created a mobile app that had all the functionalities of the website. We developed all the core features of the app and integrated external APIs for payment. 

Foody

Foody recipe markeplace

Foody is a US-based recipe marketplace where popular chefs can share their recipes with the world.

Our client came to us with a business idea, and we needed to build a custom software marketplace from scratch where cooks and influencers would be able to monetize their content. 

Due to our cooperation with Foody, an online marketplace was created with a stunning and user-friendly interface for everyone who loves cooking. Here are some of the features we implemented:

  • Registration
  • Home page
  • Profiles
  • Recipes and collections
  • Video and image uploading
  • Payments
  • Admin panel
  • Rates and reviews
  • Clickable banner Autoscaling 

TOP 7 Online Marketplace Business Models in 2024

In 2021, $3.23 trillion was spent globally on the top 100 online marketplaces. And Amazon is the leader in this category largely due to its business model to make profits.

The majority of online product marketplaces operate with one of the three basic strategies: commission, subscription, and listing fees. But actually, there are many more revenue models on the market. Each of them has its benefits and difficulties in implementation.

The table below provides a detailed breakdown of various marketplace business models. Each model is explained to provide a clear understanding of its unique characteristics, scalability, and profitability in the current market landscape.

Business ModelDescriptionProsDescription
CommissionCompanies earn fees by connecting buyers and sellers, typically charging a percentage of the transaction value.– High revenue from successful transactions.
– Aligns interests of seller and platform owner.
– Requires lots of sales.
– May discourage transactions due to increased costs.
SubscriptionCustomers pay a recurring fee to gain access to a product or service.– Steady income for the business.
– Helps build a loyal customer base.
– Some users may avoid due to regular payments.
– Needs to offer interesting or new content to keep customers.
Listing FeePlatform owners charge money to allow products or services to be listed.– Can earn money quickly.
– May attract better listings because of the listing fee.
– The extra cost can lessen the number of listings.
– Too high fees can limit growth.
FreemiumBasic services are free, but users must pay for extra features or better service.– Can draw many users with free services.
– Users can try before paying.
– Can be hard to get free users to pay later.
– Faces competition from other free or cheaper services.
Featured listings and adsCompanies pay to make their ads or listings more noticeable.– Can make more money from businesses wanting more visibility.
– Can help users find what they want more quickly.
– May make the website or app too busy or hard to use.
– Bigger companies with more money might dominate.
Lead feeCompanies pay a fee to get the contact details of potential customers from another business.– Companies pay only for the leads they get.
– A good way to make money from the current user base.
– Not all leads may be good, which can upset customers.
– Can put off customers if they feel their details are being sold.
MixedThis model uses different ways from various business models to make money.– Can make money in many ways, appealing to different people.
– Not depending on only one way to make money reduces risk.
– Can be hard to manage different methods at once.
– Might confuse customers with too many offerings.

Marketplace business models, comprehensive breakdown

Can’t find the right model for you?

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1. Commission Business Model

The commission model is a revenue model where a user is charged a fee for each transaction. It is by far the most popular online product marketplace business model. When the customer pays the supplier, the marketplace charges a percentage or a fixed fee for its services.

The platform may charge either the seller or the buyer. Another scenario is taking a commission from both of them.

This marketplace revenue model is the most common since the fee is justified. Sellers and buyers may operate for free and pay only when they get some value from using the business platform. At the same time, the product marketplace gets revenue from each conversion as well.

TOP Online Marketplace Revenue Model - Commission Revenue Model

Pros of the Commission Model

Here are some of the advantages of the commission business model:

Attracts More Suppliers

This marketplace business model is so popular since it allows online marketplaces to simplify solving the chicken and egg problem, and to attract vendors. Since sellers pay only when they sell their items, they do not risk any money by placing their business on this platform.

With Each Transaction, You Monetize

The commission model is a very effective marketplace revenue model. The marketplace monetizes every time a user pays for a service or product. 

Challenges of the Commission Business Model

Even with all those advantages, there are a few cons that online marketplace owners need to be aware of:

Providing Enough Value

The main challenge for commission-based online marketplaces is providing enough value for sellers and buyers. 

If your platform doesn’t offer enough value, then marketplace leakage can happen. This means that the users will try to find a way to communicate with suppliers directly rather than use your platform.

NB: How to offer enough value?

For example, you may offer them the protection of the deal, or insurance, or automate some routine work for the vendors.

Pricing

Another challenge of this marketplace business model is setting the prices for services.

To charge a percentage of each transaction or a fixed fee? Should you charge only one party or both?

How much to charge to get revenue and still not discourage your customers?

There is no right answer to this question. The method of charging money should be chosen according to your marketplace revenue model. 

For example, the pricing model will depend on whether your marketplace is seller- or buyer-oriented. 

Marketplaces Using Commission Model 

The well-known marketplaces using the commission-based marketplace business model include the following:

Airbnb

One of the biggest online marketplaces operating with the commission model is Airbnb. Airbnb is a C2C marketplace that connects hosts with people who want to rent a house or a room while traveling for a short period.

Airbnb homepage

Airbnb home page

It charges fees both from the hosts and the travelers. The property owners pay a flat service fee of 3% of the received amount of money. The guests pay a service fee of around 14%.

Amazon

Amazon homepage

Amazon Home Page

This is a B2C marketplace that sells items from different vendors on one platform. Amazon charges a fixed $0.99 fee to sellers who offer less than 40 items.

Fiverr

This is a freelance marketplace that connects freelancers who offer digital services with customers.

Fiverr Homepage

Fiverr Home Page

Fiverr charges customers $2 for orders up to $20. And 5.5% if the service buying is more than $50. Fiverr charges the service suppliers 20% of every job done.

2. Subscription-Based Marketplace Business Models

The subscription model is a marketplace revenue model where a user is charged a regular fee for access to the platform.

The value proposition of the online marketplaces that use a subscription model is helping the suppliers find new customers or get access to the database of potential customers or partners.

Generally, online marketplaces that charge subscription fees do not participate in user transactions. The buyers can pay directly, for example, with a credit card. 

Another case is when the relationships between seller and buyers do not involve money at all, for example, dating or Couchsurfing-like sites.

The subscription business model is best for those online marketplaces that do not have the resources to facilitate the transactions between the users or whose business logic does not imply them at all.

TOP Online Marketplace Revenue Model - Subscription Revenue Model

Pros of the Subscription Model

The subscription model has its advantages and disadvantages. Here are the pros:

Sustainability 

The subscription revenue model allows you to predict your monthly revenue regularly. It’s a great revenue model for the marketplace if you already have a community of trusted customers who will be willing to pay for the services provided on your marketplace regularly.

Attracts More Customers

This particular online marketplace revenue model is compelling to users since they pay a relatively small amount for the services each month instead of paying one big all at once.

Challenges of the Subscription Model

Challenges to the subscription model make it difficult to monetize:

Providing Enough Value

The main challenge of the subscription model is providing enough value so that the users understand the benefits of buying a membership. This means finding customers or partners, saving money, getting new experiences, etc.

Chicken-and-an-Egg Problem 

Another challenge is that the subscription models make it even more difficult to solve the chicken-and-an-egg problem of an online marketplace.

In the case of the commission model, the users pay only when they get money with the help of the marketplace. For example, when they have an opportunity to see the benefits themselves. So they are not risking anything.

Paying in advance may discourage potential clients from using the platform. You may overcome this difficulty by offering a free trial or discount to the new adopters of your product.

You may also create different subscription plans (such as free, basic, and premium). Plus, you can offer different rights to the users of each group.

Marketplaces Using Subscription Model

Lots of well-known marketplaces like CouchSurfing are already implementing the subscription model:

CouchSurfing

A typical representative of the subscription model is CouchSurfing, where local people can accept travelers from all over the world.

Marketplace Example of the Subscription Model - CouchSurfing

CouchSurfing Home Page

As of 2020, upon registration, Couchsurfing requires a small fee for new users to use the platform (due to their financial struggles from COVID-19). Users need to pay $2.39 per month (or $14.29 per year), which provides access to the platform and gets them verified (Those who were already verified won’t need to pay until 2021).

OkCupid

OkCupid Homepage

OkCupid Home Page

OkCupid is a dating website that connects people who want to date together.

It has two paid subscription models. The first model – A-List, charges $24.90 for one month or $4.95 per month when a user signs up for six months. The second model, A-List Premium, charges $24.90 for one month or $19.90 per month when a user signs up for six months.

3. Listing Fee Marketplace Business Models

The listing fee model is an online marketplace revenue model when a marketplace charges sellers for posting ads on the platform.

While the commission-based online marketplaces charge a fee only when the item is sold, they may miss the revenue from the less popular merchandise. The listing fee model allows for tackling this problem and getting profit from each and every ad on the platform.

TOP Online Marketplace Revenue Model - Listing Fee Revenue Model

Pros of the Listing Fee Model

The listing fee model has an undeniable advantage over the previously considered ones.

Price

The listing fees are generally small and are much cheaper than the price of a subscription.

Listings’ Quality

The sellers pay for each advertisement and they want to get as much revenue as possible from each one. This makes them work on the quality of each item, instead of creating tons of ads hoping that they will be sold somehow. 

Challenges of the Listing Fee Model

The listing fee model also has disadvantages that should be considered:

Chicken-and-an-egg Problem 

Like the subscription model, listing fees can also make solving the chicken-or-the-egg problem more difficult. The clients pay before they get profit from the marketplace and risk their money. This may discourage them from using the platform.

In order to overcome this challenge, you may provide the new users with several free listings or, for example, an unlimited number of listings during a free trial period.

Difficult to Get Enough Revenue

Usually, marketplaces don’t charge a lot for listings. So it’s harder for platforms to sell for enough revenue to be in the black. That’s why the listing fee model is usually used as a secondary monetization model.

Marketplaces Using Listing Fee Model

The listing fee model is popular and widely used:

Etsy 

Etsy  - C2C marketplace

Etsy Home Page

When Etsy had just launched, it offered a promotion – a month of free listings for each of its clients.

When the trial period ended, it started charging $0.20 for each listing. This decreased the number of items listed per day but increased the efficiency of the existing ads. Paying the listing fees allows the user to post this ad for 4 months.

4. Freemium Marketplace Business Models

Freemium is a revenue model where a marketplace has both free and premium features. This model is a bit tricky to work with since your marketplace needs to offer very alluring premium features for users.

TOP Online Marketplace Revenue Model - Freemium Revenue Model

Pros of the Freemium Model

Here are the benefits of using the freemium business model:

Fast Lead Generation

“Free” is what grabs users’ attention the most at first. Thus while using freemium you will have more chances to:

  • build a customer base
  • gain trust, and only then offer premium features.

No Limitations in Using

With the freemium model, users can easily access your platform, post a listing, or communicate with each other. 

Cases when users need to pay:

  1. When they want to advertise their posting 
  2. When they want to post more than a limited number of listings. 

Challenges of the Freemium Model

The freemium model also has some drawbacks which should not be ignored:

From Free to Paid

The biggest challenge is converting free users into paying ones. It’s likely that while wasting your money on supporting and attracting more free users, you won’t get much-paid ones. It takes some time. Thus, the freemium model is used as a supplementary online marketplace revenue model.  

Enough Value

The freemium model is similar to the listing fee model, they both need to offer enough value so users would want to pay for additional services.

Marketplaces Using Freemium Model

Many renowned online marketplaces use the freemium business model, such as:

Craigslist

Craigslist is a classified ad website that was created in the 1990s. With time it became one of the biggest classified marketplaces around the world.

Craigslist - listings website

Craigslist Home Page

Generally, posting a listing on Craigslist is free. However, there are some categories like real estate where Craigslist charges some fees.

5. Featured Listings and Ads

The featured listings and ads model is an online marketplace revenue model where sellers buy advertising privileges to enhance visibility on the platform. 

Sellers or service providers pay to have a featured listing higher than others or be at the top of a certain category provided that all other listings are free to post.

TOP Online Marketplace Revenue Model - Featured Listings and Ads

Pros of Featured Listings and Ads

The benefits of using featured listings and ads include:

Additional Revenue Stream

The featured listings and ads model can only be used as an addition to the main model. It is a great revenue model for the marketplace when you want to introduce a new flow of revenue. But be aware of not overloading your marketplace with ads.

Challenges of Featured Listings and Ads

Disadvantages of the featured listing and ads include:

Hard to Monetize

With this model, it isn’t easy to get enough users interested in paying for featuring their listings. Moreover, it is even harder to have a balance between free and paying users. Usually, free users will outnumber paying users. 

Keeping Users on the Platform

Too much advertising is never good for the business. Since it may discourage your users from using your platform.

Marketplaces Using Featured Listings and Ads

The listings and Ads online marketplace revenue model is especially used with real estate marketplaces.

Zillow

Zillow is the most popular one. It charges agents and management companies for advertising their listings on a platform.

Zillow - real estate marketplace

Zillow Home Page

6. Lead Fee Marketplace Business Models

The lead fee model is an online marketplace revenue model where a user posts a request, and suppliers pay the marketplace fee in order to bid for the customer.

TOP Online Marketplace Revenue Model - Lead Fee Revenue Model

Pros of the Lead Fee Model

The lead fee model provides a better value proposition than the listing fee model:

Value

This revenue model gives users enough value to pay to your marketplace. Since suppliers are connected with potential buyers, there is no risk for them in spending some money compared to the listing fee, where suppliers don’t know if they will ever get their potential buyers.

Challenge of the Lead Fee

The lead fee business model only works if the value of the lead is high. That is why it is not common in C2C marketplaces.

Marketplace Leakage

If a marketplace charges high lead fees then service providers are going to want to work with customers directly. 

This situation can lead to marketplace leakage. In order to avoid this situation, try to set middle to low prices on your marketplace fees. 

Marketplaces Using the Lead Fee Model

A renowned well-performing example of this model is Thumbtack.

Thumbtack

Thumbtack - online marketplace that connects customers with local professionals

Thumbtack Home Page

This is one of the online marketplace types that connects customers with local professionals.

At Thumbtack there are 2 types of leads: exact and partial leads. With exact leads, service providers pay automatically for leads that match their preferences, no matter if they reply or not. With partial leads, service providers pay only if they accept the job.

7. Mixed Marketplace Business Models

When selecting an online marketplace revenue model for your platform, it is not necessary to choose only one of them.

The major players in the online marketplace business successfully combine several models and have several revenue sources.

TOP Online Marketplace Revenue Model - Mixed Revenue Model

Pro of the Mixed Model

The major players in the online marketplace business successfully combine several models and have several revenue sources.

Several Revenue Streams

As previously mentioned there are marketplace revenue model types that are used as a main source of income. And there are those that come as an addition to the main one. It is normal to have several monetization channels on your marketplace. Just choose the two sales models that suit your marketplace and/or your products the most.

Challenge of the Mixed Model

Every marketplace business model has its disadvantages and a mixed model is no different:

Balance Between Charging Both Parties

If your marketplace has online revenue models that only involve charging either a supplier or a customer, the paying side is likely to abandon your platform real soon. Instead of focusing on one side of your marketplace sales, introduce such models that will involve both customers and suppliers with their products.

Marketplaces Using the Mixed Model

Here are some well-known marketplace types that use the mixed business model:

Amazon

One of the examples of the successful combination of several models to sell products is Amazon.

They have different seller groups with different commission models: individual sellers and pro merchants. 

The individual sellers are those who offer less than 40 goods and pay a fixed $0.99 fee for each item sold. The pro merchants pay a fixed monthly fee of $39.99. As we can see, they unite the commission and the subscription model.

Etsy

In addition to the listing fee, Etsy also charges a 6.5% commission for each sell transaction between the buyer and the seller. This helps them to get revenue from each ad. It also gives them additional income from the sales successes.

Conclusion

In a nutshell, there are 7 core online marketplace revenue models to sell products. Every model has its own pros and challenges.

The most popular monetization model for an online marketplace is a commission model. With this model, a user is charged for every transaction. 

Besides the main monetization models like commission, subscription, and freemium, there are secondary models that can provide an additional revenue stream. 

However, there is no necessity to limit yourself to a particular marketplace business model. The major companies of the market successfully combine two or even more strategies like Amazon or Etsy. 

Sloboda Studio has some major experience in building and helping online marketplace come to life. Just drop us a line for a free 30-minute consultation.

Frequently Asked Questions

What is a marketplace business model?

A marketplace business model is a way for an online marketplace to acquire buyers and sellers, remain competitive, and sustain revenue.

Are marketplace businesses profitable?

Looking at the success of top marketplaces like Amazon, Etsy, eBay, Alibaba, etc., it is hard to say that marketplaces are not profitable. For example, Amazon generated total net sales of approximately 121.2 billion U.S. dollars during the second quarter of 2023.

What is the most popular monetization model for a marketplace?

The most popular monetization model for a marketplace is the products commission business model. Here, the users are charged a fee for each transaction. When the buyer pays the seller, the platform charges a percentage or a fixed fee for its services.

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