Metrics for Marketplaces
Quantify the numbers of your marketplace and track growth easier
Metrics are one of the most important topics in the startup world. They are what we use to measure growth and all the inner workings of our business.
GMV (Gross Merchandise Value)
Ever wondered whether your commission or the whole transaction belongs to your revenue? Many marketplaces do the mistake and report the whole transaction value as ‘revenue’ and their commission as profit, that’s not quite right.
When you are only in the business of facilitating transactions and not fulfilling them, your commission is your revenue and the whole transaction belongs to the GMV. Let’s create a little example:
Your business facilitated 100 x $1,000 transactions, taking a 10% commission in the process. Your GMV is $100,000, your revenue is $10,000.
The GMV helps you, but also potential investors and partners quantify the size of your marketplaces. Is your GMV scaling with your revenue? Is the GMV below average for the revenue made? All those are factors that can give more insight into the quality of your business.
Traditionally, you’d only calculate churn on the demand side. It’s important to know why customer leave your site, end their subscription or stop purchasing in regular intervals.
However, supply churn should not go unnoticed. Why are suppliers leaving the platform? What’s their lifetime like?
Ideally, your supply churn should be neutral or even net negative (meaning that existing suppliers growing make up for the ones that leave), but depending on business niche it can be good to know where your baseline lies.
Liquidity in a marketplace is the most important part. Traditionally, it’s defined as the percentage of listings that receive a transaction within a certain time period.
You are looking to create a stable baseline of liquidity. Your goal is not to reach 100% liquidity, since that would mean that your demand overpowers your supply. Instead, you are looking to reach a healthy rate between 50% - 90%.
Very similarly, you want to build a stable metric of supply-to-demand (or supply-to-customer), describing how many active suppliers in regards to active customers there are on the side.
This is a very specific metrics that doesn’t have an industry guideline. ebay and Airbnb have drastically different ratios here than UpWork and Toptal for example. Instead, track this metrics and react to changes early by focusing more on supply and demand.