There is no doubt around the successful business model of an online marketplace platform, with two-thirds of such firms generating more than $50 million annually. But, when you strategize and invest in the online marketplace platforms, the return for that investment depends on many different metrics.
A higher user base or better transaction rate per user is not the only KPI(Key Performance Index) to measure your ROI. Take an example of a GMV or Gross Merchandise Value that helps measure the total order value for a multi-vendor online marketplace platform in a specific period.
As you can see, the meteoric rise of GMV for eBay measures the delivered value. There is a difference between a contracted and delivered GMV that every online marketplace platform should consider. Apart from the GMV, there are factors like the number of active users, transaction metrics, business KPIs, and others. Let’s know each KPI to measure the right ROI for your online marketplace platform.
1. Customer Metrics
Consumer metrics are one of the vital indicators of business traffic. How many consumers you attract will matter the most to the value proposition you can offer to a seller on the online marketplace platform.
For example, you are a multi-vendor marketplace platform with many different categories of products, from daily essentials to personal care. If you are to attract new vendors, the average user traffic per month, quarter, or annually can be a significant deciding factor. A multi-vendor marketplace giant like Amazon has usage of three weeks per month, making it a weekly product. Let’s understand some of the customer metrics for your business.
Daily Active Users
Daily active users or DAU is the measurement metrics on how many users visit your marketplace per day. There are many ways to measure the daily active users, and one of them is to check on the number of website visits per day.
Monthly Active Users
Monthly Active Users or MAU is the average number of users that visit your online marketplace platform every month or within a timeframe of 30 days. Tools that you use to track DAU can also be used for monthly active users.
Measuring DAU and MAU can help you derive the stickiness ratio, which can be calculated by this formula. It helps you gauge the ratio of users that come back to your online marketplace platform. Based on this, you can strategize consumer retention.
No. of DAU/ No. of MAU= Stickiness Ratio
If you have 3000 DAU and 6000 MAU, your stickiness ratio can be around 50%.
However, these KPIs do not account for the customers that have stopped using your products or services. Here, you can use the Cohort analysis approach that divides your user base into different groups. Now you can track the visits of each group to determine the retention and churning rate of users.
Bounce rates are a measurement of how many users visit your online marketplace platforms without a transaction. There can be several reasons for higher bounce rates, your web portal’s lousy user interface or higher shipping fees can be a few of them. Analysis and tracking of bounce rates can help you sustain traffic on your platform. Once you have identified your online marketplace platform’s issue, just strategize a retargeting campaign to drive traffic back to your portal.
Time Spent on the Platform
It is a metric that will help you identify the blockers or obstacles in navigation and even the most popular pages. For example, if there is too much time spent on the checkout page, there are problems with completing a transaction. There are three ways to track time spent on a web portal.
- Message pings
- Exit events
- Number of sessions
Every web browser or app that hosts your online marketplace platform provides a ping message(every 10 seconds), which you can track. Another way is to track entry events and exit events on the web flow of your platform.
If you want to track the event sessions, Google Analytics is a great tool that uses checking on interaction events. It is a subset of user’s active behavior on your platform. Consumer metrics can improve your user base, but transaction metrics define an online marketplace platform’s real success.
2. Transaction metrics
The number of transactions per user is one of the most significant factors that affect your value proposition. If you are a multi-vendor marketplace platform like eBay or Amazon, sellers will look for higher transactions per user. Another essential transaction metric is your customer to seller ratio that can help you track the value you offer on the platform. Let’s look at some of the transaction metrics.
Number of Transaction
How much transaction your marketplace attracts makes a strong case for any seller that wants to use the platform. Suppose you want to build a marketplace that can beat the classic chicken and egg problem of buyer-seller. In that case, several transactions matter the most as higher transactions can help you maintain a critical mass or the minimum number of sellers and buyers for the business’s sustainability.
Monthly Recurring Revenue(MRR)
MRR is a predictive amount of revenue that the online marketplace platform can expect every month. The most critical parameter that accounts for in the measurement of MRR is ARPU or Average Revenue Per Unit. In the case of a multi-vendor marketplace platform, ARPU is considered as the average revenue per transaction. Here is how you can calculate MRR for your marketplace,
MRR = Monthly ARPU x Total number of Monthly Users
CS(Customer to Seller) Ratio
The CS ratio or buyer to seller ratio is the proportion of each seller serving to a specific number of customers. There are no fixed CS ratios that can help you build the best online marketplace platform, and it can be as low as 1:1, but finding the optimum balance is essential.
According to a report, Airbnb has a ratio of 1:70, while that of Uber is 1:50; at the same time, eBay has 1:5. So, the initial phase should be focused on building value by proper supply channels, and as you scale your business, you can go for better CS ratios.
Average Basket Value(ABV)
An average basket value is the total number of products sold during a single purchase. ABV depends on the kind of online marketplace platform and even the products that you list. It can also help you measure the time spent by a customer on the portal and even the CS ratio to infuse better sales.
3. Business Metrics
Business metrics are an essential part of your ROI strategy. It can help you understand the business side of building the best online marketplace platform, with insights on cost per user, merchandise value, and lifetime value.
GMV or Gross Merchandise Value
We discussed a little bit about GMV earlier, and now let’s get to the part where you can measure it. When you calculate the total number of products sold for a specific time by analyzing your sales records, you get the GMV. Now multiply your commission charges with the GMV, and you get the value of total revenue.
Customer Acquisition Cost(CAC)
CAC is a measurement of how much it costs for an online marketplace platform for the acquisition of each customer. Apart from the usual costs like marketing campaigns, and delivery services, there are other direct or indirect costs to build a marketplace.
Direct costs for customer acquisition are the tech-stack development costs, technical support, and platform maintenance costs. Indirect costs are more on the discounts, and promotional offers, or community-based expenditures to attract new customers.
Customer Lifetime Value (CLV)
Customer Lifetime Value or CLV amounts to the total revenue you can expect from a single customer. The best thing about tracking CLV is that it can help you achieve the right buyer to seller ratio. Another essential aspect of CLV to keep in mind is that it should be more than CAC for better sustainability. If the cost of customer acquisition is more than revenue per user, you will face a massive cash crunch as you scale.
To calculate CLV, you will need AOV or Average order value, which can be achieved by dividing the GMV by the total number of transactions per month. Once you get AOV, multiply it by the number of repeat purchases per user, and you get the value for CLV.
4. Loyalty metrics
There is no end to the type of metrics or tools that you can use to measure customer loyalty, but let’s look at a metric that can be best for an online marketplace platform.
Net Promoter Score(NPS)
NPS tracks the likeliness of your customers to recommend your marketplace. There are three pillar scores-promoters(9-10), passives(7-8), and detractors(0-6). Promoters are the most loyal consumers that keep on buying from you and recommend your products to others. While passives are often vulnerable to offerings from competitors, and detractors are unhappy consumers.
When you subtract the percentage of detractors from the promoter percentage, you get the value of NPS.
NPS= % of detractors – % of promoters
Tracking your marketplace is essential for calculating the ROI. It helps your online marketplace platform sustain the business in times of economic downsides like the recent pandemic. Most importantly, it can help you gauge the loopholes in your operations and structure that you can rectify for better growth. So, start tracking your business and create the best online marketplace platform through better insights. Connect with the Yelo team to know more!