Top 5 Marketplace App Revenue Models in 2021

The choice of revenue model might be the most important decision for a marketplace startup to make. Monetization strategies have a strong impact across all aspects of marketplace business — they define how a business generates income and what value the platform will offer to both users and sellers (or item vendors). The marketplace model serves as the fundamental framework for how an online platform operates and generates income, shaping the overall approach to monetization and growth.

If the marketplace business model is incorrectly designed from day one, there will be no chance to develop a sustainable and scalable business. A great way to ensure you pick the right strategy is to examine existing marketplaces and their revenue models to understand how to monetize your platform. Analyzing the most common revenue models and various business models used by successful platforms can provide valuable insights into which approaches work best in different industries.

In this article, we’ll take a look at the most effective marketplace business models and review their advantages and disadvantages in order to help you make an informed decision regarding your own strategy. It is also crucial to develop a comprehensive business plan and refine your marketplace idea to align with the top business models in the industry for long-term success.

The Commission-Based model is the most popular business model for a marketplace. This approach is also known as the commission revenue model, which is widely used by leading platforms to generate income by taking a percentage or flat fee from each transaction. Here, users are charged with a commission for each transaction they make. When a user buys from a service/product provider, the marketplace facilitates this payment and charges a percentage or a flat fee. The platform can also charge fees from both buyers and service/product vendors.

In terms of pricing, there are a few options of fee policies, with commission fees being the primary way these platforms monetize transactions:

• Order amount — the commission is calculated based on the item price;
• Item category — transaction fees are set for each individual category;
• Vendor type — the fee depends on the sales activity of the vendor.

Oftentimes, this marketplace revenue model is combined with other revenue models.

Pros & Cons

What makes this model so attractive is that users pay only when the item is sold, and vendors are expected to pay a fee only when the item is purchased. This helps to attract a large and loyal user base of both customers and vendors. On the other side, however, there is a need to constantly provide enough value for both parties, and to come up with a wise commission strategy.

Pros:

• Easy onboarding process;
• Predictable revenue stream;
• Ability to attract a large number of suppliers;
• The platform charges a fee only when a transaction occurs.
• The commission based marketplace model and commission model are scalable and adaptable for different types of marketplaces, including consumer to consumer and service marketplace platforms.

Cons:

• Balancing fee policies can be difficult;
• May not work for marketplaces with large transactions;
• Dependency on vendor sales;
• Potential scalability issues.

Industry examples:

Service marketplaces like Uber and Airbnb rely heavily on commission revenue.

Airbnb — an online marketplace for lodging and short-term rentals receives commissions from both guests and hosts for every booking made on the platform. Guests pay 6-12% in booking fees, while hosts are charged with a 3% fee on every successful transaction.

Uber — the largest ride-hailing marketplace in the world takes an average 25% commission of each ride booked via the app. The commission is charged from the drivers. With lower fares, however, the fee rate can go as high as 42.75%.

The commission revenue generated through this model is a key driver of marketplace profitability.

This model is highly popular in marketplaces where listings have high potential value or where non-monetary transactions take place. The listing fee model and listing fee revenue model are common monetization strategies in such marketplaces, where vendors pay a fee each time they list an item on the platform. Here, sellers/providers are typically charged for the number of listings (1, 10, 100, 1000, etc.) that they post on the platform.

The limitation in listings also forces sellers/providers to be more selective about items they add, which, in turn, increases the quality of listings on the marketplace. For this monetization model, the price per item always remains affordable — typically between $0.05-$0.30 — in order not to scare off sellers.

The Listing Charges model is rarely used as a standalone revenue strategy — more often, it is combined with other online marketplace revenue models.

Pros & Cons

The Listing Charges model works perfectly when sellers don’t want to opt for a subscription (for example) and are only selling items occasionally. It takes a commission fee from all items listed, including slow-selling ones. The main disadvantage of this business model for a marketplace, however, is that it cannot be successfully implemented on all types of online marketplaces.

Pros:

• Platform generates revenue regardless of how the items perform;
• Improves the quality of items being posted;
• Works well for occasional sellers;
• Is effective for non-monetary listings like dating, jobs, services, etc.

Cons:

• Doesn’t work for all types of marketplace platforms;
• Can prevent sellers from adding more items on a platform;
• Large seller base is required for the model to work;
• Does not guarantee value for item providers as listing fee does not guarantee sale.

Industry examples:

Overstock — an American online marketplace focused on selling furniture. While the platform combines several monetization strategies (commission + subscription), it also has listing fee commissions which range from $0.10 to $3.15.

Etsy — a global marketplace for unique items, independent artists, and crafters has a standard listing fee set at $0.20 per item. Just like the marketplace above, Etsy’s revenue model is not limited to listing charges only and also includes a few other online marketplace revenue models (commission + subscription).

Real estate marketplaces often use listing fees to maximize visibility and profitability for property listings, balancing listing fee models and commission rates to attract sellers and remain competitive.

The subscription model is not a new one. In fact, it’s been around for hundreds of years, emerging first in the 17th century in the publishing industry. In the last few decades, it has deeply penetrated the digital world, and there’s almost no single industry that hasn’t seen subscription-based startups and corresponding success stories.

Users are charged a recurring fee — on a monthly, quarterly, or yearly basis — to access the platform and its features. This approach is known as the subscription revenue model, which often involves a monthly subscription fee and generates predictable recurring revenue for the platform. Membership packages and monthly plans are another common practice used by marketplaces to offer access to different sets of items/features at different price points.

There are three most common kinds of products or services to be accessed under this revenue model for an online marketplace:

• Access to Content — videos, music, articles, stock images, website memberships;
• Access to Services — SaaS, insurance, leasing, utilities;
• Access to Products — food, personal care, subscription boxes.

In recent years, this business model for modern marketplaces has gained significant traction — according to Gartner, 75% of organizations selling their products directly to customers will move to a subscription-based model by 2023. Traditional industries are not going to lag behind, either. For example, it is predicted that the market for automotive subscriptions* will reach the $40 billion mark by 2026.

• — customers access different vehicles for a monthly fee.

Pros & Cons

One of the features of the subscription-based model that makes it so popular is that it can be easily adopted by any company regardless of its industry and niche — C2C, B2B, B2C, and even B2G in some cases.

Another significant benefit that comes to mind is that subscription services have a low entry barrier (membership fees can go as low as $0.99/mo) which makes them popular among customers.

When it comes to the disadvantages of this approach, these include an inability to retain long-term customers, increasing competition due to the crowded subscription-based business market, and a need to constantly keep the product value at the ‘WOW’ level.

Pros:

• Predictable revenue stream; offering a free trial period with full access to features can help attract new users and encourage them to subscribe;
• High expansion opportunities;
• Good customer relations;
• High potential for untapped markets.

Cons:

• High competition;
• Risks of high churn;
• Requirement to constantly maintain value;
• Customers may be afraid of contracts.

Industry examples:

eBay — for its online sellers, the platform offers several subscription packages that carry different features depending on the size of the seller’s store. Store subscription packages are as follows: Starter ($4.95/mo, for occasional sellers), Basic ($21.95/mo, for sellers wanting to reduce platform fees), Premium ($59.95/mo, for sellers who are looking for additional tools), Anchor ($299.95/mo, for advanced sellers who seek dedicated platform support), and Enterprise ($2,999.95/mo, for large scale sellers with high transaction volumes).

Amazon — another major marketplace player, Amazon offers two subscription plans for its sellers: Individual (free when selling no more than 40 items per month), and Professional ($39.99/mo for those selling 40+ items monthly). Apart from that, sellers are also expected to pay selling fees ($0.99 for individual sellers + referral fees + closing fees).

As the name implies, this is a combination of two words — ‘Free’ and ‘Premium.’ Here, users can access a set of free product features at no cost, or pay an extra fee to upgrade to full or more advanced functionality.

The practice of offering basic-level functionality to users has been around since the late 1980’s — this approach was quite popular among computer software companies who were giving away free-to-try versions of their products, and offering to pay extra to get the full package.

The term ‘Freemium,’ however, was first introduced in 2006 by Jarid Lukin, the Director of eCommerce at Alacra. In his blog post, he very precisely formulated the definition and the psychology behind the Freemium model:

Give your product for free and efficiently acquire a customer base via different marketing channels. Once that’s done, offer premium-priced functionality or the enhanced version of your product to the users.

Pros & Cons

Among the most obvious advantages of this online marketplace business model is actually the fact that it has the word ‘FREE’ in its name. How do you make a product stand out in a crowded market? Tell people that it’s free – the science proves that this actually works. Another advantage of this model is that it allows the platform to acquire a large user base in a pressure-free way.

On the flip-side, however, there is significant budget consumption with this model, and a need to have a really huge user base to make this model work (since the conversion rates will be relatively low in this case).

Pros:

• High potential for virality;
• Ability to monetize the user base;
• Extremely low entry barrier;
• Great for beta testing of new features.

Cons:

• Expensive;
• Conversion to premium packages is ≤5%; strategies to convert free users into paying customers by offering more valuable premium features are essential to improve this rate;
• ROI requires a large user base;
• It’s difficult to find the right balance between free/premium offerings.

Industry examples:

Eventbrite — a global ticketing and event management platform that lets users create, share, find, attend and promote local events. The marketplace offers free ticketing services for unpaid events like local neighborhood parties and charges a fee from event organizers for paid events.

Peerby — A Dutch C2C platform that lets users borrow things from one another at no cost. The basic functionality is free and the monetization strategy is built around premium services such as insurance (a fee paid by the customer to guarantee that the provider will get their item replaced if it gets damaged or stolen) and delivery (a small fee paid by the customer to get the item delivered to their door).

Another popular revenue path for marketplaces that is normally combined with other monetization strategies is the Advertising and Featured Ads Model. In this approach, the featured listings model is used to offer enhanced visibility to vendors through paid services such as premium or highlighted listings, providing an additional revenue stream for the platform. Here, third-party vendors pay a company to place their CPC or CPM ads on its platform. Marketplace sellers can also get their products featured on the Homepage or in the ‘Featured’ section of a particular category.

Pros & Cons

The Paid Ad model is a great way to ensure the platform generates a steady income. It also works well on marketplaces that have a large user base or target a specific niche. The major challenge with this model is that it requires a significant amount of users to display the ads to, and the fine-tuned balance between interests of users (ad relevance) and desired amount of generated revenue (ad frequency).

Pros:

• Steady additional income;
• Effective for niched marketplaces;
• High scalability potential;
• Boosts other marketplace fees.

Cons:

• Ads can be disturbing to some users;
• Does not work well if the traffic is low;
• Hard to control quality of third-party ads;
• Non-relevant ads will lower the retention rate.

Industry examples:

Häätori — a Finnish online marketplace for used wedding dresses, wedding decor, and accessories. The platform doesn’t charge users for adding or selling items; instead, it sells on-site ads to wedding photographers, planners, and other wedding-related service providers.

Zillow — one of the largest online platforms for real estate that allows agents and property owners to list their homes for sale or rent. The marketplace doesn’t charge a listing fee, allowing vendors to promote their listings in four ad categories (native search, native property, home expenses, and rich media) across all websites in the Zillow Group.

Marketplace App Development and Monetization

Developing a successful marketplace app requires a deep understanding of the target market, the needs of buyers and sellers, and the most effective monetization strategies. A well-designed marketplace app can provide a seamless user experience, facilitate transactions, and generate significant revenue for the platform owner.

The process of building a marketplace app involves more than just technical development—it requires careful planning around the business model, user acquisition, and retention strategies. By focusing on the needs of both buyers and sellers, marketplace platforms can create a trusted environment that encourages repeat usage and long-term engagement. The right combination of features, intuitive design, and robust security measures can set a marketplace app apart from the competition and drive sustained growth.

Monetization Strategies

Effective monetization strategies are critical to the success of a marketplace app. Common revenue models include commission-based, subscription-based, and listing fee-based models. A commission-based model charges a fee on each transaction, while a subscription-based model provides access to premium features or services for a recurring fee. A listing fee-based model charges vendors a fee to list their products or services on the platform. Additionally, marketplaces can generate revenue through lead fees, where buyers pay for access to vendor information, or through advertising, where vendors pay to promote their products or services. By combining these revenue models, a marketplace app can create a robust and sustainable monetization strategy that attracts and retains both buyers and sellers. The right business model, combined with a well-designed app and effective monetization strategies, can help a marketplace app achieve significant revenue and growth.

Choosing the right business model is essential for maximizing revenue and ensuring the long-term success of a marketplace app. Many successful platforms use a mix of common revenue models to diversify their income streams and appeal to a wider range of users. For example, offering premium features through a subscription based model can encourage free users to upgrade, while listing fees and lead fees provide additional revenue streams for the platform. By continuously refining their monetization strategy and adapting to market trends, marketplace apps can stay competitive and continue to generate revenue as they scale.

So here it is. We’ve gone through the five most popular revenue options for marketplaces. As you see, the monetization strategy is an integral part of a company’s business development plan, so the decision of which online marketplace business model to pick should solely depend on the objectives being set.

Marketplaces focused on specific customer segments can differentiate themselves by developing a marketplace mobile app with unique app features tailored to their audience. Prioritizing the app’s core features during mobile app development is essential for creating a strong MVP that enhances user experience and engagement. Analyzing customer purchases within the mobile app can provide valuable insights to inform future strategies and improve the marketplace idea. Platforms can also adopt a lead fee model, lead fee, or lead fee revenue model to generate additional income, especially in service-based or niche markets.

Another aspect to keep in mind is that different audiences react to all of these approaches  differently, so we encourage you to perform market research to choose the best revenue model for a marketplace or even a combination of a few online marketplace revenue models. Generating revenue through multiple streams, tracking revenue generated from each model, and considering the needs of niche markets when designing such a marketplace are all important. Adding an additional revenue stream can help diversify income and support the growth of your marketplace idea.

If you are still not sure where to start with the monetization of your marketplace or want to get more information about the implementation process, don’t hesitate to contact us through our form at the top of this page. Subscribe to our newsletter so we can keep you updated on the latest industry news!