Congratulations! You managed to get your online marketplace concept off the ground. Your MVP platform has enticed sufficient numbers of buyers and sellers to transact on it to prove product-market fit and establish a viable business model. However, this does not yet mean that your platform has achieved long-term profitability or sustainability. For that you need to identify and invest in suitable growth strategies or channels. Only once you have established the right growth channel mix, can you hit the gas to start scaling.
Fortunately, past experience has supplied us with some broad guidelines on how to find those elusive growth channels. Like the saying goes, those who don’t learn from history are doomed to repeat it.
Establish a growth culture
Your team (and development partners) need to have a growth mindset to effectively identify and apply growth strategies. Here are a few ingredients to get them onboard.
Accelerate the build-measure-learn loop
Constant iteration that improves a product or process based on user feedback is a key tenet of Lean Startup methodology. While it is initially used to establish product-market fit, the build-measure-learn feedback loop should also inform your search for ideal growth strategies.
Build a data pipeline
Too many marketplace entrepreneurs only focus on building transactional infrastructure at the expense of analytical infrastructure. The fact is, your team needs data to analyse the effectiveness of their growth experiments. Data segmentation is particularly useful for targeted marketing campaigns.
Affordable Art Fair, for example, uses tools like Snowplow and Amazon Kinesis to track specific user events, such as which product categories were viewed or which sellers were added to wish lists. This helps them to create more personalised ads, which have increased engagement threefold.
Identify the right metrics for growth
Focusing on the wrong metrics is a sure-fire way to get your growth strategies wrong. The AARRR framework provides a reference point for metrics at each stage of the marketing funnel: Acquisition, Activation, Retention, Referral, and Revenue.
These metrics will vary depending on your business model, but there are some common ones that should be tracked at the growth stage:
- Gross merchandise volume (GMV) is the total sales value of products or services sold on your marketplace over a specified period. It can be segmented to compare the performance of customer acquisition channels or product ranges.
- Average order value (AOV) is calculated by dividing GMV by the number of transactions.
- Take rate is calculated by dividing revenue by GMV (where revenue is the income earned by your platform in the form of commissions, subscriptions, advertising etc.).
- Customer acquisition cost (CAC) is the amount spent to attract and onboard new buyers and sellers.
- Monthly active users (MAU) measures how many unique buyers interacted with your sellers’ products or services in a month.
- Net Promoter Score (NPS) measures user satisfaction by subtracting detractors from promoters.
- Churn rate tracks how well your marketplace retains users. Calculate it by subtracting the number of customers at the end of the month from the number of customers at the beginning of the month and dividing by the number of customers at the beginning of the month.
- Liquidity gauges a seller’s chances of making a sale or a buyer’s odds of finding the right product or service.
Put a growth team together
Team differentiation that leverages different types of expertise is a good catalyst for growth. Potential roles in a growth team include product managers, sales experts, marketing strategists, and business analysts.
Not all growth is a good thing
Scaling too early or too broadly can backfire if your infrastructure or user flows can’t handle the traffic effectively. Laurel & Wolf, a marketplace that connected customers with interior designers, learned this lesson when they had to close down after burning through $25.5 million in funding. Lack of quality control and badly designed user flows destroyed the platform’s reputation despite millions spent on marketing.
The bottomline: it is easier to fix holes in your business model by applying growth strategies in a granular manner. In other words, incremental growth is key to sustainability.
Minimise platform leakage
Driving traffic and engagement means nothing if buyers and sellers transact off platform. Marketplaces that own the transaction flow are better able to grow profitability and sustainability.
Managed marketplaces take more control of the transaction process to ensure enhanced matchmaking and client satisfaction. That’s why new generation delivery platforms like Uber Eats and Deliveroo manage deliveries themselves instead of outsourcing to freelance drivers.
Other ways to manage the marketplace transaction flow include background checks, verification and customer service.These additional services seek to remove points of friction, such as building trust and streamlining fulfilment. In this way Fulfillment by Amazon takes care of logistics and warehousing, while luxury goods marketplace, Farfetch, verifies and guarantees the authenticity of products.
B2B marketplaces offer increased opportunities to manage the transaction flow due to the complex nature of B2B procurement. CobbleWeb collaborated with Atos, an IT multinational, to build a project management dashboard that streamlines the procurement process for a B2B service marketplace.
Although managed marketplaces are often able to charge higher take rates, there is a risk that taking over too much of the transactions process destroys network effects, since there’s no interaction between buyers and sellers. Property marketplace Opendoor is a good example of such a scenario.
Create more value for users
Once your marketplace has established product-market fit, it is time to expand its value offering with an enhanced feature set. In contrast to the minimalist approach of the initial design phase, now’s the time to experiment with bells and whistles. The greater your unique selling proposition, the higher the likelihood of building defensive moats against competitors.
Art marketplace, Affordable Art Fair, added flexible last-mile delivery options so that sellers could take advantage of lower shipping fees and bespoke packaging. This increased their conversion rate immediately.
Remoovaz, a marketplace for home removal service providers, created an inventory calculator to make it easier for buyers to choose the right size moving van. Event ticket marketplace, FanPass, launched a seller dashboard that allows its sellers to track sales volumes and other metrics on a granular level.
Your team should constantly be on the lookout for technology that can be leveraged for additional value. For example, ustiling Stripe Connect to offer automated VAT and other tax management.
Ignite the virtuous cycle
The virtuous cycle is a positive feedback loop that kicks in when a growing number of quality sellers (and their listings) attracts more buyers, which in turn incentivises more sellers to join the marketplace.
To do this, focus energy and resources on those areas that are working well: geographies, audience segments, price points, and user behaviour. Do things that don’t scale to create momentum, then automate. A famous example is when Airbnb’s founders rented a professional photographer to take high-quality images of host properties to test if it would boost conversion rates. Once their assumption was proven they started offering a more scalable paid-for photography service on the platform.
Seller segmentation promotes growth through quality, not quantity. Fanpass, for instance, uses Trusted Seller status to reward sellers that maintain minimum service levels. This strategy requires that seller personas are refined based on certain metrics. Example seller metrics include cohort analysis (e.g. percentage of sellers still active after one year) and concentration (percentage of revenue generated by the top 10% of sellers).
Leverage data-driven marketing
As we mentioned earlier, you need data to effectively reach your target audience. We’ve given the example of Affordable Art Fair which collects and analyses relevant touchpoints in their user journeys. This has enabled their marketing team to increase user engagement through better personalisation of their ad campaigns.
Abandonment metrics can be especially useful. Refine the data by requesting direct feedback on why users have left your platform. This can be complemented by sending special promotions to those who haven’t used your platform in a while.
Customer relationship management software like Hubspot and Salesforce, which can be integrated into your marketplace database, is usually a good starting point for data collection, audience segmentation and automation of marketing campaigns. ActiveCampaign, which calls itself a ‘customer experience automation platform’, goes a step further with its omnichannel approach that offers automated workflows across all marketing channels: email, SMS, landing pages, social, and chat.
Choose the right marketing channels
Data should also inform your choice of marketing channels, especially in terms of return-on-investment, scalability and relevance.
Traditional outbound marketing (billboards, radio, TV, cold calling, trade shows) follows a shotgun approach that is expensive to scale and difficult to gauge the effectiveness of. In contrast, inbound marketing (online content, SEO, SEM, social media) utilises data to target specific audiences when and where they are looking for a solution. It is also highly measurable; each part of an inbound marketing strategy can be linked to a trackable metric, e.g. site visitors, landing page conversion rate, and keyword rankings.
Content marketing generates over three times as many leads as outbound marketing and costs 62% less.Demand Metric
44% of buyers consume three to five pieces of content before engaging with a seller. It thus makes sense that content should take centre stage in your inbound marketing strategy. Everything else – SEO, SEM and social media – should support its distribution, accessibility and visibility.
Content can be owned media such as blogs, landing pages, videos, newsletters, webinars and case studies; paid media such Google search ads or earned media such as reviews.
Referrals and user generated content like reviews are especially effective. People trust product reviews and referrals from other buyers far more than company-produced marketing material.
New subscription box marketplace, The Box Hut, solved their lack of customer reviews by importing their merchants’ Google reviews via an API and their Google Place IDs.
From product marketing to growth hacking
Applying the wrong type of marketing at different stages of your marketplace’s evolution can result in below-par outcomes such as low retention rates. Product marketing is most useful in the stage between development and establishing product-market fit. Growth marketing, and its subset, growth hacking, should be applied after product-market fit has been achieved.
Product marketing focuses on:
- Planning the go-to-market strategy
- Establishing the platform’s value proposition
- Defining the target audience as well as buyer and seller personas
- Identifying user needs and pain points
- Educating users on how the platform works
- Using customer feedback to improve the platform
The best way to increase revenue and profitability at the growth stage is through experimentation. Growth marketers experiment with positioning, messaging, acquisition channels, pricing and other platform elements to improve user engagement and conversions. This is done by collecting and analysing user behaviour data such as which elements they click, which products they view or order, or how much time they spend on a landing page, as well as business metrics such as churn rate and monthly recurring revenue.
We helped Nestify’s property management platform run such a campaign. It tracked landlord KPIs such as churn rates, monthly recurring revenue, customer lifetime value, and evaluated the revenue model in terms of management fees, cleaning fees, claims, and maintenance fees. The data collected helped us identify the most profitable cities and property types. As a result Nestify moved their marketing focus to big cities that generated higher profits.
Growth hacking is a subset of growth marketing that prioritises one specific tactic, fast experimentation and rapid iteration. It often involves close collaboration between marketing, business and technical teams.
We created a growth hack for Affordable Art Fair by tracking the effect of shipping costs on the conversion rate. It became apparent that conversion rates dropped when buyers wanted to purchase multiple artworks, due to the high cost of shipping each artwork individually. Conversion rates increased when the platform allowed artworks with the same dimensions to be shipped together.
Airbnb ran a famous growth hack when they piggy-backed on Craigslist’s established traffic to drive more guests to the hosts on their own platform. Read how they did it here.
Optimise the user experience
During your search for product-market fit you probably experimented with user flows to find the sweet spot for user onboarding, checkout and so forth. Now it’s time to optimise that user experience. There are two low-hanging fruit when it comes to UX optimisation: personalisation and performance.
60% of consumers are more likely to become repeat customers after a personalised retail experience– Twilio
A bespoke user experience in which product recommendations, special offers and other marketing content are tweaked based on an individual user’s data profile has become the norm on most successful marketplace platforms. User data can include on-platform behaviour (e.g. products viewed, purchase history, abandoned carts) and demographic data (e.g. gender, age, location).
An example of a special offer tailored to first-time visitors to a subscription box site.
In essence, it is about relevance – targeting the right person with the right message at the right time via the right channel. That relevance can be further enhanced by automation, mobile technology, AI and predictive algorithms.
Art marketplace, Affordable Art Fair, uses AI technology and data points such as browser history, past orders, wish lists, and search queries to create personalised product recommendations for buyers. This approach has increased buyer engagement by helping them browse and discover new artworks.
Affordable Art Fair also uses the ActiveCampaign marketing automation tool to create more personalised newsletters. User data such as location and buying profile are leveraged to segment users when they subscribe.
As they say in the movies, ‘you had one job’. There are zillions of studies that show how slow-loading sites, dysfunctional features or sloppy user flows damage ecommerce revenue. Here is a recent one by Hubspot.
If there’s an ultimate low-hanging fruit for marketplace performance then it is to make sure page load, navigation (especially category structure), checkout and other features work seamlessly and lightning fast. Let’s look at some examples:
Affordable Art Fair used a turnkey Magento solution for the first iteration of their art marketplace. It proved to be almost impossible to scale, and the slow site speed hurt the UX as well as conversions. A revamped platform that uses the latest technologies, provides a much faster and user-friendly experience, which contributed to a 50% year-on-year revenue increase.
Many buyers get frustrated when they try to navigate a large marketplace with complex navigation features. Event-ticketing marketplace, FanPass, made things easier for its users by implementing an autocomplete feature. It looks at the variables tied to each ticket or event and then customises the results for each user. The much sleeker user experience boosted onsite search volumes significantly.
Learn more about optimising marketplace user experiences in this dedicated post.
Refine your revenue strategy
Growth in marketplace revenue and profitability requires constant fine-tuning. Challenges like disintermediation and competition or opportunities such as new revenue streams and markets should be investigated on an ongoing basis.
One of your first stops for analysis should be your pricing strategy. Is there a good balance between the value your marketplace delivers and the cost of accessing that value? Overcharge and you’ll haemorrhage users. Undercharge and your profitability will suffer.
Experimenting with different pricing tiers is a handy way to find that balance. User segmentation plays a big role in getting this right. Grocery marketplace, Grosa, discovered that some shoppers prefer to buy in bulk. Once they allowed sellers to set separate pricing structures for wholesale goods, revenue jumped.
Mobypark, a parking marketplace, implemented a new pricing system that mimics the yield management model used by airlines and hotels. It utilises various variables (e.g. location, special offers, duration, discounts, availability) to calculate optimal fees in real-time. It helped to push revenue up ten-fold.
When it comes to creating new revenue streams Amazon Advertising stands out. The marketplace giant still makes most of its revenue out of selling goods, but its advertising services are growing rapidly, having overtaken its subscription services, which include Prime, in 2021, and delivering 7% of total revenue. The opportunity that presented itself was to leverage the massive traffic on its platforms which constitute the third largest search engine after Google and YouTube. Half of all online shopping searches start on Amazon.
Sometimes it’s not unproductive revenue streams, but an inadequate business model that is at the root of a marketplace’s sclerotic growth. That could be due to founders’ confusion between revenue and business model. It could also mean that it’s time to start thinking about pivoting your business model.
There are several angles to consider when devising and implementing an effective growth plan for your online marketplace. An experienced marketplace development agency can be the catalyst that helps you avoid the pitfalls and uncover the opportunities.