Posted by Esha Kumar on 24 April 2019
If you operate an online marketplace, one of the most important things to consider is the payment structure.
Marketplaces can be tricky to navigate, and how you structure the payment terms will have a huge impact on your business.
Firstly, Why Do You Need The Right Payment Structure?
Your payment structure basically determines the business model of the marketplace.
By not doing your research on different payment structure options, you could end up choosing a business model that’s not particularly suited to your online marketplace.
If you end up choosing a payment structure that is not suited to the business, it doesn’t take long for the business to fall.
The defining feature of an online marketplace is that you’ll have many sellers and buyers in the same space
This makes it complicated as there are many different ways you can set up the payment structure.
So, here are the 3 main ways to structure payment for your online marketplace.
Most of the world’s leading marketplaces, like Airbnb, Amazon and Uber, use a commission-based payment structure to control their revenue.
The basis of a commission-based payment structure is that it involves you getting a percentage of the seller’s earnings.
For example, Uber takes a percentage of the fees that a driver makes.
This is one of the main benefits of having a commission based payment structure – you will always get a share of every transaction that occurs in your online marketplace.
The subscription model offers customers the option of a recurring purchase for things available on the platform.
If your marketplace provides something of recurring value to users, it might be a good idea to use the subscription-based payment structure.
One downside of using a subscription-based model is that users may be turned away because it requires an ongoing financial commitment.
You might also consider offering a free trial period to show how valuable the marketplace is to potential users.
This will give users a taste of what your services are and allow them to decide if they want to make the financial commitment.
Other features to consider under a subscription include upfront payments and opt-out options.
These options provide transparency to users of your marketplace, as they have the opportunity to decide whether your marketplace is a good fit for them.
3. Listing Fees
A listing fee can be integrated into the commission-based model.
By itself, a listing fee requires sellers on your marketplace to pay you a fixed fee for using that space.
It tends to be a one-off payment and allows the seller to use your marketplace to sell their items.
For example, carsales.com asks sellers to pay an initial fee to list one vehicle on the website.
If you wanted to use carsales.com for another vehicle, you would have to pay the listing fee again.
A disadvantage of a listing fee is that it does not offer ongoing revenue like the subscription-based model.
What To Take Away…
Choosing the right payment structure for your company is essential as it will have a huge impact on your business operations and revenue.
Deciding on the right payment structure for your startup or small business can be difficult.
It is important to think about the services your company provides and how established your company is within the market.
If you’re finding it difficult to decide what option is best for your company’s needs, do not hesitate to get in contact with us. We are here to help!