How to Choose the Marketplace Revenue Model – Let Me Share My Experience

Starting an online business is exciting, right? But let’s be honest, identifying the best way to make money can be overwhelming.

There are different ways to earn from online marketplaces and each model has its own pros and cons. The good news? You don’t need to figure it out alone!

In this guide, I will discuss the most popular marketplace revenue models. I’ll break down everything in simple terms from selling products to offering services or earning passive income. It helps you decide which best suits your business goals.

By the end, you’ll have a clear idea of the right model for your business and be ready to take the next step toward success. Let’s dive in! ⤵️

What is a Marketplace Revenue Model?

The marketplace revenue model comprises various strategies for generating income from transactions between buyers and sellers on a platform.

Common models include –

• Commission fees (a percentage of sales)
• Subscription fees (charging users for access)
• Lead fees (charging suppliers to bid on posted requests)
• Selling fees (dedicated to specific transactions)
• Listing fees (charging sellers to list their products or services), etc.

Each model has advantages and can be chosen based on the marketplace’s nature and target audience.

Let’s explore more about these models-

Types of Marketplace Revenue Models

There are several ways to generate revenue from your marketplace. To better understand these mechanisms, let’s show you some of the most common marketplace revenue models–

1. Commission-Based Model
2. Subscription-Based Model
3. Listing Fees Model
4. Selling Fees Model
5. Lead Fees Model
6. Featured Listings Model
7. Freemium Model
8. Transaction Fee Model
9. Advertising-Based Revenue Model
10. Mixed Revenue Model

Now let’s get into the details!

1. Commission-Based Model

The commission-based revenue model is one of the most popular and widely used models for online marketplaces. It is particularly effective because it directly ties the platform’s success to the success of its sellers.

How Commission-Based Model Works

In a commission-based model, a marketplace platform charges sellers a percentage or fixed fee on each completed transaction. This fee is taken from the total sale price of an item or service once a buyer and seller complete a transaction. The commission can be a fixed amount per transaction or a percentage of the sale price.

For instance, Amazon takes a percentage of the sale price. The commission varies by category, with fees ranging from 6% to 45%.

The fee is typically deducted automatically from the sale price before the seller receives payment.

Advantages of the Commission-Based Model

• Revenue grows as transaction volume increases.
• Platform success is directly tied to seller success.
• Sellers only pay when they make a sale, with no upfront costs.
• The platform earns only from completed transactions.
• The platform helps sellers to increase sales.

Challenges of the Commission-Based Model

• Finding the right commission rate can be difficult.
• High commission fees can discourage sellers and lead to pushback.
• Platform revenue is dependent on transaction volume, which can fluctuate.

2. Subscription-Based Model

The subscription-based model involves sellers or businesses paying a recurring fee (monthly, quarterly, or annually) to list their products or services on a platform. This model is often used by platforms that offer additional tools, services, or premium features to subscribers.

How Subscription-Based Model Works

Under this model, sellers or businesses are charged a regular fee to access the platform and list their products, services, or content. The fee can vary based on the features or benefits provided by the platform. There might be multiple subscription tiers with different fees.

• LinkedIn charges businesses a subscription fee for premium job listings and recruitment tools.
• Patreon allows content creators to charge a monthly subscription fee to access exclusive content.

Advantages of the Subscription-Based Model

• Provides consistent, predictable income through regular payments.
• Builds long-term relationships with loyal sellers or users.
• Enables better financial planning and resource allocation.
• Offers tiered pricing to serve different needs.
• Encourages customer retention with ongoing commitment.

Challenges of the Subscription-Based Model

• Losing subscribers can significantly impact revenue.
• Requires constant investment in features and services.
• Difficult to convert free users to paid subscribers.

3. Listing Fee Model

The Listing Fee Model involves sellers paying a fee to list their products or services on a platform, regardless of whether or not the listing results in a sale. This can be a one-time fee per listing or a recurring fee for continuous listing access.

How the Listing Fee Model Works

In this model, sellers pay a fixed fee to list their product or service on the platform. The fee structure can vary depending on the platform’s rules. Such as, the fee might be charged per listing or there could be a recurring subscription for the right-to-list items. Importantly, the platform collects this fee whether or not the seller makes a sale.

For example, Craigslist charges a fee for certain categories like real estate and job postings. This fee applies even if the listing doesn’t lead to a transaction.

Advantages of the Listing Fee Model

• Earns upfront revenue, ensuring quick cash flow.
• Provides transparency with no hidden fees.
• Generates predictable income regardless of sales.
• Secures income, reducing financial risk.
• Encourages sellers to list more items.
• Scales revenue with the number of listings.

Challenges of the Listing Fee Model

• The platform lacks direct incentives to drive sales.
• Overcrowding of low-quality listings can negatively affect the user experience.
• Difficult to attract new sellers who may hesitate to pay without guaranteed results.

4. Selling Fees Model

The Selling Fee Model is a popular revenue model for internet marketplaces where the platform charges a fee on each transaction. Like the commission-based model, the platform earns a portion of the revenue from every completed sale.

The key difference is that in the Selling Fee Model, the platform collects its fee before the vendor receives the payment.

How the Selling Fees Model Works

Selling fees can be structured in different ways. Such as:

• Direct Payments: The customer pays directly to the seller’s account, and the seller then pays the platform its fee. In this case, the platform may rely on the seller to remit payment after the transaction is complete.
• Collective Payments: The platform collects the total payment from the customer, charges the selling fee, and then sends the remaining amount to the seller. This method ensures the platform directly handles the transaction.
• Parallel Payments: At checkout, the payment is split between the platform and the seller. This means that a percentage or fixed amount of the customer’s payment goes directly to the platform while the remainder is sent to the seller.
• Category-Specific Fees: Different fees may be applied depending on the product category, with certain high-demand categories attracting higher fees.
• Fixed Percentage: The platform charges a fixed percentage of each sale as the selling fee.
• Tiered Fees: The selling fee might vary depending on the seller’s rank or standing on the platform, with higher-tier sellers possibly paying lower fees.

Advantages of the Selling Fee Model

• Earns revenue from each sale, ensuring predictability.
• Aligns incentives for mutual success with sellers.
• Offers a simple, transparent fee structure.
• Reduces upfront costs by charging only after sales.
• Encourages diverse product listings without fees.
• Scales revenue with increasing transactions.

Challenges of the Selling Fee Model

• High selling fees can hurt profitability for low-margin products.
• Payment processing can be complex, especially with parallel or collective payments.
• Sellers may leave if they feel fees are too high compared to sales.
• Sellers may feel discouraged by fees, especially on small transactions.

5. Lead Fees Model

The Lead Fees Model is a revenue strategy where platforms charge businesses or service providers for generating qualified leads.

A lead is defined as a potential customer who has shown interest in a product or service, often by filling out a contact form, signing up for more information, or engaging with the platform in other ways.

How Lead Fees Model Works

The Lead Fee Model is ideal for marketplaces where transactions often happen outside the platform, such as when buyers and sellers engage directly after receiving contact information.

In this model, the platform earns revenue each time it generates a lead for a seller, even if that lead does not result in an immediate sale. The key feature is that businesses only pay when they receive leads, reducing upfront financial commitments.

This setup is especially useful for marketplaces offering services like cleaning, design, tutoring, or freelance work, where the marketplace connects service providers with potential clients.

For example, platforms like Zillow charge real estate agents for leads generated when users show interest in properties.

Advantages of the Lead Fees Model

• Charges sellers only for qualified leads, reducing financial risk.
• Delivers pre-qualified leads likely to convert into customers.
• Supplies a steady flow of clients without high upfront costs.
• Targets a specific, interested audience for better efficiency.
• Scales revenue with increased lead generation.

Challenges of the Lead Fees Model

• Quality control can be a challenge if leads are poorly targeted or irrelevant
• It may be difficult to track which leads convert into actual sales.
• Misleading or “bad” leads can damage the platform’s reputation.

6. Featured Listings Model

The Featured Listings Model allows sellers to pay for enhanced visibility of their listings on a marketplace.

By paying a fee, sellers can have their products or services highlighted or placed in more prominent positions on the platform, such as at the top of search results or in special highlighted sections. This positioning draws more attention from potential buyers, which can lead to more sales.

How the Featured Listings Model Works

The Featured Listings Model is commonly used by websites that sell specific types of assets like boats, cars, or real estate. This monetization strategy ensures that sellers’ products are more visible to potential buyers by giving them priority placement on the platform.

In this model, sellers pay a fee to have their products or services featured in prime positions on the marketplace. So, buyers can find them easily.

There are various types of featured promotions that you can use across different platforms:

• Promoted Products: These may be listed in different categories or on pages that attract more traffic, such as a “Featured Products” section.
• Featured Suggestions: These appear in places like the shopping cart or during checkout, suggesting items based on the buyer’s browsing history or interests.
• Sponsored Vendor Profiles: Sellers can pay to have their profiles highlighted on the main page or other high-traffic areas of the marketplace.
• Featured Blog Posts or Newsletters: Sellers can promote their products through blog posts or newsletters that are sent out to platform subscribers.

Featured listings serve as an effective way to catch buyers’ attention and encourage more clicks or purchases.

Advantages of the Featured Listings Model

• Boosts seller visibility, driving potential sales.
• Generates extra income from premium placements.
• Highlights sellers in competitive marketplaces.
• Promotes time-sensitive or special offers effectively.
• Increases platform engagement through urgency and exclusivity.

Challenges of the Featured Listings Model

• Buyers may become frustrated if too many listings are featured.
• This can create a sense of inequality among sellers.
• Overuse of featured listings might dilute their value.
• Sellers who can’t afford featured listings may feel overlooked or disadvantaged.

7. Freemium Model

The Freemium Model is a popular way for online platforms to earn money. It allows users to access basic features of the platform for free. However, to unlock extra features or benefits, users have to pay.

For example, anyone can create a profile on LinkedIn and connect with others for free. But if a user wants to send direct messages to people outside their network or see more details about who views their profile, they can upgrade to a paid account.

Similarly, Dropbox offers a small amount of free cloud storage, but users can pay for more storage and extra features.

How the Freemium Model Works

The Freemium Model gives users free access to the basic functions of a platform. Users can explore and use the platform without paying. However, they are encouraged to pay for more features that offer additional value.

These features could include things like extra tools, more space, or better customization.

This model works well for platforms offering services or tools that can be divided into free and paid tiers. By providing free access, platforms attract many users, and some will eventually upgrade to the paid versions.

Advantages of the Freemium Model

• Attracts users quickly with no financial risk.
• Allows users to try the platform for free.
• Scales revenue as users upgrade.
• Boosts upselling opportunities for extra features.
• Gains a competitive edge over upfront-fee platforms.
• Eases market entry by lowering barriers.

Challenges of the Freemium Model

• Most users may never upgrade to paid plans.
• Free users might expect more features without paying.
• High operational costs to support free users.
• Managing customer expectations can be tricky.

The Freemium Model is a great way to grow a user base quickly. However, it requires careful management of free and paid features to keep users satisfied and encourage them to upgrade.

8. Transaction Fee Model

The Transaction Fee Model involves charging a fee for every completed transaction on the platform. This fee is typically fixed and is charged regardless of the transaction’s size or value. The model is widely used for services that facilitate peer-to-peer or business-to-consumer transactions.

How the Transaction Fee Model Works

In this model, a platform charges a flat fee for each transaction between buyers and sellers. The fee is applied once the transaction is completed, ensuring the platform only earns revenue when a deal is made.

This model works well for platforms like Airbnb, where the platform provides the infrastructure but doesn’t take a percentage of the total sale price. Airbnb charges hosts a fixed transaction fee for each booking made on the platform.

Advantages of the Transaction Fee Model

• Ensures consistent, predictable revenue per transaction.
• Simplifies pricing with no complex calculations.
• Reduces reliance on high transaction volume.
• Encourages frequent transactions with low, fixed fees.
• Offers transparency with upfront, clear fee structures.

Challenges of the Transaction Fee Model

• Setting the right fee amount can be tricky.
• May deter smaller transactions or lower-value deals.
• The platform must manage a large number of small payments to remain profitable.

9. Advertising-Based Revenue Model

The Advertising-Based Revenue Model allows platforms to earn revenue by selling advertising space to third-party businesses. This is a common model for platforms that have a large user base and can offer advertisers a way to reach a targeted audience.

How Advertising-Based Revenue Model Works

In this model, the platform provides advertising space that businesses can purchase to promote their products or services. Such as banner ads, sponsored content, or promoted listings. The platform earns revenue by charging businesses for the ad placement.

Google earns revenue by displaying paid ads on search results and third-party websites through its Google Ads program.

Advantages of the Advertising-Based Revenue Model

• Generates consistent income without relying on user transactions.
• Allows businesses to target specific customer segments.
• Works well for platforms with large amounts of user data and engagement.
• More users lead to more ad opportunities.
• Supports multiple ad formats like banners, video ads, and sponsored content.
• Minimal financial risk, as revenue comes from advertisers.

Challenges of the Advertising-Based Revenue Model

• Managing ad quality and relevance can be time-consuming.
• Excessive ads can overwhelm users, which leads to poor user experience.
• Ad blockers and privacy regulations can reduce ad revenue potential.

10. Mixed Revenue Model

The Mixed Online Marketplace Revenue Model combines multiple revenue strategies to generate income from different sources.

In this model, a platform may charge a commission on each sale, offer subscription plans for sellers who want additional features or visibility, and allow sellers to pay for featured listings to gain extra exposure.

This combination allows the platform to tap into various income streams and serve a broad range of sellers with different needs.

How the Mixed Revenue Model Works

The Mixed Online Marketplace Revenue Model works by combining multiple revenue streams to maximize income for the platform.

For instance, Amazon charges a commission on each sale and offers subscription services like Amazon Prime for sellers to access additional tools. Also, lets sellers pay for sponsored ads to feature their products more prominently.

Similarly, Fiverr uses a mix of service fees from each transaction, subscription plans for enhanced seller profiles, and paid listings to help sellers gain more exposure.

Advantages of the Model

• Creates financial stability through multiple revenue streams.
• Supports diverse sellers with flexible options.
• Reduces reliance on a single income source.
• Expands revenue opportunities as the platform grows.
• Attracts sellers with options for various budgets and needs.

Challenges of the Model

• Managing several revenue models may require more resources.
• Too many different fees or options may overwhelm sellers.
• Balancing multiple revenue models effectively can be tricky.

Now that you understand the different types of marketplace revenue models, the next step is to consider the factors that influence your choice. ⤵️

Key Factors That Influence the Choice of Marketplace Revenue Models

Here are the top five things I’ve learned that can influence your decision:

• Type of Marketplace
• Transaction Frequency & Value
• Target Audience and User Behavior
• Industry and Competition
• Scalability and Predictability

I. Type of Marketplace

The first thing to consider is the type of marketplace you are running. The model should match the structure and dynamics of your marketplace.

For instance, if you’re running a B2C marketplace like Amazon, commission-based models are often the go-to. But if you’re in the services space like Upwork or TaskRabbit, you might find that charging fees per transaction or a subscription fee works better.

II. Transaction Frequency and Value

Your next step is to consider how often users transact and the value of each transaction.

• For frequent, low-value transactions (like Uber or Etsy), commission-based models work well because they scale with volume.
• For infrequent, high-value transactions (like real estate or luxury goods), you might want to opt for listing fees or subscription-based pricing.

This will help you align your revenue model with user behavior.

III. Target Audience and User Behavior

It’s crucial to understand how your users think about money. Are they okay with paying a small fee every time they make a purchase or would they prefer a predictable subscription fee?

• High-frequency, low-value transactions favor commission-based models.
• Low-frequency, high-value transactions may use subscription fees or listing charges.

For example, real estate platforms like Zillow charge listing fees rather than commissions since property transactions are infrequent but high-value.

IV. Industry and Competition

The competitive landscape you’re in also matters. In crowded industries with many players, users often expect low-fee or freemium models. This is especially true for platforms like Fiverr or eBay, where commissions are low but volume is high.

However, in niche or premium industries, you may have more room to experiment with higher fees or even subscription models.

V. Scalability and Predictability

Finally, think about growth. You should choose a revenue model that can scale with your platform. Commission-based models are great for marketplaces with high volumes. As they grow naturally with transactions.

But if you’re aiming for more predictable, recurring revenue, a subscription-based model might be the way to go. This also helps stabilize your cash flow as your marketplace expands.

By considering these five factors, you can choose a revenue model that fits your marketplace’s needs and helps you achieve long-term success.

Common Marketplace Revenue Models Based on Factors

Here’s a quick summary of common revenue models and their use cases:

Revenue Model	Best For	Examples
Commission-Based Model	Marketplaces with a high volume of transactions	eBay, Uber, Etsy
Subscription-Based Model	Platforms with recurring value for users	LinkedIn Premium, Match.com
Listing Fees Model	Marketplaces with diverse sellers and items	Craigslist, Flippa
Selling Fees Model	Platforms focused on individual sellers	Amazon Marketplace, Poshmark
Lead Fees Model	Services connecting users with providers	Thumbtack, Houzz
Featured Listings Model	Sellers looking for increased visibility	Airbnb
Freemium Model	Platforms encouraging free user acquisition	Spotify, Slack
Transaction Fee Model	Payment-based marketplaces	PayPal, Stripe, Patreon
Advertising-Based Revenue Model	Content-driven platforms	Facebook Marketplace, Google Ads
Mixed Revenue Model	Versatile platforms catering to varied audiences	Amazon (selling + advertising), YouTube (ads + subscriptions)

Conclusion

I believe, by reading this blog, now you have vast knowledge about marketplace revenue models and their working procedures.

However, you have to realize that choosing the right marketplace revenue model isn’t a one-size-fits-all decision. It’s a mix of understanding your audience, testing options and being willing to adapt.

From my experience, starting with a simple model like commission-based or freemium can help you gather insights while keeping your platform accessible.

Do you need an easy solution to build a full-fledged online marketplace?

→ Try Dokan and create your first marketplace with ease.

Remember:

• Focus on your users’ needs and behaviors.
• Align your revenue model with your marketplace’s unique value.
• Don’t be afraid to evolve as you grow.

The key is to experiment, learn, and refine. With the right model, your marketplace will earn great revenue and create long-lasting value for your users.