Your success as a marketplace depends on how you define success. It likely includes growing transactions and generating enough revenue to support and profit your business, but there are many variables to consider.
Your goal is to have vendors and their products or services attract more customers, and to have growing customer numbers attract more vendors. Key Performance Indicators (KPIs) must be tracked religiously to ensure you are continuously moving in the right direction and to enable you to take action when necessary.
Three key marketplace metrics
There are three key marketplace KPIs worth mentioning: monthly active users (MAU), which is the total number of users who have visited your marketplace at least once during a given timeframe; the amount of time spent engaging on your site; and the bounce rate, which is the percent of users who visit your marketplace but leave immediately without engaging in some way.
If the number of monthly active users does not grow, you need to identify why you are not attracting new customers and why you are losing old ones. Likewise, if the bounce rate is high, you need to determine why visitors are not engaging and completing transactions.
These three indicators will also be of interest to your vendors. They will be more interested in selling on a site with a low bounce rate and high MAUs than a site with poor marketplace metrics.
In addition to these three, there are other key marketplace metrics pertinent to online marketplace platforms that will enable you to better understand what you can change.
You must have a good vendor-to-customer ratio
This involves determining how many customers can be served by one vendor. If each transaction is of high value, it could be one to one, but if of low value, one vendor could serve a vast number of customers. If the latter applies to your marketplace, it is even more important to focus on vendors in the early days.
Your goal is a high repeat purchase ratios
Repeat purchases generate revenue to spend on attracting new customers. It is crucial that people have a good experience using your site so that they return.
Consider your Gross Merchandise Volume (GMV)
The total value of sales of your products or services in a given period. This is the best indicator of your growth. You can also use this figure to calculate your revenue by multiplying it by your commission.
Calculate your Cost per Acquisition (CPA)
The price it costs you to acquire a new customer. You want to keep it as low as possible. In an ideal world, customers recommend new customers, but you will likely have to spend on advertising and other marketing channels. Make sure you calculate what each customer acquisition costs.
Calculate your Customer Lifetime Value (CLV)
The total revenue expected from each customer. You want this to be higher than the CPA. When determining this figure, consider how many times they will purchase, the cost of the average transaction, and how long they can be retained.
To make this easier, divide the GMV by the number of transactions per month to determine your average order value (AOV), and multiply it by the average amount of customer repeat purchases to estimate your CLV.
If your CPA is higher than your CLV, review the customer journey on your site and identify why people are not completing transactions. If few people visit your site, focus on customer acquisition.
If you have a high bounce rate, you might be attracting the wrong sort of people. If they do not bounce but do not complete transactions, they have not found what they are looking for, so you need to focus on your vendors. It could also be a case that you have the right vendors, but customers cannot find what they are looking for due to a poor search engine or a difficult transaction process.
What about user satisfaction?
In addition to these values, it is equally important to look at user satisfaction, and this can be done in two ways: Net Promoter Score (NPS) and the Sean Ellis Test.
The Net Promoter Score gained prominence in 2003 when it was featured in the Harvard Business Review. The score is the result, on a scale of 0 to 10, of answering the question, “How likely is it that you would recommend (your marketplace) to a friend or colleague?” The answers are then divided as follows:
- 0-6: Detractors – unhappy customers who will share their disappointment and affect your brand
- 7-8: Passives – not enthusiastic customers, but they are satisfied
- 9-10 Promoters – loyal enthusiasts who will keep buying and refer others to your marketplace
Subtract the percentage of detractor customers from the percentage of promoter customers to obtain your NPS. A figure higher than zero is good, and higher than 50 is excellent. Don’t do this just once; do it regularly to track customer satisfaction. Although it is not foolproof, it is a good indicator.
The Sean Ellis test is equally valuable. The question this time is “How would you feel if you could no longer use our marketplace?” The four possible answers are:
- Not applicable – I no longer use the product
- Not disappointed
- Somewhat disappointed
- Very disappointed
It is a useful tool, especially alongside NPS, to assess whether people are likely to recommend your site and if they are getting value from it.
Consistently reviewing these essential metrics and improving your marketplace business is crucial. Understand which area is not working and what you can do to rectify it. Always talk to your vendors and customers to ensure their needs are met.