Your marketplace success really depends on how you define success. We’ll go ahead and assume it includes a growing number of transactions and making enough money for the business to be able to support itself and be profitable. Although we know there will be many variables to that!
The aim is for vendors (and their products or services) to bring in more customers, and growing customer numbers to bring in more vendors. There will be Key Performance Indicators (KPIs) that you must track religiously to make sure you are continuously moving in the right direction, and enabling you to take action if you aren’t.
There are three key marketplace KPIs worth mentioning and these revolve around the number of monthly active users (MAU) i.e. 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 i.e. the percent of users who visit your marketplace but leave immediately without engaging in some way.
If the number of monthly active users doesn’t grow, you need to work out why you are not attracting new customers, and why you are losing old ones. Likewise, if the bounce rate is high you need to work out why visitors are not engaging and ultimately completing transactions.
These three indicators will quite likely also be of interest to your vendors, if they can sell on a site that has a low bounce rate and high MAU’s, that is going to be of more interest to them 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 judge what you can change.
- Make sure you have a good vendor to customer ratio
This involves working out how many customers can be served by one vendor. If each transaction is of a high value it could just be one to one, or if low value could be one vendor serves a vast number of customers. If the latter applies to your marketplace, it’s even more important to make sure you focus on vendors in the early days.
- Aim for a high repeat purchase ratio
Repeat purchases are ideal, and will mean you have money to spend on attracting new customers. That’s why it’s so important that people have a good experience when using your site, you want them to come back!
- Consider your Gross Merchandise Volume (GMV)
Put simply, this is the total value of sales of your products or services in a given period of time. This is the best indicator of your growth. You can also use this figure to calculate your revenue by multiplying it by your commission.
- Work out your Cost per Acquisition (CPA)
This is the price it costs you to acquire a new customer, you want to keep it as low as possible. In an ideal world, customers will recommend new customers but chances are you will have to spend something, be it on paid advertising and other marketing channels. Make sure you calculate what each customer acquisition costs.
- Calculate your Customer Lifetime Value (CLV)
This is the total amount of revenue that you expect to get from each customer. You want this to be higher than the CPA. When working this figure out, bear in mind how many times you expect them to purchase, the cost of the average transaction and how long you can retain them.
To help make this easier, divide the GMV by the number of transactions per month and you’ll get your average order value (AOV), times this by the average amount of customer repeat purchases and you’ll have an estimate for your CLV.
If your CPA is higher than your CLV you need to take a good look at the customer journey on your site and at what stage people leave without completing a transaction. If it’s that not many people visit your site at all you will need to focus on customer acquisition.
If you have a high bounce rate, you might be attracting the wrong sort of people in the first place. If they don’t bounce but don’t complete a transaction they haven’t found what they are looking for so you will need to focus on your vendors. Or it could be a case that you have the right vendors, but due to a poor search engine your customers couldn’t find what they were looking for, or found the actual transaction process difficult so gave up.
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Along with these values, equally importantly you need to look at user satisfaction and this is usually done in two ways – Net Promotor Score (NPS) and the Sean Ellis Test.
The Net Promotor Score became well-known in 2003 when it featured in the Harvard Business Review. The score is the result (from 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 – these are unhappy customers, they will share their disappointment and affect your brand
- 7-8: Passives – these are not enthusiastic customers but they are satisfied
- 9-10 Promotors – these are loyal enthusiasts, they will keep buying, and refer you to others
Subtract the percentage of detractor customers from the percentage of promotor customers and you’ll have your NPS. If the figure is higher than zero that is good, higher than 50 is excellent. Don’t just do this once, do it regularly and you’ll be able to see if customer satisfaction is improving. It’s not a fool-proof method by any means but it is a good indicator.
The Sean Ellis test is equally worthwhile. 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, particularly alongside NPS, to work out if people are likely to recommend your site and if they are getting value from it.
Make sure you consistently review these important metrics and keep improving your marketplace business, understand which area isn’t working and what you can do about it. And never forget to talk to your vendors and customers to ensure you are meeting their needs.