Online marketplaces have become thriving businesses and keep growing. Their number increased by leaps and bounds, thus the competition has become steeper than ever before. The only way for business owners to stand out from the crowd is to get ready for the leadership battle in the digital commerce industry.
Business owners need to use some metrics to measure the success and performance of an online marketplace to understand whether they are moving in the right direction.
In this article, we will go over critical metrics for marketplace business analytics to help make informed decisions to accelerate the platform growth.
How marketplace business metrics can help?
Using metrics helps business owners estimate various indicators, including the number of people visiting a website and the amount of time they spend on it. There’s no universal solution to choosing a set of metrics you should track since each marketplace business pursues different goals. A variety of marketplace metrics serve essential business aspects as follows:
- Website metrics help analyze user behavior on a website.
- Transaction metrics that show user activity and let us answer the most important questions: How much did we sell? How many returns on costs came in? How much revenue did we generate and what are the margin values?
- User satisfaction metrics help businesses improve customer service and increase sales performance.
Marketplaces are very different and each has various parameters to be considered as follows: products and categories, customers and customer segments, countries, time periods, and more. Thus there are great insights into business performance on multiple levels and let you analyze marketplace effectiveness in providing various products and services. In this guide, we have prepared a set of core metrics to analyze your business's success.
What metrics do we recommend tracking
In this section, we’ll explore 10 essential key metrics for a marketplace that help you assess your business growth and development of the industry you work in.
Average order value (AOV)
Average order value (AOV) is one of the most important marketplace metrics for online marketplaces. What is the AOV? AOV meaning stands for the average total of every order placed over a defined period of time. How to calculate the average order value? You will get an Average order value formula by dividing revenue by the number of orders.
Average order value gives an insight into what gross profit or profit margin will be like. Analyzing AOV allows you to see trends in consumer behavior in a particular marketplace, and improve positioning and marketing efforts for different products.
By increasing AOV, businesses increase their Return on investment (ROI) and Return On Advertising Spend (ROAS) for all marketing efforts. As a result, the higher AOV, the more you can capitalize on each customer.
Calculating the AOV should be regular, preferably on a daily or weekly basis. This frequency depends on some factors such as new campaigns, buying seasons, or any changes to a website. If you have noticed a decline in your AOV rates, consider the tips below to raise those:
- Targeted advertising for tailored customer groups
- Reward loyalty program for frequent customers
- Cross-sell, upsell, and bundle strategies for offering additional products to existing customers
- Free shipping or free shipping threshold to maximize profits and entice prospective customers
- Setting a minimum order total to apply a discount code
Gross merchandise value (GMV)
GMV is a key metric that helps e-commerce brands measure their store's growth. What is Gross merchandise value? GMV meaning refers to the volume of goods or services sold via customer-to-customer or e-commerce platforms.
By calculating GMV, you have full access to your financial data, which is essential for both creating a successful business model and better understanding your revenue drivers. This will help you make informed business decisions and to work the way to boost sales.
Usually, it’s estimated on a quarterly or annual basis and helps analyze growth rates. But it is also possible to track it on a monthly basis.
The definition of GMV refers to both the volume and value of the selling products. However, it can also be used to determine the overall health of a business.
You can calculate GMV by multiplying the sales price charged to customers by the number of items sold. For some businesses, it may also represent gross revenue.
Reviewing the number of items sold and the selling prices can provide a valuable insight into how well your e-commerce brand is performing. GMV gives businesses a chance to identify the cause, make proper corrections, or minimize loss of sales and protect their future revenue on a quarterly basis.
This marketplace-specific metric indicates whether there are more buyers or sellers in the current marketplace. You can calculate it by dividing the number of active sellers by the number of active buyers. There is no right ratio that all marketplaces should strive for, as the metric depends on the product or service that your platform specializes in.
In some cases, a seller can serve one customer, like in real estate, while in other cases, it can be up to 10,000 customers – think stock images or graphics. Therefore, this metric can point you in the right direction. If a seller serves only one buyer, you need to grow your provider list. But, if one merchant can serve many purchasers, you’ll need to attract more customers.
In most cases, acquiring a provider is more valuable than acquiring a client, as the provider will potentially be involved in more transactions. However, if a vendor can't find customers, it may place services on another platform. Meanwhile, if customers can’t find what they are looking for on the platform, they can start using another site. If they successfully find what they need in another marketplace, they might never return to the previous one.
Therefore, at the beginning of the platform's development, the client's liquidity is much higher than the provider’s one. So, be more focused specifically on generating a solid client base in the first stages.
If the provider-to-customer ratio is high, you’ll eventually need to grow your customer base to reach provider liquidity. In that case, the biggest constraint to marketplace growth will be demand among your customers.
Customer acquisition cost (CAC)
What is a customer acquisition cost? This is an important metric that shows the cost of acquiring new customers. An ideal situation is when it can be close to zero, when the network brings in new members by referral. However, it’s hard to achieve such a benchmark. Anyway, you need to spend more on support and community management as your user base grows.
How to calculate customer acquisition cost? The rate is defined by dividing the total acquisition cost by new customers. Total marketing campaign costs related to acquisition usually include:
- Marketing and sales-associated salary
- Marketing and sales software cost
- Professional services used in marketing or sales
- Other costs related to marketing and sales
Let’s say you want to accelerate the growth period with paid ad campaigns. Thus, this metric will be highly valuable by showing how much money you're spending for each new customer.
Customer lifetime value (CLV)
What is lifetime customer value? It is another critical metric that essentially means the total amount of revenue you expect to get from each customer. You need to keep both CLV and CAC metrics in correspondence. If you consider to grow business, CLV should be higher than CAC, otherwise, the growth is not sustainable. Besides, CLV can help determine an optimal provider-to-customer ratio for a marketplace.
How to calculate customer lifetime value? In some cases, calculating an exact CLV can be tricky as it depends on how long you can retain a customer, how many repeat purchases you expect them to make, and how big your average transaction is.
However, if you divide the gross merchandise volume (GMV) by the number of transactions per month, you will get your average order value (AOV). Multiplying this metric by the average amount of repeat purchases per customer will give the Customer Lifetime Value (CLV).
This metric is a great way to evaluate the viability of your business. If your CAC is higher than CLV, you should stop investing significant resources into customer acquisition, and better focus on improving CLV or CAC ratio.
Customer conversion funnel for a marketplace
Why is customer conversion percentage an important metric? Because it shows the percentage of new visitors that buy something on a site. The customer conversion funnel lets you track the path of new visitors before they make a purchase, which usually involves a few steps. In particular, the first action of a prospective customer is likely to be to search for a product or service or click on a product category.
Sometimes, they check multiple products, decide they are not the right ones, and return to search. If they find what they are looking for, they may click the Buy button. But even at this point, there is no guarantee they will actually follow through with the purchase. This metric helps to understand where your biggest bottleneck is and where most people drop off. After fixing the bottleneck you may see how the changes impact the funnel.
From this data, you may conclude, if the number of visitors is low, thus, you should do more customer acquisition. At a high bounce rate, the customer acquisition strategy might not be working, and you're acquiring the wrong type of customers or failing to offer products or services that interest them. In that case, you might need to work on your landing page and update your core value proposition.
If you have enough visitors, but they never end up buying, or their searches do not return relevant results, you might have a customer liquidity issue. In that case, you might get more providers or focus on getting fewer but more relevant customers. There also could be a problem to find relevant items in your catalogs, and the problem lies in a discovery process. If customers list many items but don't proceed to purchase, the issue may be hidden in the quality of the offer, or customers are trying to bypass your commissions. If many people get to the checkout but don't follow through, the problem could be with your transaction flow.
Transactions per buyer (TPB) and transactions per seller (TPS)
When you track marketplace metrics, you identify if the sellers are able to cover the increasing amount of transactions despite the fact that they are in a minority. For example, a taxi driver can service only one client within a short period of time, whilst a retailer can process a lot of orders simultaneously. However, in some cases, the ratio might illustrate the opposite and indicate that the demand is lower than the supply.
Repeat order rate
This metric shows how many transactions of yours are repeat purchases. Sometimes it is also referred to as the repeat customer rate, re-order rate, or even customer retention rate. The higher the percentage, the better it is for a business. For, example, if your re-order rate is 100%, it means that every customer comes back and makes another purchase.
To calculate the customer retention rate, you need to:
- Count how many customers have placed an order.
- Sum up how many customers make a repeat order.
- Divide the repeat customers by the total customers.
If you use subscription or consumption-based products you sell, most likely you will have a higher repeat rate. The same is true for stores with large catalogs, as there is a greater selection of products to drive customers back to your marketplace. Usually, if the marketplace has a repeat purchase rate from 20-40%, it is a good range to be in.
What is a Take Rate? The Take Rate metric calculates the fees collected by an e-commerce marketplace. The fees earned on the sales and transactions processed on platforms are one of their main sources of revenue for marketplaces. We can compare the take rate with a commission fee charged by a product.
Marketplaces can use two types of take rates:
- Fixed take rate fee: usually if the marketplace is actively facilitating the transaction between the consumer and the producer, the take rate is higher and vice versa.
- Variable service fee: it can depend on numerous factors such as the product category, weight, and average order value (AOV).
Product-oriented marketplaces charge take rates between 5% to 25%, whereas service-oriented marketplaces are usually priced higher.
Net promoter score (NPS)
Among metrics to measure user satisfaction, consider measuring your Net Promoter Score. Since it was mentioned in the 2003 Harvard Business Review article "The One Number You Need to Grow" by Frederick F. Reichheld, it has become popular among marketers ever since. By asking the question: “How likely is it that you would recommend a product or service to a friend or colleague?”, you may get accurate results that indicate customer satisfaction with your products or services. Therefore, net promotion crore definition refers to a company's ability to effectively control its costs or provide goods or services at a price higher than its costs.
Typically, responders are divided into three categories:
- 9-10: Promoters, who are loyal customers, and who keep buying and referring a service or a product to others.
- 7-8: Passives, who are not enthusiastic customers but who like a product and are with it.
- 0-6: Detractors, who are unsatisfied customers and will most likely share their disappointment and affect your brand.
The metric is calculated by subtracting the percentage of customers who are Detractors from the percentage of customers who are Promoters. The result can range from -100 where everybody is a detractor to +100 where everybody is a promoter.
So, if an NPS score is a positive number, it is a good sign, and if an NPS of +50, it is a brilliant result. But don't be obsessed with the initial rating since it is not very meaningful. More importantly, repeat the NPS survey over time to see whether customer satisfaction is going up or down.
Establishing and growing a marketplace is not an easy task, where success depends on the goals and objectives your platform needs to achieve. However, one of the key factors to gain competitive advantages is keeping your finger on the pulse. Therefore, monitoring the metrics that fit your marketplace will help you make it a welcome spot for buyers and sellers in your niche.
The trick to properly use the metrics is a key to ensuring your marketplace is on its way to success. It’s crucial to spot metrics that can help you assess whether your marketplace is running effectively, items that need to be improved, and how to optimize performance. So, the key task is defining an area you want to improve. This helps you understand which marketplace success metrics you should track on your marketplace.
Feel free to contact us, should you need any assistance from a reliable online marketplace development company. We have implemented many successful e-commerce projects and will be happy to help you build or improve your marketplace by adding some essential features for both buyers and sellers.
Frequently asked questions
- How is the buyer-to-seller ratio calculated?
The buyer-seller indicator describes the ratio between buyers and sellers in the marketplace. The indicator calculation formula is the number of active buyers / the number of active sellers.
- How to calculate customer acquisition cost?
Customer acquisition cost shows the total costs spent to convince a customer to buy a product or a service. To obtain the amount of an entity’s costs, you should divide the total acquisition costs by the number of new customers.
- How to calculate customer lifetime value?
Customer lifetime value is a valuable metric that shows the total revenue a business can earn from a single customer account. You can identify the indicator by following formulas:
Customer Lifetime Value = (Customer Value * Average Customer Lifespan), where
Customer Value = Average Purchase Value * Average Number of Purchases