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How to model a Marketplace business

How to model a Marketplace business, using the Standard Financial Model.

On the Get Started - Revenue Model on the Standard Financial Model, there are a few sections that help you use the Standard Financial Model to model marketplace businesses. I generally use “marketplace” to denote businesses that earn revenues from the transactions they power, and not in the operational sense of whether they operate a marketplace, but the formulas and methods are very similar.

Marketplace Demand

As explained in the Funnel and Conversion Steps, each conversion step can be used to model a marketplace simply by using the dropdown in the settings at the top of the Get Started - Revenue Model. The model automatically changes the labels, the inputs, and the calculations based on that selection so that it will calculate the gross value of transactions (or subscriptions) on the marketplace and then the revenues that the company earns from it (rather than using the inputs to just calculate gross revenues). The text and the formulas will change automatically, specifically around the affiliate fees / marketplace take rate and revenue / transaction value inputs on Get Started - Revenue Model.

Marketplace Supply

An optional section on Get Started - Revenue Model covers the supply side of the marketplace, to calculate the other side of a two-sided marketplace, and calculate how merchants/suppliers/etc are acquired (and churned and retained) and combines that to calculate marketplace liquidity. Optionally, the inputs also allow you to earn revenues from the supply side (on top of the revenues earned from the marketplace take rate), through per-month fees paid by the merchants and per-listing fees.

More on marketplaces

For more on the mechanics of marketplaces and background on the important metrics, here’s a few links from the web to help: