Analytics

10 marketing metrics to master for first-time marketplace owners

Whilst growing a marketplace, founders need to keep an eye on the most important factors to calculate. As a two-sided web platform, marketplace aggregates many sellers and their inventory on one website as well as a lot of buyers. This is how the chicken and the egg problem appears. Customers need supply, and sellers need customers. We will discuss later how to find a good balance between two types of marketplace users, nevertheless, now we are going to concentrate on the analysis of the key performance indicators.

Marketing metrics you need to be measuring for a marketplace

Depending on the chosen business model, the KPIs could vary. For instance, a marketplace might be taking a fee for publishing an ad or receiving a certain percentage of transactions made on the website, and besides, the latter could be paid for by vendors or vice versa by customers. It all has an impact on the metrics to calculate, especially if a marketplace owner wants to have a clear vision of his current business situation.

Later on, on Marketplace Wiki by Rademade we will talk about different business models, the user lifecycle on the website and more sophisticated methods of the financial analysis. Here is just a simple guide on 10 must-measure metrics.

1. Total number (#) of sellers

This is one of the basic suppliers’ side metric. To understand a marketplaces progress you need to calculate the total number of registered sellers as well as the number of newcomers and those who still remain active after 1 month. Having done this, you can figure out the supplier's growth rate from month to month and year by year.

2. Total # of listings

Increasing the flow of sellers doesn’t serve a purpose unless the total number of listings starts rising. This a key area to focus on, since the listings published on a marketplace can lead to transactions. Not only do you need to control a total amount, but also compare new and all active listings to understand growth rate. Another factor to consider is the average listing price, which indicates an average price of goods or services listed by sellers (if there are a lot of different items on sale, you could calculate an average listing price for a certain category).

3. Total # of active users (buyers)

Different companies have an almost unlimited list of definitions for what “active” means. It could be users that have registered in the previous month and have made at least two purchases since then including at least one this month. Or it is possible to define them as active after just one initial purchase. Whichever definition you choose as appropriate, you need to calculate the growth rate on a monthly and yearly basis as well as be able to recognise the number of one-time buyers and buyers that made a purchase more than once.

4. Total # of orders per buyer

Here you need to calculate both the overall number of orders (per day/month/year) along with the amount purchased per buyer. This basically means that the statistics regarding how many items are ordered and how many are purchased need to be tracked.    

5. Buyer-to-Seller Ratio (Buyer/Seller Overlap)

The buyer-seller ratio can tell you whether there are more buyers or sellers in the current marketplace. It can be identified with a simple formula.

Buyer-to-Seller Ratio = Quantity of Active Buyers / Quantity of Active Sellers

For new startups this ratio is usually between 1:3 and 1:6, whereas for a stable retail market (as a rule of thumb) the normal ratio is 2-3 buyers for every seller. However, it really depends on your business and sometimes it can be interesting to measure the following ratio instead.

Transactions Per Buyer/Transactions Per Sellers (TPB/TPS)

This index can show you if the sellers are able to cover the increasing amount of transactions (several at the same time), despite the fact that they are in a minority. For example, an Uber driver can give only one ride within a short period of time, whilst an Ebay seller can process a lot of orders simultaneously. However, the previously mentioned ratio might illustrate the opposite and indicate that the demand is lower than the supply.

The balanced buyer-seller relationships are often found in P2P (or C2C) marketplaces, since the supplier can also buy goods or services and the users always switch their roles. This is typical behaviour of users in marketplaces such as Couchsurfing or CurrencyFair, but in others such as Lyft or Rover it is not natural for the suppliers to make a purchase in the marketplace.

A Buyer/Seller Overlap can be quite beneficial: it decreases your average CAC (customer acquisition cost) since you acquire both a buyer and a seller simultaneously.

6.  CAC (Customer Acquisition Cost)

To continue with, one of the most critical metrics you should track is the customer acquisition cost, which essentially means the cost of acquiring new customers. It does not matter if you acquire sellers or buyers because for both categories of your users you will have paid or organic CAC.

The general formula for calculating CAC is:

CAC = Total Acquisition Cost / New Customers

Where:

  • Total Acquisition Cost = the total amount spent on the acquisition of customers,
  • New Customers = customers acquired across paid marketing channels.

It is better to calculate the CAC not including users acquired organically, because if you do so the result will not inform you how well your paid campaigns are working out and whether they’re profitable.

The complex method for calculating CAC is:

CAC = (MCC+W+S+PS+O)/CA

Where:

  • MCC = total marketing campaign costs related to acquisition (not retention),
  • W = wages associated with marketing and sales,
  • S = the cost of all marketing and sales software,
  • PS = any additional professional services used in marketing/sales
  • O = other overheads related to marketing and sales,
  • CA = total customers acquired.

There is a strong distinction between CAC and cost per action (CPA), so do not get these metrics confused. CAC is all about acquiring new customers, whereas cost per action relates to both new and returning customers. It is usually an amount you pay to convert a customer.

7. LTD (Lifetime to Date)

Lifetime to Date (LTD) indicates how much money one user paid into your business you over a specifiс period of time (from the beginning of his life cycle until a certain date). Firstly, you need to specify the period, for example, 3 or 6 months and secondly use the KPIs for this particular period.

LTD = ((Ab*n)-С)*t

Where:

  • Ab = average bill total,
  • n = number of orders,
  • C = cost, all administrative and operating costs associated with customer acquisition and retention,
  • t = period of time.

After you’ve received the result you could analyse this data to define how to improve your acquisition and retention costs.

Let’s analyse a 6-month time period and assume that you spend $150 on acquisition and retention of your active customer while he makes one purchase per month averaging at around $200 spent.

LTD = ((200*1)-150)*6 = 300

Now the important ratio to focus on is one that tells you exactly how much value you're making from your customers in relation to how much it costs to acquire them:    

LTD/CAC

Provided your CAC is $400, $300, or $100, you will see different scenarios for your business:

  • 300/400 — less than 1:1 — you’re on the road to oblivion,
  • 300/300 — 1:1— you’re losing money from every acquisition,
  • 300/100 — 3:1 — you are thriving and have a solid business model.

8. GMV or GTV

GMV (Gross Merchandise Value) is a basic metric for any retail online business. However, in accordance with your business model this metric might be transformed. For example, provided your business model is based on commission, you had better track the GTV (Gross Transaction Value).

GMV is the total dollar value of everything sold through a marketplace in a given period of time.

GMV = # of Transactions * AOV

Where:

  • # of Transactions = the total number of transactions,
  • AOV = an average order value.

GTV is the commission on the transaction price charged to the customer then multiplied by the number of items sold.

GTV = # of Transactions * AOV * % of Transaction

Where:

  • # of Transactions = the total number of transactions made and items sold through a marketplace,
  • AOV = the average order value,
  • % of every transaction.

If suppliers sell 10,000 items across the entire marketplace for $100 each and a pay 10% fee for every transaction, the GTV will be $100,000 (=100*10000*0.1). It's another effective way to calculate the gross revenue.

In terms of economics GMV is a raw figure. It should just be treated as an additional metric. However, it is also useful as a way to measure the marketplace's performance.

9. Net Profit (NP)

This metric measures the profitability of a marketplace after all costs have been accounted for.

NP = TR - TC

Where,

  • TR = Total Revenue
  • TC = Total Cost = Cost of Goods Sold (COGS) + Operating Expenses (OpEx)

For example, a company earns $100,000  per year and spends $20,000 (COGS) on marketing and $30,000 on operating expenses (wages, office rent, etc).

NP = $100,000 - ($20,000+$30,000) = $50,000

Once you’re done with calculating the Net Profit (NP), you need to compare it with the Total Cost (TC).

NP = $50,000, TC = $50,000

When Net Profit and Total Cost are equal (NP=TC), as in this case, it means that the company makes money enough to cover all its costs, but it has not been profitable yet.

Three possible scenarios are:

  1. NP>TC — The marketplace is making more money than it spends.
  2. NP=TC — The marketplace is making enough money to cover expenses but there is currently no profit being made. This is also known as the “break-even point”.
  3. NP<TC — The marketplace is not making enough money to pay for all of its expenses and the company declares bankruptcy (unless it is reversed in time).

10. Month-on-Month (MoM) growth

Often this is measured as the simple average of monthly growth rates. But investors often prefer to measure it as CMGR (Compounded Monthly Growth Rate) since CMGR measures the periodic growth, especially for a marketplace.

CMGR = (Latest Month/ First Month)^(1/# of Months)-1

Using CMGR also helps you benchmark growth rates with other companies. This would otherwise be difficult to compare due to volatility and other factors. The CMGR will be smaller than the simple average in a growing business.

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