Measuring and assessing metrics is key to success of any digital business. While metrics for traditional single-vendor online store models are well known to the public, marketplace models require a new set of KPIs.
Tracking these marketplace metrics makes it possible to determine the areas in which the marketplace is running effectively and those where improvements are needed, and how to adjust your overall marketplace to optimise performance.
Although success might vary depending on your type of marketplace, below we discuss 5 key marketplace metrics every founder and marketplace manager should be tracking:
Gross Merchandise Value (GMV)
The Gross Merchandise Value (GMV) is the aggregate value of all products or services sold on your marketplace during a given period. In short, it represents how much money has flowed in the platform within a period of time.
Founders and marketplace managers should track this metric early on and review it regularly: growth rate of GMV is a great way to measure the actual growth of your marketplace.
How to calculate GMV:
€ GMV = # Transaction x € AOV
In a marketplace model, where a brand connects buyers and sellers, it becomes paramount to calculate how liquid (or “transactional”) this engagement is. Indeed, liquidity is a vital metric for your online marketplace. It can be calculated both on the buyer side and the seller side.
Seller liquidity is the percentage of listings that result in transactions within a specific time period. For instance, seller liquidity for a marketplace like Etsy would refer to the percentage of products available that are sold within a month.
How to calculate it:
Seller: # Listings with transactions / # Total Listings
Buyer liquidity is the probability that a visit will turn into a transaction. This is fairly easy to calculate: you take the number of visits you get within a certain time period and look at how many transactions you have in that same period.
How to calculate it:
Buyer: # Transactions / # Visits
While GMV can provide good visibility over the size of a marketplace, it does not represent actual revenues for the marketplace owner. Indeed, to get an accurate view of this, you also need to consider your take rate, which is the average commission the marketplace takes on sales by third-party sellers (across the different categories).
High take rates mean the marketplace delivers a strong value proposition to buyers and sellers, and has a solid foundation to negotiate terms with sellers.
How to calculate actual sales through Take Rate:
€ Actual Sales = € GMV x % Average Take Rate
Average Order Value (AOV)
Another marketplace metric you need to calculate is the average order value (also known as basket size or value per transaction).
This metric is especially relevant to understand unit economics of the marketplace and stay on top of CAC (customer acquisition costs). Knowing how much a customer is willing to spend on average will give the marketplace manager a good indication of how much it should spend on acquiring such a customer.
It also gives insight into the buying pattern: typically, a high AOV will refer to highly-planned one-off purchases, whereas low AOV will refer to potentially more impulsive and recurring buying.
How to calculate AOV:
€ AOV = € GMV / # Transactions
Bonus: Net Promoter Score (NPS)
The Net Promoter Score is a metric used to measure customer feedback across different industries. In a marketplace environment, where buyers might come and go, it is especially relevant to understand how likely they are to become advocates or detractors.
How to calculate NPS:
After purchase, marketplace manager may email the customer with one single question: “How likely is it that you would recommend us to a friend or colleague?”. Those with a score above 8 are considered ‘promoters’, while those with a score under 7 are ‘detractors’.
NPS = % Promoters - % Detractors
Metrics are crucial to making sure a marketplace is on its way to success.
Whilst newer marketplaces may focus first on the key metrics discussed in this article, scaled-up marketplaces will gradually incorporate new measures to their dashboards, meeting and reviews, getting increased understanding of what their success looks like. Some of the more granular and detailed KPIs can revolve around usage metrics, transaction metrics, conversion funnel, and user satisfaction metrics.