The lead fee model will work only when the value of the lead generated

 The marketplace is high. This is the reason why usually B2B or B2C marketplaces tend to use this kind of model. This is because, in the B2B and B2C models, every new lead can turn out to be a long-lasting customer that provides repeat business. Thumbtack, a marketplace for all kinds of local professional services like electricians and samba teachers, is a successful model that uses lead fees. 

The issue with a multi-vendor marketplace business model that is lead fee-based is that once the customers and service providers get to know each other, they no longer use the marketplace. The service providers and customers build a relationship outside the platform. This is the reason why Thumbtack decided to provide invoicing and payment processing tools to the professionals to provide them an additional incentive to do business in the marketplace. 

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The idea behind the freemium model is that while the core offering is free, once the users are hooked to your platform, you can sell premium services to them. While offering a freemium model, you need to ensure that the premium offering lures a large part of your users and converts them into paying customers. This is because if only a small portion of your users are interested in your offering, then the revenue model won’t be sustainable. Initially, when your paid users are fewer, you can consider including ads on your platform to generate a revenue stream. 

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Many marketplaces use the freemium model in addition to the other revenue models. Etsy is one such marketplace. Etsy offers premium services like direct checkout, shipping labels, and listing promotions to sellers. 

In many cases, it is seen that a marketplace starts offering the premium services as an add-on but eventually shifts the entire revenue model to focus on paid services. The disadvantage of this approach is that it is very hard to scale premium services as compared to a commission revenue model. A major reason is the amount of money and human resources that one has to invest in to provide premium services. 

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Advertisements and featured listings

Advertisements are one of the most common and easy to set up revenue streams for a marketplace. You can link up with Google AdSense and start earning whenever a user clicks on the ads displayed on your platform. 

Featured listings are promoted listings that normally feature on the top of a page or on other eye-catching places. Featured listings can prove to be another decent source of ad revenue. The featured listings provide more visibility to the sellers on your platform. In the featured listing revenue model, the sellers are allowed to list their products on the platform for free, but if they want their offering to get more visibility, then they will have to pay for it. Etsy provides featured listings as one of its premium services.

A major challenge with the featured listings and advertising revenue models is that a significant number of users are needed to build a sustainable business. This is because the revenue generated per user is a lot less as compared to other revenue models like subscription and commission models. Advertisements act as a hindrance to the user experience, and this can act as a deterrent to the revenue generated.  

Advertisement-based models work best when you have a specific niche. For instance, a European marketplace named Haatori lets users borrow used wedding dresses. The Mobile app development company & Website designearns by placid featured listings from service providers in the wedding industry like photographers, wedding planners, and flower providers, to name a few. 

How to attract buyers

A marketplace app will need to reach a critical mass of buyers to taste success. There are various tactics that you can deploy to attract buyers.

Joining rewards

You can provide the customers with joining rewards for signing up on the platform. Many companies do this; they provide a monetary reward or a certain number of reward points for using the platform and making a purchase on the platform. You can also start a referral program under which the users who refer to other users get bonuses. 

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Sell products 

A few marketplaces started their journey as sellers of their own products and then slowly metamorphosed into marketplaces selling wares of other sellers. Lazada is an example of such a marketplace. This way, you can ensure that your customer has the best buying experience, and suppliers can be sure that the platform already has a paying customer base.