• Darren Cody

How To Create A Marketplace Business Plan



Q: How Do I Create A Business Plan For My Marketplace?

A: Don't use a one-dimensional plan for regular businesses.



Our team has come across many business plans in the past, and it is usually in the same format and very one-dimensional, meaning it doesn’t incorporate many of the key metrics to a marketplace’s success that we described in a past blog post.


Let’s skip the basic CAC and LTV metrics and move to the meat and potatoes of the Business Plan. Here are some examples of important metrics.


K-Factor Ratio - Network Effects

This is to track the worthiness of the Network Effects built into your marketplace. It is a way to calculate for every 1 User who signs up to the marketplace, how many others will they successfully invite to join too. If you reach a 1:2 ratio, you’re doing extremely well. That defines that for every single User joining the platform, they are organically inviting two others in their network to join with them. This would be considered a viral ratio.



U-Factor - User Conversion

How do you create a self-sustaining marketplace? How do you evenly grow Demand & Supply at the same time? We describe this as the “U-Factor” for User Conversion, what is the rate of Demand Users that convert and become Supply Users and vice versa? If you have 25% of Demand (Demand being a User with 1< bookings) into listing a product or service as Supply, your platform will outperform the competition and leaves the company to focus more on growing Demand.



Stickiness - Frequency of Use

When you're scoping your marketplace platform, do you think of how many times a User will practically use the online platform in a time period? Take a traditional Travel or Accommodations marketplace, the average User will likely only use it 3 or 4 times per year. What are ways your Product can drive more frequent adoption, taking a handful of sessions per year and turning that into a per month basis? This is how you create a defensive moat around your community. This would be considered Product-Led Marketplace Growth.



Significant Actions - Repeat & Time to First Use

First, define & document what your team considers a “Significant Action”, typically, this would be a Listing of supply or a booking on demand. These are core events in your marketplace that you need to keep a fine track of. For example, A.) how long from the User’s first session does it take to enter the Checkout Process of the marketplace? B.) what is the average and median supply per User? Time to First Use provides valuable insights into UX and can be a strong indicator of a poor user experience if it takes longer than expected to complete that action or gives you a sense of what you can expect for the Stickiness Metric. The average and the median number of postings per User help influence your business plan because you need to multiply the number of Supply Users by the Average Number of Listings to get a better understanding of how much Supply is needed to achieve your milestones.



Search to Fill Rate

How easy is it for Demand to find and pay for what they want or need? This one is simple to calculate, the Number of Monthly Searches divided by the Number of Monthly Bookings. One important aspect to define is if you’re looking at Bookings as Total Started & Total Completed or only Total Completed. This can paint the picture of a few potential problems such as Demand can’t find what they want - A.) No or Low Supply, B.) The Complex of Choice (dense supply), C.) Poor filtering or matchmaking, etc. Ideally, you’ve implemented a data-tracking strategy or have a search API partner to track auxiliary data for this KPI. Searches by Category, Subcategory, Commonly Used Filters, and Location.



The five key performance indicators above should be well integrated into your marketplace business plan. The conversions, ratios, factors, and averages will drastically impact the revenue outcomes you’re projecting.


Here are the minimum Metric Groupings we use to create marketplace business plans for our clients. (Host = Supply, Demand = Demand, and Browser = Non-Significant User).


Business Plan Group Examples

Website Traffic
  1. Unique Visitors

  2. Bounce Rate %

  3. Potential to Convert #

MARKETING
  1. Ad Cost per Lead

  2. % of Lead to Demand

  3. Average Cost per Demand

  4. % of Leads to Bookings

  5. % of Lead to Host

  6. Average Cost per Host

SIGNUP (New)
  1. % of Traffic to Signup

  2. Number of Signups Attempts

  3. Signup Conversion %

  4. # of Completed Signups

  5. % to Demand

  6. # of Demand

  7. % to Hosts

  8. # of Hosts

  9. % to Browsers

  10. # of Browsers

SUPPLY BY Host (New)
  1. # of Different Listings per Host

  2. Cross-Category Listings as Host at a time

  3. Average # of Demand Users per Listing Booking

  4. Average Listing Fill Rate

  5. Average Time To List (Days)

  6. # of Listings - Total

DEMAND BY Demand to Host (New)
  1. # of Available Listing Bookings - Total

  2. # of Listings per Demand User

  3. Cross-Category Listings as Demand User

  4. Average Booking Completion % (No Cancellations)

  5. Average Time to Join Booking (Days)

  6. # of Filled Spots on Booking

Host BOOKINGS (New)
  1. Average Rake to Demand User

  2. Average Rake to Host

  3. Average Cost of Booking to Demand

  4. Average Platform Net Revenue per Booking

  5. % Average of Organic Bookings

  6. % Average of Paid Bookings by Ads

  7. Number of Bookings

  8. Average Platform Net Revenue - Total

REFERRALS
  1. K-Factor (Users)

  2. U-Factor (Demand converted to Supply)

EXISTING USER BASE
USER BASE
  1. # of Users

  2. % Average Churn

  3. # of Existing Demand Users

  4. # of Existing Hosts

  5. # of Existing Browsers

Host SUPPLY (Existing)
  1. # of Available Bookings Spots - Existing Total

  2. Fill Rate of Demand to Host Bookings

DEMAND BY Demand User TO Host (Existing)
  1. % of Repeat Demand User Bookings with Host

  2. # of Existing Demand to Repeat Book

  3. # of Repeat Bookings by Existing Demand Users

Host BOOKINGS (Repeat)
  1. Average Rake to Demand

  2. Average Rake to Host

  3. Average Cost of Bookings to Demand

  4. Average Platform Net Revenue per Booking

  5. Number of Bookings

  6. Average Platform Net Revenue - Total

FRESH CONVERSIONS
  1. # of Freshly Converted Hosts - U-Factor

  2. % of Freshly Converted Demand - U2-Growth

  3. Net Fresh Converted Demand

  4. Net Remaining Browsers

NET MONTHLY TOTALS / BALANCES
  1. # of Demand

  2. # of Hosts

  3. # of Browsers

  4. # of Host of Bookings

  5. # of Available Spots - Demand to Host

  6. # of Bookings - Demand to Host

  7. Net Platform Revenue



The above is provided to simply be an example of the evolution of the one-dimensional metrics commonly used in business plans. There are of course a lot of variables in the above format, but for the most part, everything is derived from the Website Traffic. If that doesn’t make SEO the top priority of your business, I don’t know what other evidence you need.