U-Factor - Creating Winners for Marketplaces
Updated: Jun 8
There are many factors that go into tracking a marketplace platform once you’ve launched your MVP. These can be from Daily/Weekly/Monthly Active Users to Churn or Time to First Significant Action and finally the heart rate of a marketplace, K-Factor.
One of the amazing things about marketplaces is the amount of data you’re able to collect and explore by diving into using your preferred Adoption Tracking SaaS. Our Team has used a few of these from Pendo to Mix Panel to Firebase. The choice of which Tool you adopt to run your business is heavily dependent on the skill set of your Product Manager or whoever will be using it most. It also depends on the implementation style for the Tool and what you’re able to afford in terms of time.
K-Factor is a metric used to measure the Network Effectiveness of your marketplace. Something that is vital to your Platform’s success. Basically, it measures for every 1 User converted on the Platform, how many more Users do they invite to join the Platform? There are many books or blogs about K-Factor and we’ve written about it here before, too.
Today, I want to discuss U-Factor (User Factor). This is tracking how you’re able to convert your Demand Users into becoming your Supply Users. It is a secret metric that nobody has seemed to talk about yet, but something everyone should be fighting to get higher and higher.
If you’re able to successfully convert your Demand into becoming your Supply, you’re essentially becoming self-sustaining by generating your own Supply. Achieving a U-Factor of 1 or more will mean that for every User who has a successful transaction as Buyer/Renter, they will return at a later date to list Supply on your Platform.
The following is the journey and criteria for meeting U-Factor:
Creates an account on your Platform
Supply Listings = 0
Successfully transacts on the Platform as a Buyer/Renter
Returns within 1 month and Lists their first item for purchase or rent or their service
For a Marketplace, building Supply is key to the success of the Platform. For example, if you are building a P2P (Peer to Peer) Rental Marketplace, you need as many items for rent as possible crossing all categories and subcategories. The Owners who’ve already listed their items will become addicted once they start earning money on your Platform and Notifications will bring them back to become a recurring MAU (Monthly Active User). On average, each Owner would have 4 Listings. Renters on the other hand usually won’t become a recurring MAU. This of course depends on the type of Rental Marketplace you have. If it is an RV Rental Marketplace, you might only have a Renter returning once or maybe twice a year.
Ask yourself these questions:
How can we increase recurring adoption on both the Supply & Demand sides?
How can we get more organic (Not paid) Supply?
How can we create advocates or fanatics of our Marketplace?
Again, the answers will vary depending on the type of Marketplace you have, but you should be thinking that a high U-Factor would answer these questions.
Having a User who starts as a Renter, successfully transacts on the Platform, returns later to list an Item for rent, and then has a booking will become that advocate you need. Otherwise known as Winners. They have proven they’ll return to your platform which means they’ve had a positive experience with the UX and weren’t fatal to the funnel. They’ve proven they see value in your platform because they believe they can earn money after their initial rental by becoming an Owner. And, as Owners, they will be sharing their Listing with their network to generate more bookings.
Here are some other factors that are very important to consider when calculating your U-Factor:
Time to the first transaction is Demand vs Time to first Listing
The average number of Listings for U-Factor Users
The average number of Bookings for U-Factor Users
Platform Return Rate (Frequency)
If you’d like to learn more about U-Factor or other important KPIs to keep note of for your Marketplace Platform, please schedule an introduction.