Our experience across multiple industries, marketplaces and clients has given us insights into many of the critical factors required for ongoing success and how to adjust if things go wrong.
There are many factors that play a role in making a marketplace channel commercially sustainable over the long-term and these include:
- Resource: having the right bandwidth, structure and skills
- Proposition: the attractiveness of your product, pricing and policies
- Profitability: the unit economics of the channel relative to your pricing and margins
- Technology: how automated every channel is for you
- Distribution: having the right warehouse and fulfilment options
- Stock & Supply Chain: ensuring you minimise out of stock issues on key product lines
- Marketing: finding a balance between visibility, sales velocity and Return On Investment (ROI)
- Alignment and clarity: from objectives across the team plus the right setup to realise them
What are the keys to marketplace profitability over time?
It’s vital to clearly understand the unit economics of each marketplace. Unlike typical ecommerce sites, marketplaces operate on an average of 1.1 Units Per Transaction (UPT) and most of the associated costs are variable costs (e.g. commissions, dispatch costs, marketing spend etc).
As a result, understanding your Average Selling Price (ASP) is a critical element for success.
If you can push up your ASP, whilst staying competitive in your category this can make a big difference, but it’s key to understand your initial position and then optimise the elements you control over time. Many businesses seek to cost engineer for a specific channel to maximise volume and this can work very well, if you are in the right niche.
What resource and staffing considerations should be made before establishing a marketplace presence?
Whichever approach you choose, you will need some internal resource to handle/query/coordinate key topics. We commonly see businesses building structures using a blend of internal brand/trading knowledge and leaning on 3rd parties (such as ourselves) to cover marketplace-specific topics.
We have some clients with half a role dedicated to their marketplace channel through to others with significant internal teams, yet still working with us as an agency.
Our experience is that you get out what you put in. If you want to grow your channel or even test it properly, there needs to be a commitment of time, energy and experience to have a chance of building a successful presence.
What business structures and support will you need for a successful marketplace presence
If demand is already there, it is important to focus on supply chain and stock management, as well as having specialists managing your listings and marketing activity.
If your key challenge is getting visibility and awareness, then your money should be invested to boost capabilities around listing visibility and performance marketing, where available, as well as ensuring you have a sensible approach for the back-end and stock side of things.
Where businesses are above the £1 million marketplace sales milestone, it is common to have a marketplace lead with a trading capability to drive things from the sales side and an operations co-ordinator to liaise on stock and operational elements like customer service and finance.
Often there will be an agency with the right expertise to feed into the team with a specialist knowledge base. For others they will just feed in key operational functions to the internal marketplace lead for them to organise directly.
What are the three most common mistakes businesses make that hurt their marketplace profitability?
- Not having timely and accurate channel Profit and Loss reporting that can help you understand your sensitivities around profitability.
- Being too short-term in expectations - marketplaces are competitive environments and you are often joining the race late - so inevitably more investment is needed initially to catch up with competitors.
- Tracking your costs correctly - it is important that you track the metrics and costs correctly to get a full picture. Many only look at marketplace commissions and possibly delivery costs, which can be misleading. Looking at product format and trying to boost the ASP for lower priced products is critical.
How often should businesses review their marketplace performance and fit?
Monthly performance reviews should be a minimum but also having a 6-monthly strategic review of the channel is sensible. New marketplace opportunities should be incorporated in these reviews.
We have a detailed methodology to analyse this for clients looking to expand.
How do businesses get back on track if they're not getting the results they expect?
Start by checking you are still doing the basics well. Make sure your listings are in good shape (images, copy, brand content, SEO etc.). Then review your marketing activity - what promotional levers have you got and how visible are you on key searches etc.
From there, it is best to review your key competitors to see what they are doing well. Often this will flush out any issues with your proposition - is your delivery charged vs. others offering this for free? Do they offer Prime but you don't? How does your pricing compare? Are they doing a better job at highlighting their features and benefits?
We have access to a range of useful tools including market trends which can also be a contributing factor to changes in performance. Perhaps you are focusing on the wrong products or even markets? With this analysis complete, you can work on a plan for a better approach, which might include external support or changing focus.
Ultimately ensuring ongoing success on any marketplace channel requires the right combination of skills, process and continued focus. If you’d like to discuss any of topics mentioned in this blog in more detail, we’d be delighted to arrange a call.
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