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Cheet Sheet #1: Key Metrics to Track for Marketplaces

Stephanie Chan
January 28, 2021
SPOILER: WE LOVE DATA (AND SO SHOULD YOU)

It’s no secret that at Samaipata, we love data and we love to use it to make decisions and track how we’re doing. Okay, so maybe you’re thinking “Great, so you guys are a little nerdy and you love numbers. What’s that got to do with me?”

Very good question — we can think of a few good reasons why you should also care about metrics as a Founder.

  • It’s how you should track the underlying health and growth of your business. Needless to say, if you can’t measure it, you can’t improve it.
  • It’s how you should make your decisions. Data is a friend who doesn’t lie and can help you make (and justify) your business decisions. The secret is how well you listen to this friend.
  • It’s a way to communicate with your investors and other stakeholders. We’re not the only data-driven investors and for us, numbers (like a picture) tell a story of a thousand words.

As my colleague Aurore explained in our Founders Q&A, we rely a lot on analysing data and metrics when understanding a business. We also acknowledge how daunting it can be for Founders to build a data empire from scratch. As we’ve built up knowledge throughout the years, we thought it’d be helpful to summarise them in this cheat sheet of key metrics for Marketplaces.

We want Founders to know that being data-driven is not about having a laundry list, it’s about identifying and tracking the key drivers — the “North Stars” — to your business.

* P.S. Stay tuned for more cheat sheets on other business models to come!

#CHEAT SHEET: Key Metrics for Marketplaces

We see 6 buckets of metrics that each answer a critical question about the marketplace. Download your cheat sheet here!

1. Size: What is the scale and value-add of your marketplace?

Gross Merchandise Value (GMV, €)

GMV is the total value of goods and services exchanged on your platform over a set period, such as a month. It shows the rough size of your marketplace and how it has grown over time.

Take rate (%)

The take rate is the % of GMV that your marketplace takes as revenue, i.e. the transaction fee. It is typically a proxy of the value and depth of your marketplace “stack” (i.e. discovery, matching, payment, logistics, etc.) and thus, how valuable your marketplace is to both buyers and sellers. While the take rate usually corresponds to the depth of this “stack”, a higher take rate is not necessarily always better — some industries might be better suited for a lower touch approach!

Contribution Margin I (€)

Contribution margin I is the ultimate measure of size for your business — it is your revenue revenue net of COGS and variable costs. This metric is especially important for investors since it levels the playing field and allows comparison between marketplaces in different industries.

2. Shape — How fragmented or concentrated is your marketplace?

Number of active buyers and sellers (#)

Number of active buyers and sellers are high level indicators of market fragmentation or concentration, although this should be interpreted against the maturity of your marketplace. Mature marketplaces are most value-adding and hence, robust, when operating in highly fragmented demand and supply markets because all players have a need for a centralised place to discover and transact. It also reduces dependency on a limited number of users and hence, mitigates disintermediation risk. Etsy is a great example of a mature marketplace showing high fragmentation of both supply and demand.

% GMV of the top X active buyers and sellers

To get a more accurate view of market fragmentation or concentration, you should look at the number of active buyers and sellers relative to the size of your marketplace- by taking the % of GMV represented by the top X buyers and sellers. Another way to think about this is what % of buyers or sellers make up the top 80% of GMV?

% Monogamous transactions

This measures the extent of “monogamy” in your marketplace, calculated as the % of all transactions that are repeat orders between the same buyer and seller. Healthy marketplaces should exhibit limited monogamous transactions, otherwise there is an increased risk of disintermediation. While some categories, such as childcare, are inherently monogamous and so would naturally reflect higher metrics, it is still worth monitoring for the health of your marketplace.

3. Liquidity — How well is your marketplace doing its job?

Number of transactions (#)

Number of transactions or ‘matches’ is a high level indicator of how well your marketplace successfully matches buyers and sellers — after all, that’s the whole purpose of a marketplace! Just like the number of active buyers and sellers, this should be adjusted for the maturity of your marketplace

Match rate (%)

You can get a more accurate view of liquidity by measuring the number of transactions or ‘matches’ as a % of total listings within a given period of time. Think of liquidity like the occupancy rate in a hotel — what % of rooms are occupied every night? In Uber’s case, what % of drivers are engaged every hour? The higher the liquidity, the healthier your marketplace.

Time taken to match (# hours/days/weeks)

Another way to measure the liquidity of your marketplace is the “efficiency” of the matching — the number of hours/days/weeks a listing is available before being matched. For our hotel, how many nights is a room empty before being booked? For Uber, how long do customers wait before matching with a driver? Here, the shorter the time, the more efficient your marketplace.

4. Acquisition — How well can you attract users to your marketplace?

Acquisition is measured differently for B2B vs B2C marketplaces, so we’ve split up our key metrics to reflect this below. Sit tight — we’ll have separate posts dedicated to B2B and B2C models which we’ll link here when ready!

B2B: it’s all about effectiveness of the acquisition & sales funnel

Acquisition efficiency in B2B is measured by the effectiveness of the overall sales funnel:

  • Number of qualified leads (post scoring) generated by channels — How deep is your market potentially?
  • % of inbound vs. outbound leads — Do you already generate inbound traffic?
  • Conversion rate of leads at each stage of the funnel (i.e. from qualification, to 1st call, to demo, to closing) — How efficient are you at converting your sales funnel?
  • Overall length of sales cycle — How efficient are you at closing new buyers?
  • First Time Buyers (FTBs) evolution — Can you see some early signs of predictability in your acquisition patterns?
  • Customer Acquisition Cost (CAC): Total sales & marketing cost / total new users in a given month. Typically this includes the fully loaded salaries of your acquisition & sales team, marketing expenses and customer service — How much does it cost you to acquire new users?

B2C: it’s all about converting traffic

Acquisition efficiency in B2C is measured by metrics that focus on quality of traffic, conversion and cost of traffic:

  • % of organic vs. paid traffic — How much genuine “customer love” you have already?
  • Cost per acquisition (CPA) by channel: Marketing cost for channel/ Users acquired through that channel — What’s your most powerful acquisition channels?
  • Conversion rate % on landing to buying — How efficient are you at converting traffic?
  • Customer acquisition cost (CAC): Total marketing cost overall/total new users in a given month — How much does it cost you to acquire new users?
5. Retention & Engagement — How much do users rely on your marketplace?

How much users rely on your marketplace is a function of Retention (how many of your users return) and Engagement (how often those users return). Ideally, you want all your users to return very often so that your platform is the de facto place where users transact in a specific category. Realistically, it will be a balance but as your marketplace matures, you should hope to see increasing engagement in your users’ lifetime even for a smaller but solid group of users.

% Users who return by cohort (Retention)

% of returning users is the proportion of users who come back to transact on your platform at a point in their lifetime (e.g. in their second month, sixth month, etc). This should be measured by cohort so that their behaviour can be isolated based on when they were acquired, e.g. users acquired in 2019 vs 2020 behave on different timelines. You can then calculate a weighted average across all cohorts to get a holistic view of your marketplace.

To help out with this one, we’ve got a whole separate post on cohort analysis — including a handy template!

# of Repeat transactions by cohort (Engagement)

How often users return is important because it indicates how much they’ll be worth to you (spoiler; important for Lifetime Value below!). This is the # of repeat transactions each user makes at a given time (e.g. in their second month, sixth month, etc). As above, cohort analysis should be used to find an average # of repeat transactions. The same template above can help you calculate this!

Share of wallet (%)

Another way to think about reliance is their share of wallet — the % of a buyer’s spending or a supplier’s revenue in that category attributable to your marketplace. This measures the dependency of your users on the marketplace as a channel — this is especially important for B2B where channels are fewer but worth more. However, we know this is tricky to measure without direct data on the ‘whole’ wallet so a good start would be to define an average spend/revenue in the category using interviews, surveys or industry reports.

6. Unit Economics — How healthy is your marketplace as a business?

The holy grail of all metrics — we know that unit economics are hard to grasp because it is a function of all the metrics above. However, it is critical to understand and useful as a way to ‘temperature check’ your business.

Lifetime Value (LTV, €)

LTV measures how much value you can extract from each user over their lifetime on the platform: it is calculated as the total contribution margin I per user over a time period, say 24 or 36 months. It is calculated as average order value (AOV) x contribution margin 1 (%) x # of transactions over the given time period. The trickiest part is knowing the # of transactions — while the most accurate estimation is using the cohort analysis above in the Retention section, a quick proxy is to use the average transactions per user over 12 months. This conservatively assumes customers churn after a year, with the rationale that you likely have more visibility over a 12 month period than 24 months.

CAC payback (# of transactions)

CAC payback is the number of transactions required for a user to ‘pay back’ the cost to acquire them — the break even point — calculated as CAC divided by average contribution margin I per transaction. This is a quick way to gauge the dynamics of your marketplace and set the limits for your CAC. e.g. if your mattress marketplace has high AOV but low frequency of purchase, you’d need to break-even on your first order since there’s a real likelihood a second order might not happen.

LTV/CAC ratio

LTV/CAC measures the ROI per user in your marketplace. This is critical to assess the health of your business — LTV should be greater than CAC by 3x as a rule of thumb. We understand that achieving this ratio takes time but it’s important for Founders to think about their marketplaces in these terms and strive to improve it every day.

There you have our very first #cheatsheet! Feel free to reach out to us — we’re always happy to answer any questions you might have, no matter how big or small :) Stay tuned for the next post in the series — Key metrics for Consumer Apps and Networks!

**

At Samaipata, we are always looking for ways to improve. Do not hesitate to send us your thoughts. We strive to partner with early-stage founders and to support them in taking their business to the next level. Check out more ways in which we can help here or for all our other content here

And as always, if you’re a European digital business founder looking for Seed funding, please send us your deck here or subscribe to our Quarterly updates here.

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