HOW TO MAKE COMMISSION MODEL WORK FOR YOUR ONLINE MARKETPLACE

Business models (aka revenue models) define the way you operate and monetize your marketplace. Among different models, commission is the most profitable one for online marketplace as it allows you to “own” every buying-selling activity and earn a fee per transaction. That said, there is a lot of work to do for this commission model to succeed. Transaction value is one of the challenges. To make a sound commission fee and keep users on site for a long time, the value provided for both providers and buyers need to be great enough so that your users won’t try to bypass your system.

This chapter will suggest some ways you can practice to provide value for users on your marketplace (in the scope of a service marketplace).

In the series:

Draw a clear image of your users

User profile

User profile benefits both providers and consumers. It allows consumers to have a look at providers’ information before deciding to work with them or not. On the other hand, user profile gives providers a great space to showcase their talent to the audience and build trust. To be honest, working with someone we never get to know before is at some point risky. Therefore, user profile with an image and some information about a stranger helps us a lot visualize him/her and makes him/her appear more reliable.

So, what to include in a user profile? First is the user’s profile picture. A picture is worth a thousand words, which is also true in this case. Next is some basic information: user name, location, languages, skills and experiences in which categories, a list of available services, and reviews and ratings the user has got from previous customers. And this is typically necessary for newbies who haven’t completed enough orders to establish a good reputation on site. A detailed profile, together with reasonable price offer, is a good strategy to help new providers attract more customers.

Reviews and ratings

No successful marketplaces can live without this feature. Both sides of user need it, Customers rely heavily on reviews to decide whether to buy a service while providers need it to build reputation and sell more. People normally tend to behave well under observation. Reviews and ratings from previous customers are a concrete proof of providers’ reputation. Customers are more likely to buy from providers whose services have high ratings. On the flip side, bad reviews might seriously damage a provider’s business. As a result, if providers want to sell more, there’s only way to take on no risk and perform well.

How to prevent fake reviews? Only when a service is completed can the customer write feedback for the provider. This means only the true customers, who pay for a service and have the experience working with the provider, are able to give ratings. This requirement helps prevent fake reviews from non customers.

Private message

Customers and providers should be able to contact each other before the transaction is made. And of course, the conversation will be under your control by providing a private message feature on your site. Customers and providers need this feature to exchange further task requirements before making the final deal. And to be able to understand customer’s requirements before working on the task helps lower the dispute rate later on.

What shouldn’t be allowed in message? After the first successful transaction with the provider that customers are satisfied with, customers usually prefer to continue working with that provider. At this time, these customers and providers would want to contact each other outside your marketplace to avoid paying commission fee. How to prevent this issue? One viable way is removing contact details in private message. Email, phone number, etc. are not allowed. However, no method is 100% effective. Users can still circumvent this limitation by replacing phone number, special character @ in email with letters. However, putting too much limit on what people can do is sometimes annoying and leads to counterproductive effects. So, just restrict the necessary stuff, and give users their own space.

User badges

User badges are like certificates granted to your users to prove that the services provided by these users are highly reliable. Besides rating and review system, user badges are a powerful tool to help service providers sell more and create trust from the buyers. To qualify for a badge, providers need to work hard, have excellent performance on the marketplace, and meet other requirements set by the marketplace owner. Thus, a user truly deserves it when he/she is awarded a badge. And it also means the buyers can feel secure when choosing the services from such providers.

To encourage users to earn more badges, give each badge appropriate requirements, which are within users’ ability, and attractive benefits, which help them reach out to more customers and promote their services at lower costs. For instance, lower commission fee, free listing fee, lower withdrawal limit, exclusive support service from the marketplace, etc. The higher level of the badge, the more benefits users would enjoy. Of course, to reach that high level, there are a lot of tasks to be achieved by the users. No pain no gain. That’s how it works.

HOW TO MAKE COMMISSION MODEL WORK FOR YOUR ONLINE MARKETPLACE

Offer a secure payment system

Be the middleman of the transactions

How can I make sure the provider will perform the task as stated? Is there any risk that this customer will not pay for the delivery? These are common questions asked by the users, the former is from the buyers and the latter is providers’. A secure payment process is one among key things for a successful marketplace. As a marketplace owner, you can’t make sure that all of your users will comply with the rules, so an optimal solution is to prevent it from the start by giving a hand in the payment process.

Set the process: the buyers pay for the order in advance which is sent to marketplace owner’s account, the providers are notified of the new order and the virtual money they get, the real money is only transferred to the providers once they complete the task. By acting as the middleman keeping the money during the process, two things are made clear: the customers have paid for what they buy, the providers will complete the service on time. To keep this smooth flow is very important for your marketplace reputation.

Use payment gateways to protect user information

Online payment is a great invention of the humankind. No need to carry cash, no worry of robbery. But, wait! As the payment technology has advanced, so has the robbery. We’re not safe when paying online. That’s why security in payment is essential to any online marketplaces. Instead of directly inputting credit card information in every checkout, payment gateways should be employed.

What is a payment gateway? It is a service that processes, verifies, accepts or declines credit card payment on merchant’s behalf through secure Internet connection. Some famous examples are PayPal, Braintree, Stripe and 2Checkout. Payment gateways encrypt sensitive information, such as credit card numbers, to ensure that information passes securely between the customer and the merchant. Payment via payment gateway is faster, easier to use and more secure than manual credit card processing.

Payment gateway is very important for a secure online marketplace. When a customer places an order and inputs his/her credit or debit card details, the information is encrypted and sent to the payment gateway. Your bank will have a payment processor to retrieve the transaction details forwarded from the payment gateway and then communicate with the card association (Visa, Mastercard, etc.). Next, credit card issuing bank receives the authorization request and sends a response back to the processor, then to the payment gateway, and finally to your website. Sounds complicated but it generally takes 2-3 seconds. At the first step, your server encrypts customer’s card details and forwards them to the payment gateway. With this process, there’s no need to store such information and thus reduce the risk of sensitive information being hacked.

Make it possible to send disputes

The communication and value exchange between customers and providers will have some troubles now and then. Within the scope of a service marketplace, you do not need to be worried about the item being damaged or the unsuccessful shipping. Instead, customers may not be happy with the delivered service, or with the provider when he/she keeps delaying the delivery. In this situation, the buyers can go straight to their credit card company and claim the money back. But the problem is that it is not always the provider’s fault so to leave the dispute issue to a third party outside your marketplace can not protect your user’s benefit. Therefore, to actively handle all the disputes on your marketplace is the solution to maintain user satisfaction and to lessen the risk of losing money directly through customer’s credit company or your payment provider.

So, do not hide the dispute button but make it visible on both customers’ and providers’ sides. Once a dispute is sent, the marketplace owner will have access to the conversation between customer and provider and all related materials. Based on all relevant information, you will decide who gets the refund and the money will be sent to the winner within 7 – 15 business days.

Provide tools to manage business easily

After the first successful order, the providers and customers will tend to contact each other outside your marketplace platform for further orders to avoid paying commission fee. To capture not only the first transaction but also subsequent ones, provide tools to effectively assist providers in managing their business on your marketplace, so that they can focus on completing the orders and leave management tasks to the platform.

Transaction invoice

Every time customers make an order, an invoice with transaction details is sent to the customers and stored in a place in user dashboard. The system will automatically generate an invoice whenever an order is made on site. The invoice will help confirm items ordered by a customer and the total amount he/she has to pay.

Task status

For each order on site, there are different statuses from the beginning to the end of the job. Based on each status, customers can keep track of purchased services: which are being processed by the providers, which are delayed, or which have been delivered. Also, providers are able to know when customers pay for the order, when they accept the delivered items, etc. Doing business outside your marketplace, customers can not keep track of this process but have to manage the task manually.

Revenue calculator

Income management is very important. Transparency of all income and spending of users is a necessary part of your marketplace. Helping users manage all their earnings on your site is another benefit to keep your users on the platform. Instead of manually collecting money from every single transaction, now your users can focus on their jobs and feel secure that all their income is effectively controlled and analyzed by the system. Specifically, there is a section in the user dashboard showing the total earnings, the current available amount, the pending amount, withdrawal and spending amount, etc. Moreover, order statistics by time are also displayed.

Conclusion

To make the commission model work on your online marketplace, provide your users with enough value which is more attractive comparing to doing without your platform, so that they are willing to stay on your site and pay for commission fee per transaction. For a service marketplace, important aspects to focus on are building trust between customers and providers, enhancing security in the payment system and providing helpful tools to manage their business.

0 Comments

Leave a Reply