commission business model

Previously, I have discussed business model definition in micro job marketplace. This article will particularly talk about Commission business model, its pros and cons, and some suggestions on what you can do to bring value to your users.

Commission business model – Opportunities & Challenges

Commission is by far the most popular business model applied by such big names in the marketplace platform as Fiverr, TaskRabbit, Etsy, eBay. This is a profitable model since you will charge a fee on each transaction. This source of revenue even grows bigger when your site goes further reaching more and more users. You ‘own’ all buying and selling activities and never fail to make profit on any deal. For users, commission business model creates no barrier preventing them from joining your marketplace and they just pay when getting on a transaction.

However, there are certain challenges you have to deal with. The first one is the pricing strategy. How much should you charge to be considered reasonable? How should the burden be split between buyers and sellers? The second challenge is about the values offered to your users. With the fact that your users are charged every time they trigger a transaction, it’s certain that they will expect to receive more benefits that outweigh the cost. In other words, you need to make people believe that the values your marketplace provides is worth the commission you charge.

Whereas the first challenge will be covered in later article, the next section of this article will go into details of what values you should bring to users and how to provide such values, in the scope of a micro job website.

Offer a safe & reliable micro job marketplace

commission business model

This is definitely an aspect that anyone who gets involved in the exchange of information over the Internet cares about. Especially when you run a marketplace where online payment is a crucial part,  safety is at top priority. Therefore, you need to create trust in your users with transparency in information flow and payment system.

One of the difficulties when buying product online is that it’s hard to know who is selling. He is not our friend, or someone we know in person. He’s just a stranger who happens to offer products that we want to buy. This lack of acquaintance is likely to lead to the risk that the seller may fail to provide good products for the buyer. To reduce such risk, it is essential that your marketplace contain trustful information of all users, products or services, and build a reliable payment process.

  • Provide relevant information for your users

In buyer’s viewpoint, a detailed profile of the seller would help. The buyer should be able to know some basic information about the seller, such as his skills and experiences in which fields, and a portfolio showcasing his previous works. A well-designed profile also benefits sellers, especially those who have just started career on your marketplace. With these newbies, their micro jobs haven’t received so many orders and thus, haven’t got a big enough number of customer feedbacks to make them more popular. Therefore, a reasonable price offer and a good profile are one of the strategies that help new sellers attract more customers.

Furthermore, to heighten the rate of a successful transaction, the seller and buyer should be allowed to contact each other right on your marketplace, to exchange further about particular requirements. This conversation function could effectively lower the dispute rate due to misunderstanding between the two.

Feedback system is another way to build trust for buyers. Reviews and ratings from other customers play a useful role in buyers’ decisions of whether to carry out a transaction with a seller. Normally, people tend to behave well under observation. Only several negative feedbacks can severely affect seller’s reputation. As a result, once a seller has a lot of good feedbacks, there’s high likelihood that he will be able to sell more. It can be seen that feedback system is a necessary function since it benefits both buyers and sellers. The buyer usually relies on it to choose a seller whereas the seller needs it to build reputation and receive more orders.

  • Be the middleman ensuring a secure payment process

Setting up a secure payment process is of utmost importance. A buyer will care about how his money is managed, how he can be sure that the seller will provide the product or service as ordered, and in case of dispute, can he claim a refund, etc. On the other hand, the seller is worried if the buyer gets away with the product delivery paying no money. To solve such concerns, you will play the role of a middleman handling all the paying and transferring jobs between buyers and sellers. Particularly, once the buyer makes an order, he has to pay in advance. You keep this payment and let the seller know about this, but the money is still in your account, not the seller’s. At this point, the seller starts working on the order. Only after the order is completed will you send the payment (subtracting the commission fee) to the seller.

In case the buyer is not happy with the delivery, or the seller, for some reasons, has some disagreement with the order, they will want to make a dispute. Again, you will act as a referee. This time the transparency in the information exchanged between buyer and seller on your marketplace is beneficial. Based on such information, you will decide who gets the money.

Hence, by being a middleman involving in the complex payment process, you can build a reliable system to make users feel safe exchanging money on your marketplace, and to make commission charge more reasonable as well.   

Create an easy-to-use marketplace

commission business model

  • Simple user flow: 

People will quickly leave websites that are not easy to use, not easy to navigate. On a micro job marketplace, people will just quit if it takes too many steps to find a suitable provider and the checkout process is too complex. Keeping things simple and easy is an effective way to retain users on your site. Instead of 10 steps to find a good provider, for example, why not reduce to around 3 steps? When it comes to making a payment, the less painful the better.

  • Search optimization: 

To help buyers quickly find the products or services that suit their needs, the search function should be optimized with different filtering criteria. In the detailed page of a micro job, the Order button should catch user’s attention and is easy to be reached. The main content should be clearly presented. Irrelevant content is to be put anywhere but in the purchasing flow, which is quite distracting and irritating.

  • Multiple payment gateways: 

To make it less a hassle for your users when making a payment, popular payment gateways are a plus. If your marketplace mainly serves a specific region, then local payment methods are recommended.

  • Pay once for all:

Besides security, convenience is another factor that encourages people to make more payments. Create a smooth process with as few steps as possible. Require users to pay only once for everything ordered. You can make use of Adding to cart feature, so that a buyer can order 5 micro jobs at the same time but only have to make one total payment instead of 5 separate checkouts.

Moreover, users just need to pay once for all the fees, which cover the commission, revenue for seller, shipping fee (if any) and other possible costs. The marketplace will take care of the rest. As a middleman, you are responsible for managing the payment, as well as paying the seller.

Final thoughts

If you want people to pay for your micro job marketplace, give them good reasons to stay. To “own” the transactions, provide your users with a secure and easy to use platform. The information exchanged and interacted should be clear and concise, the payment flow is carried out and managed safely and reliably. Also, consider designing a user flow that helps users quickly find their needs and a payment process that is as smooth as possible.

The next big challenge of commission business model will be covered in the next article. What does it require to make a sound pricing strategy? Is there any common formula for a reasonable commission rate? Who should bear such cost, buyers or sellers? These questions will be discussed next time.

Check out our MicrojobEngine theme:

MicrojobEngine Try Demo

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  • Hazem
    Aug  17TH,  2016

    Does your theme allow admin to divide fee between buyer and seller on every job?

    • My Dang
      Aug  18TH,  2016

      Hi Hazem,
      Currently, MicrojobEngine theme assigns sellers as the ones paying for commission fee. That said, our team is considering adding buyer option in future versions.
      Thank you and regards,

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