Today, the most difficult question is not how to measure performance indicators, but what to choose to measure. There are quite a few tools for evaluating indicators on the market, and in many cases, one Google Analytics is enough to focus and not waste time studying and comparing data from different sources.
In this article, we will talk about critical marketplace performance metrics. Depending on your business goals, you can choose and focus on those that are right for you.
Key metrics are centered around: deal performance, user behavior, business metrics for business forecasting, and user satisfaction.
Indicators that measure the effectiveness of transactions on the marketplace
It can be measured for the seller and for the buyer. A seller’s liquidity is measured by the percentage of a listing that results in a deal over a given period of time.
Product cards act as a listing. What is taken as liquidity depends on the type of marketplace. For example, Airbnb counts the proportion of rooms that are booked each night.
The buyer’s liquidity is measured as the probability of a visit that will turn into a deal, a transaction.
Liquidity shows how much the marketplace helps sellers to sell and buyers to find and purchase the right products. The higher the liquidity, the more efficient the marketplace works: buyers get used to the platform, sellers successfully earn.
Average Order Value (AOV)
This indicator shows how much buyers spend on the marketplace per day, week, month. A high AOV indicates well-planned one-time purchases, while a low AOV indicates a predominance of impulsive and repetitive purchases. It can be calculated using the formula:
Gross Merchandise Value (GMV)
is the total monetary value of everything sold on a website over a given period of time.
AOV provides insight into shopping habits, market trends and changes. This indicator is sensitive to the economic and political situation in the country and the world, it will provide information on purchasing power. This means that you will be able to adjust the sales strategy, the system of discounts and loyalty in a timely manner, and make the commission for popular products flexible.
Estimates the number of buyers per seller. That is supply and demand.
This metric can be calculated as follows:
You set the activity of the buyer for yourself. These can be registered customers or those who purchased the product in the current or previous month.
For new marketplaces, this indicator varies from 1:3 to 1:6, as it develops, it is better to bring this indicator to 2-3 buyers per 1 seller.
Metrics for analyzing user behavior and engagement
Organic and paid traffic
Talks about how many people found and entered the marketplace through search engines and advertising. Paid traffic will directly indicate which sites, advertising campaigns bring you more visitors and how much it costs to attract. Organic traffic will indirectly tell you whether the marketplace is well optimized for search engines and whether it needs to be improved.
Monthly Active Users (MAU) Daily Active Users (DAU)
These indicators show active engagement on the marketplace. In addition to traffic, this can be abandoned applications, downloads, installations, as well as registration of sellers. Metrics allow you to find out the effectiveness of marketing campaigns and better understand the target audience.
High indicators indicate that the marketplace has its own formed active audience.
Shows the number of visitors who enter your site and immediately leave it, and do not interact further. This is the ratio of the number of visitors with one page view to the total number of visitors to the site. Aim for a lower bounce rate.
The most common reasons for failures include:
- long loading speed of the Internet resource;
- insufficient or lack of adaptability for various devices;
- difficult navigation/poor usability.
The lower the bounce rate, the more likely it is that sellers will sign up and buyers will complete a transaction.
Time spent on the marketplace
There is a peculiarity in this metric: a long stay on the marketplace does not mean high engagement. It can serve as a red beacon that visitors simply cannot find the information they need or that there are difficulties in the registration procedure or placing an order. In any case, you should compare this figure with the number of transactions.
Repeat Purchase Rates (RPR)
The higher the percentage of repeat purchases, the more you can afford to attract new customers. If this indicator is low for you, then there is a high probability that it will not be easy to grow and develop a marketplace.
Such a story happened with NextMover. The company helped the owners of trucks and pickups to earn on crossings. Their customer base initially started to grow well, but then it became clear that people didn’t move that often, hence repeat purchases were rare. As a result, the cost of attracting new customers was too high.
Marketplace business metrics
Gross Merchandise Value (GMV)
This indicator is considered one of the most important in the efficiency of the marketplace. It shows the total cost of all goods or services sold on the online marketplace for a certain period of time. How it is calculated:
GMV does not take into account all returns, discounts and commissions to sellers. Therefore, this indicator cannot be considered revenue. To calculate revenue, you need to multiply the GMV by the commission from each sale.
Customer Acquisition Cost (CAC)
The indicator shows the cost of attracting a new seller, including marketing. Ideally, when new partners are attracted organically and your acquisition costs are zero. But in real life this rarely happens. It is important to monitor the indicator on time and critically in order to adjust the marketing strategy and avoid overspending.
Customer Lifetime Value (CLV)
This is the profit that the seller will bring to the marketplace for all his time. CLV must be higher than CAC. How the CLV indicator can help:
- what segments of the target audience are better to target;
- what types of sellers bring you more profit;
- analyze channels for attracting sellers;
- find out the most loyal target audience and develop a retention strategy.
How to count:
Depending on the business model of the marketplace, its audience, the commission can vary in size and form. It can be a flexible commission, payment for a subscription, a fixed percentage of each transaction. The cornerstone of a successful marketplace is to set a commission rate that allows for growth and supply, and allows the site to grow. On average, the commission varies from 5 to 30%.
How to calculate:
User Satisfaction Metrics
These metrics are just as important as the business metrics above. The more trust a marketplace inspires, the easier it is to attract and retain sellers. From the side of the marketplace, it is important not only the convenience of the platform, but also the security of transactions. Work out the possible risks associated with online sales. Customer verification and verification, effective means of interaction between the seller and the customer, timely feedback and technical support are reliable anti-fraud systems.
Net Promoter Score (NPS)
This metric shows how users feel about the marketplace, whether they are ready to recommend to colleagues, friends, and acquaintances. After you have made a purchase / sale, the platform offers to answer the question using a 5 or 10-digit points system: “How likely is it that you will recommend the platform to your friends / acquaintances?”.
Answers can be grouped into categories:
4-5: Loyal customers who like everything and are ready to recommend you;
3: Passive or neutral. When calculating NPS, they are not taken into account, but it should be borne in mind that they are the most sensitive to competitors’ offers;
1-2: Critics. Something does not suit them in their work and they can have a negative impact on the brand of the marketplace.
How to calculate NPS:
An excellent result will be if your index is above 50. And you should immediately change something if it is less than 30. This indicator is quite flexible and many variables can affect it. Therefore, it is important to track the indicator in dynamics in order to track in which direction this indicator changes over time.
Customer Satisfaction Index (CSI)
Shows overall satisfaction or dissatisfaction with the interaction with the marketplace. The measurement scheme is the same as with NPS, only the user is asked a question from the category “Evaluate the convenience of the platform?”. Then the total points are added up.
CSI is calculated using the formula:
Sean Ellis test
The founder and CEO of GrowthHackers.com has developed a simple test to find out if a product meets the needs of the market (product market fit). It consists of one question: “How would you feel if you could no longer use the product / service?”, in our case, “use the services of the marketplace”.
Answers for respondents:
- I will be very disappointed;
- A bit disappointed;
- Not disappointed (I rarely use; the marketplace is not very useful for me);
- I no longer use the marketplace.
For each answer, calculate the percentage. Ellis compared the results of many companies and came to the conclusion that if more than 40% of your respondents answered “I will be very disappointed”, then you have reached the stage of product market fit.
This survey could be a good complement to the studies described above.
How apply it correctly?
The described metrics will give the most complete picture of the effectiveness of your marketplace. But when using any tool in your work, you must remember the purpose for which you are measuring the set of indicators you need.
For example, at the launch and development stage, it is important to monitor business performance and transaction efficiency in order to understand whether the chosen model works in the market. Find the right balance and evaluate what you really need at the current stage.
These tools will show you what’s going on with the marketplace, but other than that, you need to understand why it’s happening. Analysis and identification of the causes of changes will help to adjust the strategy for the development and growth of the marketplace in time.
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