DIGITAL INTERACTIVE SERVICES
Are you effectively assessing the impact of marketplace management services?
Running an online marketplace is about more than launching it to your first customers and hoping for the best. It is important to monitor the business and regularly assess performance to ensure long-term profitability and growth. We'll examine the most crucial key performance indicators (KPIs) for online marketplaces in more detail to determine the performance of your business.
These KPIs can be divided into three distinct subsections, each focusing on specific areas of the business. These are valuable metrics that indicate the number of visitors to the site and what they do there, transaction metrics that ensure that the marketplace mechanics are functioning correctly, and business metrics that provide insights into the financial viability of the business model. Let’s explore these areas in detail and understand how each e-commerce performance metric affects future business decisions.
Usage metrics: The traditional ones
Usage metrics are not unique to e-commerce marketplaces. These metrics are the traditional metrics that all websites track to monitor their growth.
- Monthly active users (MAU): Tracking the number of unique visitors to your website each month is a good indicator of your platform’s growth. The number of monthly active users will steadily increase if your site consistently attracts new users. On the other hand, a stagnant or declining number of MAU is a clear sign of trouble.
- Bounce rate: A large number of visitors to your site is meaningless if these visitors don’t engage with the site and leave or bounce immediately. The percentage of visitors who visit your website only to depart is known as bounce rate. Businesses need to maintain the bounce rate as low as possible by ensuring that the website is attractive and engaging.
- Time spent on site: Users who spend time exploring your site are good for your business, as people who spend more time browsing are more likely to buy something. However, customers who spend too much time on a marketplace website can mean they can't locate what they're looking for. This metric is a good indicator of how user-friendly your site is.
Transaction metrics: The new realm
We’re now entering the realm of e-commerce marketplace–specific metrics. e-commerce sites are designed to facilitate transactions between buyers and suppliers, but merely focusing on the number of transactions doesn’t provide actionable insights that can be directed at ensuring sustainable, long-term growth for the marketplace business model. That’s why we need to look at these relevant KPIs.
- Liquidity: This metric has two sides — supplier or provider liquidity and the buyer or customer liquidity. Buyer liquidity is the likelihood that a website visit will result in a transaction, and supplier liquidity is the likelihood of selling a product that has been placed for sale. Liquidity is measured in percentage, so supplier liquidity is the percentage of listings that lead to sales. And buyer liquidity is the percentage of website visits that end in transactions. Liquidity is a useful measure of a market's success since it shows the likelihood that users on the supply and demand sides of the market will succeed in their endeavours.
- Supplier-to-customer ratio: Also called the buyer-to-seller ratio, this metric is defined as the number of customers one supplier can serve. The ideal ratio differs across marketplace sectors and provides insights into whether you need to grow your supplier or customer base.
- Repeat purchase ratio: This transactional marketplace metric indicates the percentage of transactions that are repeat purchases from individuals who have already bought products or services from your site. A high repeat purchase ratio indicates that you can afford to direct more resources towards customer acquisitions since each new customer is more likely to make multiple purchases.
Business metrics: The futuristic ones
Business metrics provide insights into profitability, revenue, and customer acquisition. These KPIs reflect a marketplace’s overall financial health and are useful to assess whether or not the business model is functioning as it should.
- Gross merchandise volume (GMV): GMV is calculated by the total cost of goods or services sold over a period of time through an online marketplace. GMV is one of the most critical variables to monitor in order to gauge your platform's progress.
- Customer acquisition cost (CAC): CAC is how much you spend to acquire each new customer. In an ideal world, your customer base would grow organically, and your CAC would be negligible. In the real world, this is not the case. Resources directed towards marketing activities and paid ad campaigns contribute towards your CAC.
- Customer lifetime value (CLV): As a measure of the expected revenue, you may expect from each customer, CLV should be larger than CAC for a viable firm. CLV depends primarily on how long a customer is retained, the number of purchases they are expected to make, and the average size of each transaction.
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This article was first published by Business Insider