Tanay Jaipuria is a product supervisor and angel investor who writes a weekly publication on enterprise and expertise.
Each market or platform startup has to resolve how a lot they need to cost for transactions on their platform, often called the “take fee.”
Whereas there is no such thing as a method set in stone, I’ve analyzed the take charges of over 25 personal and public marketplaces under. I’ll use these to assist make clear some concerns for founders to information their resolution.
Observe that the definition of “take fee” used on this piece shall be a share, which is calculated by dividing the income made on the transaction by the platform by the overall worth of the transaction.
Maximizing take fee isn’t the purpose
It’s vital for founders to keep in mind that maximizing the take fee of the platform will not be the purpose.
The next take fee usually results in decrease transaction quantity, and relying on the stage an organization is in, it could be advantageous to cost a decrease take fee than what you possibly can maintain to realize a strategic benefit.
You’ll be able to see startups do that when they’re going after comparatively nascent markets that they’re attempting to develop. An amazing instance of that is OpenSea, which prices a 2.5% payment on transactions, which is sort of low in comparison with different marketplaces. Nevertheless, provided that NFTs have been comparatively nascent, their low charges helped cut back friction to buying and selling and develop the scale of the market.
This additionally occurs in markets which might be extraordinarily aggressive and have some winner-take-all dynamics of economies of scale. Right here, a market may begin with decrease take charges to attempt to seize share or obtain scale.
A normal rule of thumb to recollect is that the purpose is to maximise long-term revenue: (take fee x common transaction worth – variable value) x (variety of transactions).
The take fee and variety of transactions will typically trade-off with one another.
A decrease take fee within the brief time period can result in higher outcomes in the long run.
Charging decrease take charges than what you possibly can “get away with” might result in increased retention and worth creation in the long term.
Perceive the character of your market
Referring to the chart above, it’s clear that take charges are extraordinarily variable, even inside industries. Nevertheless, sure market-driven components play a task in figuring out the ranges in which you’ll be able to function.
As an illustration, sure corporations akin to Uber need to cost very totally different take charges in supply (~10%) vs ridesharing (~20%).
When attempting to know the character of the market, founders ought to contemplate: