The two questions I’m most often asked are:
1. How do you keep your hair looking so lush and luxurious?
2. How much can a B2B Marketplace or Multi-Sided Platform charge for its services? (Some folks call this the platform’s “take rate”.)
The answer to the former question will need to remain a mystery, but the answer to the latter follows.
B2B Marketplace Services
What the B2B marketplace can charge depends, of course, on what services the B2B marketplace, or commerce platform, provides its participants. To keep things simple, I’m dividing these services into four basic segments:
- Rules and Rails
- Apps on the Ends
- Matchmaking, and
Rules and Rails. This is just the functionality for making paper transactions electronic and enabling the possibility of machine to machine communications. Think about EDI networks, the credit card networks (not including issuers, acquirers, processors, etc.), Ariba Network (just the network, not the apps), e-invoicing networks, payment networks, etc.
In many cases these networks do not even charge in the form of a “take rate”, they charge per transaction, document, or even kilocharacter. These B2B marketplaces may not even charge anything for document processing. They may offer the “rules and rails” free to make money on another layer of service.
If we translate “rules and rails” charges into a take rate, we find that a platform can charge between 0-20 basis points (bps or 0.20%) of the value of the spend represented on the documents processed. This is quite a range in fees as there are several variables to be considered:
- the complexity and collaborative nature of documents transacted
- whether the network is just “dumb pipes” or if it is adding some value in the form of workflow, verification, or translation of the documents
- whether the marketplace is using document transactions as a “loss leader”
Apps on the Ends. Most platforms add applications on one or both ends of the platform to add value to the participants in the form of integration, workflow, analytics, aggregation, etc. Think about merchant acquirers/processors, procure to pay, or order to cash applications, etc. These applications may be priced by user, transaction, document type or even as a percent of spend.
When translated into a “take rate” these applications may represent 20-100 bps. Again the range is large depending on the functionality and because this entire post is rife with gross generalizations in the interest of simplification!
Matchmaking. This is the single biggest variable in the take rates of a B2B marketplace or platform. Until now, the value-adds by the B2B marketplace have been to automate transactions between known buyer-supplier pairs. But true matchmaking marketplaces help buyers find new suppliers and help suppliers find new buyers. Essentially the B2B marketplace represents a distribution or sales channel for the supplier. This lead or new customer is worth a lot more than an automated process with an existing supplier. Take rates for true marketplaces reflect this value differential.
Matchmakers typically have take rates of 1-10% of the value of the spend processed. Consider GPOs which take 3%, Fedbid which takes 1-3%, and UpWork (formerly Odesk) which takes 10%, as just a few of the many examples. The range varies from a low percentage for commodity items with a relatively known supplier networks and higher dollar transactions to higher percentages for transactions between SMBs and freelancers for lower dollar amounts.
Financing. Many B2B marketplaces are now offering credit to the buyer, seller or both. Think about alternative finance lenders, procurement card providers, dynamic discount providers, receivables exchanges, etc. Take rates for financing range from 50 bps to 250 bps. The fees depend on:
- the term of the load (how many days)
- the credit rating of the borrower, and
- if the B2B marketplace is bundling in other applications, networks etc. (acquirer, issuer, network fees, rebates for cards, etc.)
Below is my attempt to graphically summarize the layers of value, and associated “take rates” for B2B Marketplaces. Even with the gross generalizations , I hope it can help those of you thinking about pricing. If you have counter-examples or want to contribute specific examples, please feel free to do so!