Two Sided Marketplaces & The Key Metrics You Should Be Measuring

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Two sided marketplaces are where you have two distinct user groups: you have supply on one side and demand on the other and generally in a hyperlocal area. Examples around the world include: Deliveroo, Uber, OpenTable, Turo, Quiqup etc. Where they all have thousands and even millions of people on one side looking for something in their local area. Like on Glamazon (www.glamazonapp.com) where a user is looking for a professional to come and do a manicure on demand in their home and a manicurist is looking for work in their local area. 

“Understanding the unit economics of a marketplace is of critical importance - they're its vital signs. Every marketplace will inevitably face its own set of unique challenge, however, to ensure a successful business can be built around it, early-stage companies should explore all the nuances of the marketplace model. Building a product then discovering yourself in a low-dollar and low-frequency environment presents an enormous added challenge, usually requiring huge user numbers to get the marketplace off the ground." - Harrison Uffindell, Head of Business Operations, AirBnb (www.airbnb.com) 



For these hyperlocal marketplaces to scale, it is critical they focus on their unit economics. Unit economics are the direct revenues and costs associated with a particular business model expressed on a per unit basis. 

A few of the key metrics a two sided marketplace should focus on include: 

How many signed up (supply) 

“As a social enterprise our aim is to make social inclusion more appealing and accessible.  The number of Heroes who sign up is not just about increasing our supply, it's about converting and inspiring people to our mission, getting them to do more and care more about all people in their community.  As our Hero sign ups grow, so does our social impact and community.” - Jenna Leo, Home Care Heroes (www.homecareheroes.com.au)

Cost to Acquire A Customer ‘CAC’ 

The cost to acquire a paying customer, allows you to understand how many months a user needs to use your service or how much income is required to achieve profit from a user. 

“Understanding the customer acquisition cost is imperative to any startup, from early stage to global unicorn. For Spare Workspace, we analyse CAC across all channels on a daily basis. This allows us to not only identify high CAC channels and optimise where possible, however to also identify and capitalise on low CAC channels. For example, in January we assumed it would be quiet due to the Xmas break and reduced resources. However we identified one of the channels was providing a low CAC so we allocated additional resources and was able to achieve 130% of our monthly target. Without understanding our CAC and monitoring this closely across all channels, we wouldn’t have achieved this result.” - Jake Dimarco - Spare Workspace (www.spareworkspace.com.au)

Cost To Supply A Customer

The cost to supply a customer is just one of the elements which allow a business to accurately measure the real life time value required to ensure you are not losing money on each customer. The cost to supply a customer takes in all costs surrounding not only gaining new supply, but maintaining existing supply. 

"Accurate numerical data showing the total value of various categories of suppliers (pet sitters), and understanding their respective acquisition costs, really helps us to make the right marketing decisions and invest where the value for our business and for our customers is the highest" - Alexis Soulopoulos, Mad Paws (www.madpaws.com.au) 

Lifetime Value - LTV ($)

“Unless your customers find you completely organically and you're not spending anything on acquiring new customers, you need to have a good grasp of the life-time value (LTV) of your customers in order to get the unit economics of your marketplace right. In simple terms, you need to spend less in acquiring customers than the revenue you make from them. 

At Blys, everyone in our team understands the importance of LTV and constantly look for ways to improve that metric.

We have a strong data-driven culture at Blys, and always run tests to identify causality and correlations between events and metrics. One of the key findings for us in the early days was the correlation between the quality of our therapists & the LTV. We found out that the better the therapists are (e.g. better qualifications and more experienced), the higher the LTV is. With this data available to us, we optimised our recruitment and onboarding process for therapist quality and saw a marked increase in LTV in the following months." - Ilter Dumduz, Blys (www.getblys.com) 

Churn Rate (%) 

Churn rate is the the percentage at which customers are opting out or unsubscribing from your service over a months period. 

“Customer retention is the lead metric that we use as the indicator for our success. Every week we work to drive our churn rate down and at any point in the day, anyone in the team can tell you exactly where we are and how we are tracking for the month. This laser focus allowed us to halve our churn in 2017, ultimately creating better customer experiences and a far more profitable business.”  - Stacey Jacobs, TidyMe (www.tidyme.com.au) 

“Churn on the Hero side is an indicator that we need to learn more about the relationship between users - what is working and what is not.  Like all metrics, it is an indicator to seek more information at a given point in time and from a certain source.  So be sure to dig deep!” - Jenna Leo, Home Care Heroes (www.homescareheroes.com.au)

Taking all of these into consideration, allows a business to track whether they are making a profit from money they are spending on their users. If they are not, then they can see what levers they may have to pull to drive a better outcome. For example: reduce the churn rate of customers by implementing a retention strategy so that customers LTV is higher than the CAC.