Creating a Financial Model for a Marketplace
Sturppy allows you to create the financial model for any platform that connects buyers to sellers of any niche.
Creating a financial model for a Marketplace business is very easy with Sturppy. The steps that we will follow are the standard ones for creating a financial model: defining customer acquisition, configuring how your marketplace generates revenue and finally listing the expenses.
Step 1: Defining Customer Acquisition
To create a customers acquisition projection navigate to
/Users/Acquisition, here we will define how we are going to get new customers.
Here we can add different traffic sources that will bring in traffic and, in turn, customers.
When adding a new traffic source you can define:
- Name: this is the name that you assing to this traffic source, we suggest you use the marketing channel where you are going to advertise on, like Facebook Ads, Google Ads or SEO.
- Paid or Free: this is the type of the traffic source, either paid or free. A paid traffic source is any source that requires a direct investment of money.
Then, based on the type of the traffic source you decided, you have to enter:
If you want to add a paid traffic source, then you have to define:
- Monthly Budget: how much you are going to spend each month on this traffic source.
- CPL (Cost per Lead): how much each lead from this traffic source will cost you.
It is possible that you already have a traffic source called Marketing. This is completely fine. This source was created when you followed the steps in the onboarding to create your first financial model. You can keep it, edit it or remove it and add a new one.
To add a free traffic source, you need to define:
- Organic Monthly Traffic: this is how much traffic you are generating every month. Depending on your source, this could come from your social media presence, SEO, content, word of mouth or others.
- Conversion Rate: the percent of free traffic that becomes a lead. Since this is free and not very targeted traffic, conversion rates are usually low.
At the end we will calculate the number of leads that you are going to receive.
Paid Leads = monthly budget / CPL
Free Leads = monthly traffic * conversion rate
You can add as many different traffic sources as you want.
Be carefull when adding free traffic sources. You can easily be over-optimistic and tilt your projections.
Free traffic can come from an existing social media presence, PR, SEO (this requires time) and other sources.
By having a marketplace, you will face the egg or chicken problem: Sellers want Buyers before joining the platform, while Buyers want Sellers before visiting the platform.
You marketing effort will be split between this two audiences, so, when creating the traffic sources you have to account for that.
Step 2: Configuring the Revenue
To start configuring who you will generate revenue from the platform, go to
/Revenues/Marketplace. Here you will be able to configure everything you need in just a single page.
The particular thing about a Marketplace is that you can earn revenue from both the sellers and the buyers so you can configure both of them.
The first thing that you will have to enter is the Leads Split, basically how your leads are divided between sellers and buyers. This is a direct result of how you set up your traffic sources.
If most of your marketing (both paid and organic) is focused around sellers, then you will have more seller leads than buyers and vice-versa.
The sellers are those that register to your platform in order to sell a product or a service. For instance, on Air BnB the sellers are those that post their home making it available to buyers.
This is the percentage of seller leads that join your platform. You can learn more here.
This is the cost that the sellers have to pay to join the marketplace. You could also have a free marketplace for sellers to join, in that case you can leave this field blank or enter 0.
Participation fee type
If your marketplace has a participation fee than, this is when that fee should be paid. If it is recurring then the seller will pay the cost of your marketplace each month, if it is one-time than the fee will be paid only the first month (when the seller joins the marketplace).
The percentage of Sellers that leave the marketplace each following month. You can learn more here.
Usually finding sellers is more expensive than finding buyers so your CPL for them whould be higher and in turn, the Leads Split whould be in favor of the sellers.
The buyers are those that register to your platform in order to buy a product or a service. For instance, in the same example of Air BnB the buyers are those that book and pay a home that has been made available by a seller.
The percentage of Buyers leads that make a purchase from the marketplace. You can learn more here.
Average order value
The average cart size of the buyer. This is the average price that the buyers will pay to the sellers.
The percentage that you hold from the Average order value. This is probably your main source of revenue.
The percentage of Buyers that make another purchase in the following months. This is because some buyers will never make a purchase again while some will. If you set this at 100%, it means that all the buyers will make a purchase each month.
At the end, you will have the projections of your sellers and of your buyers. You can also check out the further details about your marketplace, such as how much you paid out to sellers.
Average order value
Coming up with this number can be difficult, try to see how much the sellers are charging for the product that they will sell on the marketplace outside the marketplace, then adjust for competition.
If your sellers can sell multiple products, you need to average that too.
The average should be weighted: this means that the products that sell more have a bigger impact on the average.
Step 3: Listing your Expenses
For the final part we will add the expenses to the financial model. Adding expenses is super important and should be done with great attention to avoid missing key expenses that could turn the startup upside down.
The expenses for a Marketplace business are mostly expenses associated to human resources since you are not directly selling any product. We will go over each expense that you can add, but you can always go in more detail on the ones that you are most interested about.
COGS: Cost of Goods Sold
For a Marketplace these costs aren't really a lot (fortunately!). Here you can add the cost per thousand customers, which reflects the load that your infrastructure will neeed to handle as more customers come using your product (think about how you will need more and better servers to handle the increasing load).
You can also add any fixed cost that you need to face monthly, directly linked to your product. For instance if you are using an external piece of software integrated in your product you will need to add it's monthly cost here (think about all the APIs that you will use, like programmatic emails, etc.).
If you want to learn more about COGS, read here.
SG&A: Selling, General & Administrative
This will be your main cost when running a Marketplace company. The team behind your product will make your startup go big or go home and so it is of rightfully the biggest cost you have to face.
Be sure to list all of your current employees and those that you will hire in the future, plus, set up rules to hire them automatically as more customers come in.
We have a complete section dedicated to the hiring plan.
Don't make the mistake of not adding the salary of the founders to your SG&A.
The financial model has to be complete and is needed to forecast your startup not to show the spirit of sacrifice of the founders.
CAPEX: Capital Expenditure
If you need to invest any significant amount of money in buying equipment for your startup, you have to add it here. For instance, all the technical equipment, like computers, monitors and office furniture should be added here.
Also, if you need to buy any software, or have an external agency build it for you, you have to add the cost here.
If you want to learn more about CAPEX, read here.
You should now have a solid financial model, but you can always go back in and add more details and tweak the assumptions. You now have access to all the financial statements, metrics and scenario planning.
Don't forget that you can also add other monetization modes, such as: sales and transactions and you can also add your various operating activities.
Don't forget that you can now go live and connect your forecast to your actual live data!Learn more