As marketplaces within the sharing economy continue to emerge all over the globe — Bridj and Kinnek are a couple of the most recent — their management teams will find themselves consistently challenged by a handful of key performance indicators. They include:
- Balancing supply and demand
- Speed of engagement
- Gross profits and 80/20
- Retention rate
- Correlation and dependence
One of the most difficult challenges of a sharing-marketplace business is generating the coveted “hockey stick growth curve” like an Airbnb or Uber, but the way to achieve said growth is oftentimes the result of mastering these five concentrated areas of focus.
1. Balancing supply and demand
All marketplaces have buyers and sellers, and a core challenge is balancing the two sides. If you have too much supply, your suppliers will be less likely to engage consistently. Too much demand though, and your customers won’t be satisfied with their experience.
To channel my inner “Field of Dreams,” what the industry has found is that if you can successfully grow one side of a marketplace, the other side will come (they will come, Ray, they will come). For some businesses, that means growing your supply side, and for other it’s demand. For instance, Handy is in exceptionally high demand; however, an area of opportunity for them continues to be supplying a large enough workforce to meet said demand faster. Conversely, take a newer marketplace that might have plenty of supply but only nascent demand. The challenge there then becomes implementing a user acquisition model to keep up with supply.
2. Speed of engagement
The opportunity for marketplaces is providing on-demand services to potential customers. Selling and delivering on the promise of “on-demand,” however, is quite real, and user behavior reflects the importance of delivery. At HourlyNerd for instance, we see engagement trends change drastically when customer projects are bid on by our consultants within 5 or 10 minutes, same day, same week, etc.
Another example of this is when I recently needed a ride to the airport, and the only thing that mattered to me was the time it would take to get from my home to the airport. I checked both Lyft and Uber. The wait time for Lyft was 15 minutes compared to Uber, which was 5 minutes. I opted for Uber. Now, had Uber taken more than 5 minutes to arrive (without notifying me) and I’d missed my flight, I would have unleashed verbal backlash and, moving forward, would have tested other services like Lyft or EasyTaxi for their ability to deliver on promise.
3. Gross profits and 80/20
Marketplaces often generate revenue by charging a percentage of the transaction fee between the supply and demand sides. Most often, we see this number between 10% and 25%, depending on the value of access being provided and the customer willingness to pay for supply. The best advice is for marketplaces to test price elasticity within these percentages. The goal for price testing is, of course, to find the right balance between the supply-side compensation rate satisfaction and the demand-side satisfaction rate dependent on value.
Pricing implementation needs to be either flexible or customizable and based around choice in order to avoid the dreaded 80/20 rule. Marketplaces by nature try to be everything to as many people or businesses as possible within a target market, so the more evenly dispersed the activity, the better.
For instance, here at HourlyNerd we offer consulting on-demand. If we had 20% of our consultant base executing 80% of the demand, that wouldn’t be scalable and also shifts the pricing leverage too much in the favor of a few suppliers. On the other hand, if 80% of our demand-side revenue is coming from 20% of customers, then we’ll be at too high of a monthly revenue growth risk and may not have found the right mix.
4. Retention rate
Acquiring customers is a challenge every marketplace faces. Whether it’s growing to your first 1,000 customers, 10,000 customers, or your next million customers, it’s a challenge for marketing teams everywhere. Once users have been acquired, managing retention rate becomes crucial to revenue forecasting and company growth. For instance, if you acquire 1,000 new customers per month, understanding what percentage of that 1,000 will be repeat business and at what frequency will substantially help you set realistic growth goals.
Retention rates are evaluated by management teams but are impacted by various teams, including marketing, sales, and product, and stem from keeping both sides of a marketplace interested, engaged, and satisfied. One nice example of delighting customers on the supply-side comes from Uber: The company rewarded its top 7 drivers by sending them to the World Cup in Brazil earlier this year. On the demand-side, it’s important to consider customer councils, trust and quality assurance, badges/gamification, product automation, and a rock star hire to run your product marketing (one of the harder hires to make).
5. Correlation and dependence
In the most simplistic form of a question, what impacts what? That’s the question to ask consistently and about every aspect of a marketplace.
There’s a reason Airbnb offers professional photography to its supply-side. The reason is that when users are searching for places to stay, they’re more likely to engage with high quality imagery than they are with amateur photos (usually taken by the owner with a smartphone and zero knowledge of photography) of someone’s apartment. While this is a seemingly obvious insight, it wasn’t so obvious when Airbnb was trying to grow. Paying attention to the smallest details and making calculated shifts can often lead to the most sizable results.
The only way to identify trends around correlation and dependence is to consistently present data and have open cross-departmental discussions. Presenting insights and thoughts, no matter how small or seemingly trivial, is a culture trend that is a staple for growth. The literal ideas won’t always be beneficial and at times will seem amateurish, however, it’s the mindset of questioning, exploring, and identifying that you want to instill in your company culture.
The Bottom Line
Are these the ONLY five metrics that management teams focus on? Of course not. They are, however, trends that we are continuing to see arise time and time again in meetings, at industry events, and across the media. They represent core areas of growth as well as challenges that can determine the success or failure of a sharing-marketplace business.
Always keep in mind and evaluate what’s going on behind the curtain to make the trains run on time and how you can improve process. This is the behavior that separates the elite teams from the mediocre. As always, it’s an exciting time in the sharing economy!
Dan Slagen is currently the CMO of HourlyNerd, a marketplace that connects MBA alumni and students directly to businesses all across the globe.
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