In the previous chapter, we focused on growing your marketplace. Now that your business is growing nicely, it is time to look at marketplace metrics to see how you are actually doing.

How do you know if your marketplace is successful? One might think that growing your user base and having transactions occur is enough. However, things are quite a bit more nuanced than that.

Of course, you first need to define what success means to you. Do you want to build a global business or are you satisfied with a local one? In any case, in this article we assume that you want to generate at least enough revenue to become ramen profitable—in other words, to reach the minimum amount of revenue to be able to support your team full-time.

To get to profitability, you need to be able to grow. You need to create a virtuous cycle where your customers are constantly bringing in more providers and providers are bringing in more customers.

To understand if things are moving in the right direction, there are certain metrics (or Key Performance Indicators, KPIs) you should follow rigorously, and take immediate action if they are pointing south. In this chapter, we will go over the most important KPIs for marketplace businesses.

Usage metrics

Usage metrics help you understand how many people visit your site and how they spend time on it. These metrics are not specific to marketplaces. Every website monitors the same basic metrics to track their growth. The three most important usage metrics are monthly active users, bounce rate and time spent on site.

Monthly Active Users (MAU)

A common way to track user activity is to measure monthly active users. Typically, this is done by counting the number of unique users who have visited your site at least once during a certain time period. If this number is not growing, it means you are either not attracting new users or you are losing old ones faster than you gain new ones. Either way, you are in trouble.

Bounce rate

Getting lots of visitors on your site is not very helpful if the visitors leave immediately without actually doing anything. Bounce rate measures the percentage of visitors who enter your site and leave right away (“bounce”) rather than staying to engage with your site in some way. As you can see from this statistic, popular marketplaces like eBay, Amazon and Etsy have a bounce rate somewhere between 20% and 25%, while some less popular (and thus less successful) sites have significantly higher rates. You should aim for as low rate as possible.

Time spent on site

If your users do not bounce, you can start measuring how much time they spend on your site. Marketplaces differ from social media sites with regards to this metric: with social media, the goal is to have people spend as much time as possible on the site, while with marketplaces, that may not be desirable. Long times might be an indicator that users cannot find what they are looking for. Nevertheless, this comparison chart clearly shows that the most successful marketplaces also have the highest time spent on site figures. If your users spend time browsing your site, it is quite likely they also end up buying more.

Marketplace metrics: Google Analytics screenshot
Google Analytics is a good free tool for measuring usage metrics

These three metrics are not only interesting to you. If your providers are savvy, they will ask about them as well. Today, providers can use comparison websites to choose a marketplace in which to sell their products or services. MAU, bounce rate and time spent on site are three numbers they will use to compare you to others.

For social media sites, usage metrics are often the most important metrics—and, in some cases, the only thing they focus on. For marketplaces, this is almost never the case. As we stated in an earlier chapter, the goal of any marketplace should be to facilitate transactions between its users and achieve liquidity. Usage metrics do not tell you whether you are getting closer to that goal. Because of this, you should not focus on them too much—for many marketplaces, they can actually be vanity metrics.

We are now going to take a look at some marketplace-specific KPIs.

Transaction metrics

When you start looking at transaction-related metrics, it is tempting to focus on the number of transactions. However, just like with the number of users, this can be yet another vanity metric. The number of transactions is not really actionable: it does not tell you what you should change. To foster sustainable growth, we recommend focussing on these metrics instead: liquidity, provider-to-customer ratio, and repeat purchase ratio.


This quote by Simon Rothman is worth repeating: “Liquidity isn’t the most important thing. It’s the only thing.” Rothman defines liquidity as the reasonable expectation of selling something you list or finding what you are looking for. This means you actually have two different liquidity numbers: provider liquidity and customer liquidity. You need to measure both.

Liquidity is measured as a percentage. Sangeet Paul Choudary defines provider liquidity as “the percentage of listings that lead to transactions within a certain time period”. In practice, provider liquidity is calculated a bit differently for different types of marketplaces. On Etsy, it is the proportion of total stock is sold in a given time period. One month is a good time interval for this type of marketplace. On Airbnb, you want to measure liquidity daily: how large a proportion of rooms are booked each night. On Uber, you might need to measure it hourly: how big a percentage of drivers that are on duty are driving a customer at any given hour.

Customer liquidity means the probability of a visit leading to a transaction. According to Simon Rothman, a good goal is between 30 and 60 percent (note: we assume this is not counting people who bounce). A simple but approximate way to measure this is to calculate how many visits you get on a given month, and how many transactions you get in the same period. Typically, most visits on your site are from potential customers, but, naturally, the figure is more accurate if you can filter out visits from your providers.

Provider-to-customer ratio

To better understand the nature of your marketplace’s inner dynamics, another crucial metric to follow is provider-to-customer ratio (also called Buyer-to-Seller ratio). We define this as the number of customers that one provider can serve. There is no single right ratio that all marketplaces should strive for. In some cases, the provider-to-customer ratio might be as low as 1:1 (one provider can serve only one customer—think real estate), while in others it may be as high as 1:10,000 (one provider can serve 10,000 customers—think stock photos). According to Phil Hu, Airbnb’s figure is 1:70, Uber’s is 1:50, and eBay’s is 1:5.

The more customers one provider can serve, the more you should focus on supply in the beginning. The math behind the reasoning is quite simple: when you are acquiring users by hand, acquiring a provider is more valuable than acquiring a customer since the provider will likely participate in more transactions. Another reason is that idle customers are more dangerous than idle providers. If a host cannot get bookings via Airbnb, they might list on additional sites as well. Meanwhile, if a customer cannot find what they are looking for from Airbnb, they might start using another site. If they successfully find what they want from the other site, they might never return to Airbnb. In other words, especially in the early days, you should focus on customer liquidity more than provider liquidity.

However, if you have a high provider-to-customer ratio, you will eventually need to grow your customer base at a faster rate than your provider base in order to reach provider liquidity. According to Hu, this means that the biggest constraint to marketplace growth will eventually be demand.

Repeat purchase ratio

One more useful transaction metric is how big a percentage of your transactions are repeat purchases, i.e. from people who have already made purchases on your site. As we learned in the previous chapter, Etsy has mastered the art of repeat purchases with 78% of its sales coming from existing customers. Airbnb’s repeat purchase ratio is 22%.

The higher the percentage, the more money you can afford to spend for acquiring a new customer since a customer will likely make multiple transactions. Conversely, if it is unlikely that a repeat purchase will occur, you might run into trouble when trying to grow. This is what happened to NextMover, a “Lyft for moving help”. Their initial customer base started growing nicely, but they realized people do not move very often, so repeat purchases were rare. Because of this, their customer acquisition costs (which we will talk about later) ballooned, and they had to pull the plug.

If your MAU is constantly growing and you have good liquidity on both the customer and the provider side, the dynamics of your marketplace are in good shape. However, this does not yet mean that you have a good business. Next, we will look at the most important business KPIs for marketplaces.

Business metrics

Business metrics aim to answer questions related to your revenue, profitability, and customer acquisition. The three most important figures are gross merchandise volume, customer acquisition cost, and customer lifetime value

Gross Merchandise Volume (GMV)

To understand if your marketplace is a good business, you should start from the Gross Merchandise Volume. It means the total sales value of the products or services sold through your marketplace during a specific time period. If you want to only use one figure to measure the total growth of your marketplace, use this one instead of the number of users or products.

Marketplace metrics: Gross Merchandise Value graph
A graph to visualize GMV and take rate of a marketplace from

However, while GMV is a good way to estimate the size of a marketplace business, it is not sufficient to understand the marketplace’s health. To calculate your total revenue, you need to multiply the GMV by your take rate (your commission from each transaction).

Customer Acquisition Cost (CAC)

Customer acquisition cost means the price you pay to acquire a new customer. In an ideal situation, this number is close to zero: each customer refers your site to at least one new potential customer, and your audience grows organically, without you having to do anything.

However, this is rarely the case. Even if you do not spend any money on marketing, you will likely need to spend more on support and community management as your user base grows. More often than not, you also want to accelerate growth with paid ad campaigns, where it is vital to understand how much money you are spending for each new customer.

Customer Lifetime Value (CLV)

Customer lifetime value means the total amount of revenue you expect to get from each customer. As a rule of thumb, CLV should be higher than CAC. If not, your growth is not sustainable. As Phil Hu notes, CLV can also help you determine an optimal provider-to-customer ratio for your marketplace.

Calculating an exact CLV can be tricky since it depends on how long you are able to retain a customer, how many repeat purchases you expect them to make, and the size of your average transaction.

However, it is still possible to have some sort of estimate for CLV, which is a great way to evaluate the viability of your business. For instance, if you divide the GMV by the amount of transactions per month, you get your average order value (AOV). Multiply this by the average amount of repeat purchases per customer to get CLV.

What should you do if your CAC is higher than CLV? It depends on the cause. To find the root cause of the problem, you need to understand your customer conversion funnel.

Customer conversion funnel

An important metric related to your transaction process is your customer conversion percentage: the proportion of new visitors that end up buying something on your site. The customer conversion funnel tracks the path that new visitors take before making a purchase, usually consisting of several steps. If the prospective customer does not bounce, their first likely action is to search for a product or service or click on a product category. They might check multiple products, decide they are not the right ones, and return to search. At some point, they find what they are looking for and click the Buy button. As we learned in the transaction flow chapter, even at this point it is not certain they will actually follow through with the purchase.

To understand where your biggest bottleneck is, you need to be able to measure your customer conversion funnel, and see where most people drop off. You can then focus on fixing the bottleneck, and see how the changes impact the funnel.

Several different conclusions can be made from this data. If the number of visitors is low in general, you should do more customer acquisition. If your bounce rate is high, it might be a sign that your customer acquisition strategy is not working, and you are acquiring the wrong type of people. Alternatively, you might need to improve your landing page and refine your core value proposition. If people do not bounce but they never end up visiting a listing, or their searches do not return relevant results, you might have a customer liquidity issue. This means you should either get more providers on board or narrow down your focus to get fewer but more relevant customers. Alternatively, if you have the right products but the customer did not manage to find them, your problem lies in your discovery process. If people visit lots of listings but do not continue to the checkout, you might have an issue with the quality of supply, or the customers are trying to bypass your fees. If you notice that many people click the Buy button but do not follow through with the transaction, the problem is with your transaction flow.

While studying the usage, transaction and conversion numbers can take you a long way, there is a limit to what you can learn from these metrics. Numbers only tell you what happened, but they do not tell you why it happened. There is one final metric that you should not forget: user satisfaction. Next, we will talk about how to measure user satisfaction in a quantifiable way.

User satisfaction metrics

There are multiple ways to measure customer satisfaction. We will introduce two useful methods for marketplace businesses: Net Promoter Score (NPS) and the Sean Ellis Test.

Net Promoter Score (NPS)

If you are only using one metric to measure user satisfaction, we recommend Net Promoter Score. It was popularized by the 2003 Harvard Business Review article “The One Number You Need to Grow” by Frederick F. Reichheld, and is used widely today.

The score is obtained by asking the following question: “How likely is it that you would recommend [product] to a friend or colleague?” The answer is a number from 0 to 10. This question works well because if someone is likely to recommend your product, it means they are getting value from it themselves. This gives us more accurate satisfaction results than simply asking if your users like your product or not.

Marketplace metrics: Net Promoter Score survey
NPS survey form by help desk company GrooveHQ

Responders are divided into three categories based on their answers:

  • 9-10: Promoters. Promoters are loyal enthusiasts who will keep buying, and refers the service or the product to others.
  • 7-8: Passives. Passives are not enthusiastic customers but they are satisfied with the product.
  • 0-6: Detractors. Detractors are unhappy customers who will share their disappointment and affect your brand.

The score ranges from -100 (everybody is a detractor) to +100 (everybody is a promoter). It is calculated by subtracting the percentage of customers who are Detractors from the percentage of customers who are Promoters. An NPS that is positive (higher than zero) is considered good, and an NPS of +50 is excellent. However, you shouldn’t pay too much attention to your initial rating since it is not very meaningful. Instead, you should follow the rating over time to see if customer satisfaction is going up or down.

Do note that asking people about their willingness to recommend your marketplace is not always an accurate measure of user satisfaction. At Sharetribe, where we use NPS, we noticed a surprising pattern: when contacting people who had given us a low score, quite a few replied by saying “I love your product, but it’s my little secret, and I don’t want to tell anyone else about it!” When you are conducting an NPS survey, be sure to also ask for the reasoning behind the rating.

To be fair, NPS has received quite a bit of criticism. Among other things, some find it to be culturally insensitive and not as good a predictor as certain, more complex questionnaires. It is definitely not perfect but still a good starting point.

To minimize the effect of the issues mentioned above, it is a good idea to use a second way of measuring user satisfaction as well. We recommend using the Sean Ellis Test.

The Sean Ellis Test

While Net Promoter Score is a well-known and proven method, the Sean Ellis Test does not have an official name. We are naming it after its inventor, Sean Ellis, founder and CEO of It is a very simple test that helps you understand whether you have achieved product/market fit.

In the Sean Ellis test, you ask your users a simple question: “How would you feel if you could no longer use [product]?” There are four possible answers:

  • Very disappointed
  • Somewhat disappointed
  • Not disappointed (it isn’t really that useful)
  • N/A – I no longer use [product]

Ellis compared the results from hundreds of companies. He figured out that if 40% of your users say they would be “very disappointed”, you have quite likely achieved product/market fit.

The test has both pros and cons, but the clear upside is that it is very easy to set up, and it is very focused on your users and their willingness to use your product. It also complements NPS nicely since it focuses more directly on the value people are getting out of your product themselves instead of their willingness to recommend it.

How to measure the success of your personal trainer marketplace

Now that you know the most important metrics to follow, it is time to learn how to use them in practice. We will again focus on building a personal trainer marketplace, the example we have used in previous chapters.

First of all, you need to set up a system to collect data. For usage metrics, you set up Google Analytics. It is a great starting point since it is free and very flexible. It is very easy to set up and provides you with all usage metrics out of the box.

For transaction metrics and business metrics, no such standard tool exists. Instead, you simply build a spreadsheet and update the data manually every day. This approach does not scale to tens of thousands of users, but in the early days, it is a great, lean way to get started quickly. Boris Wertz and Angela Tran Kingyans, the authors of the Version One Marketplace Guide, have put together a Marketplace KPI Spreadsheet which you use as a baseline. You also check out a similar spreadsheet created by another venture capital firm, daphni. For visualizing the spreadsheet data, you get inspiration from the dashboards put together by Vijay Nagappan of MHS Capital and use and to build a dashboard.

You use Google Analytics to measure your customer conversion funnel. You dismissed a few paid alternatives (Mixpanel and Kissmetrics) that specialize in funnel tracking; while they were great to use, they can easily become rather expensive, and didn’t fit your tight budget. To measure NPS, you set up a free survey using UserReport’s free tool. You also set up the Sean Ellis Test with the free Down the line, you might consider solid paid options for more advanced surveys and customer insights using UserVoice, Qualaroo or SurveyMonkey.

After all this is set up, the data starts flowing in. You monitor the data daily, and whenever you notice a suspicious pattern, you take appropriate action to correct the situation.


In this chapter, you have learned what the key performance indicators for marketplace businesses are. You should follow usage metrics, transaction metrics, business metrics, the customer conversion funnel, and user satisfaction metrics.

Usage metrics help you understand how many people visit your site and how they spend time there. The three most important figures are number of monthly visitors, bounce rate and time spent on site.

Transaction metrics help you understand whether your marketplace mechanics are working. The three most important metrics are liquidity, provider-to-customer ratio, and repeat purchase ratio.

Business metrics tell you how you are doing financially, and whether your business model is actually working. The three important KPIs are gross merchandise value, customer acquisition cost, and customer lifetime value.

Tracking the customer conversion funnel helps you understand where the biggest bottlenecks that prevent transactions from happening are. Starting from landing on your site, the funnel consists of the steps that a customer needs to take in order to complete a purchase.

All the previous figures tell you what is happening in your marketplace, but you also need to understand why. For that, you need to talk to your users. User satisfaction metrics help you put user feedback data in a quantifiable form. The two most important ones are Net Promoter Score and the Sean Ellis Test.

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    Article by: Juho Makkonen

    Juho has been building marketplace websites since 2008. He is a Co-Founder of Sharetribe and currently serves as the CEO of the company. He’s also a OuiShare connector in Helsinki and a long time advocate of the sharing economy.

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