Monetization Strategies for B2B Platforms

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With Dall-E: The image has been created, visualizing a B2B (business-to-business) marketplace in a vibrant, expressive, and abstract style.

B2B platforms are proliferating across industries and geographies. To achieve sustainability, profitability and robust growth, founders have taken different monetization strategies. Each approach has its own strengths and constraints, hardly being a one-size-fits all case.

Founders should be aware of the pros and cons of each strategy to make the right decision for their company. In this piece we wanted to offer our thoughts on a few of them.

Take rate: the lifeblood of marketplaces

B2B marketplaces primarily rely on commission-based business models. This is supposed to be a win-win scheme, where the more activity, the greater revenue for both sellers and the platform. However, finding the right balance has proven to be a hard task. High take rates can boost revenue; but too high, platforms run the risk of alienating suppliers or buyers.

While the path to find the right take rate may vary for each company and depend on several factors, there are certain guidelines that can help founders determine whether they should target the high or low side of the spectrum.

In general, specialized and niche models tend to have some level of uniqueness or complexity on every transaction, justifying a higher rate (~11-30%). On the contrary, platforms trading commodities are more about efficiency, prioritizing scale and volume. Provided that these models attract multiple sellers, competition gets highly focused on price, leaving small room for adding a fee -which is usually low, in a range of ~1% to 8% -.

In some industries, marketplaces can fall into both categories. Construction marketplaces, for instance, tend to charge lower take rates when selling commoditized products, and higher rates for very demanded and scarce products. In this case, a higher take rate can also be justified by critical needs from buyers, such as immediate availability, procuring time, and type of delivery for heavy or hard to move materials. As clients rely more on the platform to efficiently operate, their willingness to pay a higher rate also increases.

Take rate varies in part depending on the level of involvement a marketplace has in the transaction. This ranges from only connecting sellers with buyers, to automating the buyers and/or the suppliers’ activities all the way to managing the full transaction, including payment and delivery lifecycle.

Membership and subscription models

Membership or subscription is another common model, particularly attractive for generating a steady revenue stream. Solutions from inventory management to data analytics enhance user experience while increasing the platform’s bottom line.

There are several types of subscription models, such as flat-rate subscriptions, tiered, user-based (mostly used in software companies) freemium models, membership access, etc. This is usually tied with exclusive benefits such as premium listings, expanded search filters, branding, special discounts, or analytical tools. These benefits often have different purposes; while some justify the actual payment of the subscription, others serve a more strategic goal.

Amazon has one of the most well-known B2C subscriptions. Amazon Prime offers faster deliveries, free shipping, and access to free content (video and music) in exchange for a small fee. However, by offering free shipping and expedited deliveries, Amazon encourages more purchases and increases their frequency, while access to its streaming platform serves mostly as an anchoring and retention strategy. Similar approaches are being implemented and tested far and wide within B2B focused platforms.

One of the advantage of membership models is that they show true product market fit. Ultimately, free products do not really prove a business model exists. Companies need to demonstrate their product is valuable enough that customers will pay for it, at the right price, which membership and subscription model solve.

SaaS revenue within B2B platforms

To solve the chicken and egg problem marketplaces often face – attracting buyers before there are enough sellers or vice versa, a tools-first approach has been used, giving rise to the so-called SaaS enabled marketplaces. 

The underlying idea is to provide value before sellers even join the platform by offering a SaaS solution tailored to their needs. By attracting qualified sellers, founders can now onboard buyers offering a value-added marketplace and expand from there.

As to the specific monetization model for the SaaS solution, on a general basis, it will largely depend on how robust the tools offered under the software are, the market conditions, and the company’s overall unit economics and growth strategy.

Thus, access to an entry-tier can sometimes be free. When using this model as a go-to-market strategy, founders can expect lower cost CAC and stickier sellers-double incentivized to remain at the platform. The tradeoff to free means giving up the benefits of a more reliable recurring revenue stream. That’s why many B2B marketplaces focus on getting paid customers over time (with higher priced tiers).

As Yann Schuermans, co-founder of Baskit shared "Creating vertical software for emerging market supply chains requires a strategic dance with marketplace dynamics. The key is to find the equilibrium in the marketplace take rates and the ability to drive scale and cross-selling opportunities – a delicate balance between frictionless and affordability.”

Once again, retention becomes the name of the game. Even if the SaaS is offered free of charge, its adoption will play a significant role in the future success of the marketplace. Consequently, honing retention strategies, becomes a pivotal task.

Embedded Fintech

Embedded fintech has emerged to become a game changer for B2B platforms. As Alex Lazarow described in his article When Fintech succeeds: the three Ds, the model offers a distribution advantage, building the financial product into a broader customer experience, allowing non-financial companies to compete in the fintech space.

At its core, embedded fintech entails the integration of financial services into non-financial platforms, offering services such as platform lending, payment processing or even invoice solutions without the need to exit the platform. As such, these services can offer new revenue streams for the platform, but the advantages of this model go beyond transactional benefits. 

Embedded fintech can significantly influence customers’ behavior. By offering financial solutions, founders can incentivize larger transactions, increase the average order value (AOV) and overall general merchandise value (GMV) in the case of marketplaces. Furthermore, the convenience of providing these services within the platform itself foster loyalty and dependence on the platform, often boosting customers’ stickiness. This is particularly true in B2B platforms targeting SMEs in high capex industries that often lack the liquidity to complete their transactions (i.e. construction).

Similarly, regions with low credit penetration and access to capital are propense to welcome this offer. As Felipe Racines, co-founder of Seeri acknowledges “In particular, in markets with emerging economies and businesses heavily reliant on cash transactions, there is an opportunity to digitize transactions. This not only opens avenues for underwriting various players but also lays the groundwork for embedded finance. Gaining control over suppliers' cash flows not only enhances their operational efficiency but also provides the marketplace with an opportunity to generate additional revenue by expediting the availability of these funds to suppliers”.

By offering embedded fintech, the platform positions itself at the core of a company’s operations, almost as an Operating System (OS). Whether it’s with payment, lending, or other solutions, by addressing a financial pain the platform becomes indispensable, creating lock-in and making it harder for users to switch to competitors.

Sabi, an ecommerce platform based in Nigeria -part of Fluent Ventures’ portfolio companies, provides technology infrastructure to empower the distribution of goods and services, particularly within the informal sector. The company offers logistics enterprise resource planning (ERP) tools, B2B marketplace, and data insights as their core offer. However, understanding the unique needs of its audience -including lack of access to banking services- it incorporated embedded credit to its model.

Further, founders of B2B platforms enjoy unique structural advantages for offering embedded fintech solutions. As Alex Lazarow explains:  While traditional financial services are usually expensive and hard to access, platforms can acquire merchants at a lower price -or even free of cost, provided they are already customers. Leveraging their data, marketplaces can also get insights to build and target their fintech product. Finally, provided that the funds will ultimately -or mostly be used for transacting in the platform, the lending risk is significantly diminished, as the platform has a window into getting paid back.

Even though it seems like incorporating embedded fintech is a no brainer decision, there are important considerations for founders before introducing this model.

Firstly, financial services integration carries operational complexities. Founders should reflect on the best timing to incorporate this model and be aware of strategies to overcome potential frictions with other areas, at least temporarily. Also, founders might weigh if these complexities are better addressed by being developed in-house or by partnering with a fintech, depending on the company’s capabilities.

Secondly, compliance is vital to avoid the platform ending up breaching a norm or inadvertently exposed to regulatory scrutiny. Also, data is much more sensitive when offering financial services. Including the cost of investing in security to avoid breaches and ensure data protection, might be part of the overall budget. Finally, having clarity on how the new financial solutions will strategically integrate with the platform’s core offer becomes crucial to avoid a conflict or product cannibalization.

Other models

Charging for additional services or features often works as a complementary model. Other monetization strategies include adjacent services, advertising, branding, and delivery prioritization.

Complementary revenue streams can drive higher revenue. Felipe Racines, founder of Seeri, a Latam based marketplace, shared the importance of diversifying revenue streams for B2B marketplaces. “When operating with a lean inventory model and adopting an asset-light strategy, relying solely on a take rate for revenue may prove less sustainable. Suppliers may perceive this take rate as a burden on their sales, potentially leading them to seek sales outside the platform when the take rate increases. It is crucial to avoid positioning the marketplace as a mere tax on their transactions.”

Udaan, -a Bengaluru based B2B trade platform offers a scaled example. They started as a small logistic platform focused on micro buyers and sellers in electronics. After almost a year, it expanded to different niches and services. Today, with over 3M retailers and businesses, Udaan is transforming trade in India. It helps users discover new customers and suppliers, facilitates payments, offers logistic support, accounting management solutions and working capital. For the company, these services translate into multiple revenue streams – which is sustainable, only if they offer true value to customers. Today, Udaan is valued at ~$1.8 billion.

As B2B becomes more competitive, it is expected that marketing within this space will become more data driven and more personalized to increase its efficiency. Alibaba, for instance, one of the most well know B2B marketplaces, relies largely on generating content marketing. As stated in the company’s own blog: Content marketing is essential for B2B businesses because education prospects help them make buying decisions. Though, for creating high value content marketing, companies must have a deep understanding of their customers and personalize it to each decision maker. This is consistent with some studies showing that content marketing has a higher percentage of high ROI results (~30%) than less personalized strategies such as display advertising (~10%).

Further, platforms can use data to drive additional revenue. Analytical services help customers optimize their performance. Salesforce, for instance, acquired Tableau to provide analytical tools to its customers, becoming an important segment of their offer. The insights from these tools help clients tune their pricing strategy, create bundling packages and improve their upselling. Similar approaches can be replicated internally by marketplaces, offering specific insights on customers behavior (purchase recurrency, sales cycles, etc) in exchange of a quote.

Another option to have a more robust offer without increasing the platform’s cost and focus is incorporating a franchise model. By using this model, third parties con complement the services offered to customers in exchange for a fee. For the franchiser, the main advantage is accessing a broader and qualified audience through the platform.

In any case, these services should be incorporated not only with a monetary purpose, but to offer true value to customers. As Jose Bonilla, founder of Chiper shared, new revenue streams for marketplaces result from doing the core business well, earning money in each order. If companies can achieve this, then you can evaluate other opportunities, either building from the ground up or partnering with other companies that offer, for example, other product categories, services, credit, etc. We decide what to do first, always considering the value it creates for our customers.

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We remain excited about the transformative potential of B2B Marketplaces. As we’ve seen in the piece, they have a variety of stand-alone business model options. What’s exciting is when many of these compound on each other. We’ve invested in a number of leaders globally and look forward to partnering with more.