Which type of revenue model involves sending customers to a website for a referral fee?
Guide to Understanding the Take Rate Concept Show
The Take Rate refers to the fees collected by a third-party service platform, such as an eCommerce marketplace or payment services provider. Table of Contents
How to Calculate the Take RateThe take rate is the percentage of a seller’s sales that a third party collects as part of an agreed-upon arrangement. Namely, there are three different marketplace types where the “take rate” term is common:
For marketplaces and payment providers, their primary — or one of their main sources — of revenue is from the fees earned on the sales and transactions processed on their platforms. Conceptually, the take rate functions like a commission fee charged by a product affiliate, but the difference is that these business models are much more scalable, and the value-add is the platform/service itself. How to Interpret the Take Rate: Industry Benchmarks (%)The business models of marketplace companies tend to consist of two core components:
While the former is relatively straightforward, the variable service fee is contingent on numerous factors such as the product category, weight, and average order value (AOV). The more active the marketplace is in facilitating the transaction between the consumer and the producer, the higher the take rate (and vice versa). For product-oriented marketplaces, the take rates can range between 5% to 25% (but most pay ~15% on average), whereas service-oriented marketplaces are usually priced marginally higher. The process of calculating the take rate is straightforward, as the amount charged (i.e. the revenue inflow to the marketplace) equals the product of the tax rate and the applicable metric, e.g., gross merchandise volume (GMV) or total payment volume (TPV), Take Rate FormulaSpecific to an eCommerce product marketplace (e.g., Amazon), the formula for calculating the take rate is as follows. Referral Fee (Commission) = Take Rate × Gross Merchandise Volume (GMV) The earnings received from the platform’s perspective are determined by the GMV and take rate. Similarly, the formula for payment providers is as follows. Transaction Fees = Take Rate × Total Payment Volume (TPV) The only difference is that rather than the GMV, the total payment volume (TPV) is used. Take Rate Calculator — Excel Model TemplateWe’ll now move to a modeling exercise, which you can access by filling out the form below. Step 1. eCommerce Marketplace Take Rate CalculationSuppose an eCommerce platform’s business model involves taking a percentage of a third-party seller’s revenue in exchange for the right to sell on their platform. Given the product category and selling price, the average referral fee incurred by the third-party sellers active on the platform is priced at 15% of its gross merchandise volume (GMV). If the GMV in 2021 was $600 million, how much would the eCommerce company receive in total referral fees? The product of the $600 million in GMV and the 15% take rate is $90 billion, which represents the revenue stemming from the take rate.
Step 2. Payment Service Provider Take Rate CalculationFor the next part of our exercise, we’ll calculate the transaction revenue received by a payment service provider. In exchange for managing a company’s online payment processing system (e.g., checkout platform, security, identify verification), the participants must pay a 2% fee on the total payment volume (TPV). Assuming the TPV was $10 billion in 2021, we can multiply that amount by the 2% take rate to arrive at a transaction processing revenue of $200 million for the payment service provider.
Step-by-Step Online Course Everything You Need To Master Financial ModelingEnroll in The Premium Package: Learn Financial Statement Modeling, DCF, M&A, LBO and Comps. The same training program used at top investment banks. Enroll Today Which of the following involves business retailing products and services directly via Internet to individual customers?E-commerce (electronic commerce) is the buying and selling of goods and services, or the transmitting of funds or data, over an electronic network, primarily the internet. These business transactions occur either as business-to-business (B2B), business-to-consumer (B2C), consumer-to-consumer or consumer-to-business.
Is an Internet business model that provides an online meeting place where people with similar interests can communicate and share information?Community provider: Provides an online meeting place where people with similar interests can communicate and find useful information. Portal: Provides an initial point of entry to the web along with specialized content and other services.
What is the type of e1. Business-to-Business (B2B) Business-to-Business (B2B) e-commerce encompasses all electronic transactions of goods or services conducted between companies. Producers and traditional commerce wholesalers typically operate with this type of electronic commerce.
Which of the following best describes a freemium pricing model?Which of the following best describes the free/freemium revenue model? In the free/freemium revenue model, firms offer basic services or content for free, while charging a premium for advanced or special features.
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