Marketplaces are a convenient communication hub for businesses and consumers. Is it enough for a marketplace to provide a stable flow of buyers to be considered successful? Certainly, it is an important part of promoting and maintaining your eCommerce platform.
However, a well-developed relationship between your marketplace and sellers also plays a key role. What if sellers find it more convenient to leave and sell on their own because your marketplace doesn’t meet their needs?
There is no one-size-fits-all way to prevent this from happening, but it also makes no sense to create additional hurdles in organizing critical business processes. Therefore, the most important thing your eCommerce resource should ensure is a transparent and flexible financial relationship with sellers.
In this article, we will discuss how the logic of financial transactions affects the interaction between the marketplace and vendors.
Table of Contents
- Marketplace Commissions
- Marketplace Split Payments
- Marketplace Payouts
- Commission per Transaction
- Membership
- Pay per Placement
- Commission for Client Generation
- Freemium
- Featuring
The Logic Behind Marketplace Payments
So, marketplace refers to an eCommerce platform where:
- Sellers display information about a product or service.
- Buyers see information about the product or service, can make a purchase and payment online.
Within this platform marketplace payments cover communication of funds between sellers and the marketplace. This communication begins after the seller signs a contract with the site. Most marketplaces work with sellers under an agency agreement. This means that the marketplace can perform actions on behalf of the seller. Such actions can be:
- Product sales: Sellers gain access to a marketplace with numerous potential buyers and selling tools.
- Promoting goods on the platform. Marketplaces can promote sellers’ goods through banners, ads, and sales.
- Goods storage. Sellers can store goods in their own warehouse or use fulfillment services.
- Delivery. Often marketplaces take care of shipping and delivery, so this service also could be included in the payments.
Let’s take a look at what payment features a marketplace can use to deploy the most convenient relationships with vendors.
% Marketplace Commissions
Marketplaces charge sellers a commission for the goods or services sold. This commission covers the cost of the services that the marketplace provides to the seller, as described above.
Commissions can be:
- Fixed—paid per transaction, per period of product display and so on.
- Variable—depends on the total amount of the transaction or the amount of goods sold.
- Combined fixed and variable commission.
Typically, the process of charging the commission takes place after buyers make a purchase on the marketplace. Depending on the option selected, the marketplace deducts its commission from the payment and pays the remaining amount to the seller or service provider.
✂️ Marketplace Split Payments
Essentially, marketplaces work with a large number of sellers, which means that shoppers add products from different sellers to their shopping carts as part of a single purchase. As a marketplace owner, when you receive payment for a purchase that includes items from multiple sellers, you need to calculate the commission for each seller separately. Then distribute the remaining funds among all the sellers.
Most marketplaces work with this type of payment, so the technical side is particularly important. You can set up these payments manually, which is one of two options. You can also connect automatic split payments using Stripe Connect or PayPal Commerce Platform, which allow you to automate the distribution of funds to each seller and deduct the necessary commission automatically.
What it looks like in CS-Cart. CS-Cart Multi-Vendor supports both Stripe Connect and PayPal Commerce Platform and is designed to help eCommerce businesses make the cash flow transparent and easy. Cash flow management, accounting, role assignment between sellers and much more are available for marketplace admins.
Setting up Stripe Connect in CS-Cart Multi-Vendor
We will talk about the different features that can be relevant for different types of marketplace-seller relationships further.
💸 Marketplace Payouts
Marketplaces can also use a payment feature that goes from the marketplace to the seller’s bank account within a certain period of time. In this case, the marketplace is relieved of the need to pre-calculate the commission per transaction, and instead assigns a weekly or monthly (or other contractually agreed upon) schedule of total payments. In addition, sellers can request a manual payout.
In this way, the marketplace keeps a seller’s balance, which increases as revenue for sales is received. Sellers can keep the funds and withdraw to their bank accounts whenever it suits them.
Ways of Organizing Monetary Relations with Vendors
The choice of monetary relations for a marketplace should be made carefully, considering the balance of interests for each side. In this case, you are interested not only in how to make money, but also in organizing a system where sellers can profitably sell and buyers can conveniently buy.
There are several basic models of monetary relations that you can apply to your marketplace.
#1 Commission per Transaction
Summary: marketplace automatically receives all funds from paid orders. Distribution of money to sellers provided manually or with the help of automation tools.
The seller lists their product on your marketplace, and buyers decide to make a purchase. So, when do you, as the marketplace owner, become part of this process? It happens when the payment is made. At that point, you receive a commission—a percentage that covers your service fees for providing the platform, handling delivery, and other related services.
You can choose from whom to collect the commission: only from the seller, only from the buyer (specify in the payment window as additional funds or immediately include it in the cost of goods), or from both participants of the transaction at the same time.
This approach satisfies the interests of sellers, who do not have to pay you until they receive their first revenue. And you, as the marketplace owner, retain full control over all cash flows.
What it looks like in CS-Cart. By default in CS-Cart Multi-Vendor, all cash flows automatically go to the owner of the marketplace. In this case, sellers see only their part of the order, even if the buyer paid for the order from several sellers at once.
The marketplace owner then must deduct the commission and pass the remaining funds to the sellers. The Accounting page helps with account keeping and automating this process.
Two scenarios are available in this format:
- Marketplace transfers funds outside the platform upon receiving a request to transfer a certain amount from sellers.
- Marketplace sets up payments by withdrawing money from its balance in favor of sellers.
You can automate and speed up the distribution of money to sellers using Direct Customer-to-Vendor Payments feature in CS-Cart.
- Sellers create their own payment methods.
- Seller create their own promotions.
- At checkout, the customer pays each seller separately.
- Sellers receive the full amount of money for the order directly.
If the seller does not create their payment method, the marketplace’s default payment methods will be presented in the ordering page instead. In this case, the funds will go to the marketplace account, and the owner should transfer them to the seller.
- Marketplace commissions are marked as the seller’s unpaid payouts, which the seller is obliged to pay.
This feature offers sellers more convenience: they can choose preferred payment options, receive payment for orders faster (without waiting for the marketplace), and create promotions to boost sales with their target audience.
However, commission per transaction model is not suitable for all marketplaces. Your business should take into account such cases as:
- If sellers have a negative balance from which you can’t take a commission, you will have to contact them and resolve the situation by yourself.
In CS-Cart Multi-Vendor, you can manually customize the statuses of sellers. For example, by changing the status to Pending, you will limit the seller’s options, and their products will fall off the storefront.
- If your marketplace is focused on selling expensive or luxury items, a commission solution will not meet the needs of your sellers. More expensive goods mean significantly higher commissions, especially if they are large items or luxury goods that require special delivery conditions. Therefore, sellers are not interested in giving away a large part of their funds. They will be more satisfied working with their own resources.
- If your marketplace offers more than just selling physical goods—such as providing listings, offering items for rent or exchange, or working within the P2P eCommerce segment—charging transaction fees may not be ideal. This is because users could bypass your platform for future transactions, and completed transactions might be inconsistent. In such cases, charging sellers for listing their goods can be a more effective approach, as we’ll discuss below.
Commission per transaction scenario is used by such major eCommerce players as eBay and Fiverr.
#2 Membership
Summary: A marketplace charges a recurring fee for sellers to list or display their goods on its platform. This model is supported by automation tools to streamline the process.
The membership model requires that sellers or all users of a marketplace pay a set amount of money on a regular basis for access to the site or for the opportunity to find new customers and showcase goods.
Unlike commission, this option is suitable for marketplaces that specialize in selling high-priced goods. Buyers will only find membership convenient if you offer goods or services they can use on a regular basis.
What it looks like in CS-Cart. You can deploy this approach in CS-Cart Multi-Vendor using Vendor Plans, which helps with the accounting. Vendor Plans allows you to create plans for sellers with different settings:
- You can set up multiple subscription options for each vendor plan, with costs varying by payment frequency. For instance, sellers can choose a monthly plan, an annual plan, or even a one-time listing on your marketplace.
- Vendor plans let you define specific terms for sellers, such as limits on the number of products, allowable categories, and maximum revenue. As sellers see the potential for higher sales on your marketplace, they’ll be motivated to upgrade to higher plans.
- You manage the marketplace’s cash flow by setting the commission amount and payment frequency. You can also decide whether to include shipping and taxes in the commission or handle these separately.
- CS-Cart Multi-Vendor offers tools to calculate each product’s share in an order and apply commission automatically. This is useful when commissions include shipping costs or discounts are applied to the total order.
- Automated seller account creation allows buyers to become sellers easily; you simply need to approve the account. This feature streamlines processes for marketplaces with many sellers.
This feature doesn’t automate money distribution but simplifies accounting by recording one-time and recurring payments, along with commissions per order. All payment and commission information is automatically recorded on the Accounting page.
In eCommerce, the membership model can be seen in marketplaces such as Venuu. It is usually free for customers, but requires a paid subscription for sellers.
Sometimes, marketplaces start by charging membership fees, and later switch to a per-transaction commission model once the commission automation system is fully developed.
The main nuance of this approach is the correct targeting of the marketplace: sellers will not pay for placement on a platform where they may not even find buyers, and buyers will not be interested in a marketplace with a small number of sellers.
Typically, new marketplaces solve this problem with a marketing campaign, offering large discounts during the first few months to give sellers time to build their audience.
#3 Pay per Placement
Summary: A marketplace receives payment from a seller for listing or placement per item.
Marketplaces that aggregate a large number of listings are characterized by a direct pay-per-listing model. This works in cases where sellers are willing to pay the marketplace in exchange for access to a large audience.
What it looks like in CS-Cart. This model can also be implemented using Vendor Plans. CS-Cart Multi-Vendor allows you to deploy a fixed one-time fee plan, where approved sellers will be charged a commission only for placing a product in a specific category. This could be accomplished using the Vendors Plans control panel.
Pay per placement model is also applied in the B2B segment. For example, the marketplace for buying and selling construction and agricultural equipment Mascus. Sellers are not interested in long-term relationships with the platform, and commission per transaction would be too high. Sellers are willing to sell only a few pieces of equipment, which makes payment for placement a more favorable option.
For a marketplace, the key focus is to attract a large number of sellers who will consistently list new products. This requires positioning your platform as the most profitable and convenient choice for sellers to showcase their products.
#4 Commission for Client Generation
Summary: A marketplace is a link between the doer and the customer, taking a commission for the completed transaction.
In this eCommerce business format, the definitions change a bit because the seller is the doer and the buyer is the customer. This model is used by marketplaces where users look for service providers who can offer them the services they need. Marketplaces charge a commission for being the link between the two parties, i.e. for the transaction.
Upwork is a well-known example of a platform where users can hire specialists for various tasks. In some cases, a membership fee option is also added, allowing users to purchase an unlimited package for posting services or submitting proposals.
In this case, a marketplace is focused on long-term cooperation, which means it uses flexible management tools and payment options. This is also the most profitable side. If the platform meets the needs of all customers, the marketplace will receive an influx of customers, as well as the trust of professionals who will post their services more often.
Keep in mind, however, that the marketplace should implement additional control measures. It is the provider’s responsibility to pay the required commission to the marketplace, as they often won’t receive new orders until previous commissions are settled. To avoid this limitation, providers sometimes attempt to contact clients directly, bypassing the platform.
And although the risk of working with debtors is common for any marketplace, this specific approach requires additional measures to automate the processing of such cases.
What it looks like in CS-Cart. Vendor-to-Admin Payments in CS-Cart Multi-Vendor will help you arrange work with debtors. How it happens:
- Marketplace owner sets the maximum size of the debt and the time allotted for its repayment.
- By default, the minimum amount and the time period are already pre-set in the settings. But you can set your own values for individual vendor plans.
- If the balance drops below the minimum, sellers start receiving warnings to pay the debt.
- Sellers get an opportunity to replenish their account on the marketplace in the allotted time frame.
If the maturity date of the debt has been missed, the seller is getting Suspended status. Marketplace owner can set this status manually, as well as decide what measures will be imposed on the seller with this status:
- Hiding the debtor’s goods or services from the platform, as well as the store page or user’s profile.
- Blocking the debtor’s administration panel, leaving only the option to pay the debt.
- Combined options.
At the same time, the feature automates and facilitates the process of debt repayment without any difficulties. Sellers only need to select the amount of the recharge and click the “Refill Balance” button to restore their store and goods on the marketplace.
The Vendor-to-Admin Payments feature also includes the ability to automatically disable (or delete) suspended seller accounts. In this case, the seller loses access to the account completely if it’s been “dead” for a long time, or if the overdue payment period has exceeded the maximum value.
#5 Freemium
Summary: Sellers can use the marketplace basic functions for free, and if needed, pay for advanced features. A commission is charged per transaction.
This type of relationship between a marketplace and sellers consists of using the basic features of the service for free and paying for advanced features if desired. The main source of revenue for the marketplace is the commission for a completed sale transaction.
This is most evident in C2C models such as Peerby. This is a marketplace where visitors can rent or sell used items. As an additional paid service, Peerby offers delivery and insurance if the item is damaged or lost in transit.
Of course, this format can attract many more potential sellers, but in this case, the paid features must appear genuinely valuable. Additionally, from a technical perspective, this would require implementing several scenarios.
What it looks like in CS-Cart. Freemium model can also be implemented by Vendor Plans in the CS-Cart Multi-Vendor solution. You can distribute vendor roles and corresponding features starting from the minimum in the free version. If sellers want to conduct more transactions, organize their microstores and get additional services, they can switch to a more advanced plan.
#6 Featuring
Summary: A Marketplace offers sellers to place their goods in a more favorable position for a certain commission.
This feature is more than just an add-on; it plays a major role in the financial relationship between sellers and the marketplace. It allows sellers to pay for premium visibility, placing their product or service in prominent spots such as the homepage, curated collections, or top search results.
Many marketplaces, including Amazon and Etsy, use this approach. They generate revenue not only from transaction fees but also by selling premium display space on their platforms. For instance, the Finnish marketplace Häätori relies primarily on this model, earning revenue by allowing sellers to boost the visibility of their ads for used items instead of charging transaction fees.
This model can be effective because the ads are tailored to users actively searching for specific products. However, frequent or overly intrusive ads may annoy some buyers.
What it looks like in CS-Cart. If you want to place product selections from specific sellers on the homepage or prioritize them over other categories, this option is available in CS-Cart Multi-Vendor by default. Use the layout editor to add blocks with custom set of products or sellers to the home page or any other page of the website.
Build Your Monetary Relations with Vendors
The financial relationship with vendors is one of the most critical and complex aspects of running a marketplace. As seen in the examples above, marketplaces often need to integrate processes for accounting, managing seller privileges, and calculating commissions. The setup for working with sellers also varies based on factors like niche, strategic focus, and business model.
The most common approach is a commission-per-transaction model, where the marketplace earns a percentage of each transaction. However, incorporating additional models can attract more sellers by making it easier and more beneficial for them to work on your platform, fostering long-term partnerships.
Striking a balance between seller needs and buyer benefits is essential. Focus on collaborating with sellers who can contribute to your revenue growth. To set effective commission rates, unit economics can be helpful, allowing you to calculate the average revenue per customer. To determine your break-even point, subtract customer acquisition costs and order fulfillment expenses from this revenue.
Keep in mind that features for managing vendor relationships can often be combined. If you’d like to experiment with cash flow management in a marketplace, try our free demo. You’ll get 14 days to explore a fully functional marketplace and identify the best setup for your business.