The commission in the terms of service is not the take rate, and a margin quoted on revenue hides how thin each order really is.
Take rate is the revenue the marketplace keeps divided by gross merchandise value (GMV), after the discounts and refunds it funds; contribution margin is that revenue less every cost that rises with each order. On an illustrative marketplace with $2,000,000 of monthly GMV and a 15 per cent headline commission, the net take rate is 12.0 per cent and the contribution margin is $8.00 an order, 8.0 per cent of GMV, even though it looks like 66.7 per cent of revenue.
Worked in full in The Venture Capital Associate by Julian R. Sterling, with every figure reproduced in a free workbook.See the book on Amazon →
Founders quote the commission in the terms of service. A diligence model needs the take rate the business actually earns and the margin left on each transaction, because those two numbers decide whether growth makes the company more valuable or only bigger. Both come from the same monthly cohort of orders, and both are easy to overstate by choosing the wrong denominator.
| Input | Value |
|---|---|
| Orders | 20,000 |
| Average order value (GMV per order) | $100 |
| Headline commission on GMV | 15% |
| Marketplace-funded promotions and credits | $40,000 |
| Refunds and chargebacks absorbed, share of GMV | 1.0% |
| Payment processing, share of GMV | 2.5% |
| Customer support per order | $0.80 |
| Insurance, trust and safety, share of GMV | 0.5% |
| Variable hosting per order | $0.20 |
| New customers acquired / blended CAC | 3,000 / $30 |
Two of the cost lines scale with GMV, not with the commission: the payment processor charges on the full basket the buyer pays, and the insurance covers the full job. That single fact is behind most overstated marketplace margins.
Net take rate = (commission revenue − marketplace-funded promotions − refunds absorbed) ÷ GMV
GMV = 20,000 × $100 = $2,000,000
Commission revenue = 15% × $2,000,000 = $300,000
Less promotions $40,000 and refunds $20,000: net revenue = $240,000
Net take rate = $240,000 ÷ $2,000,000 = 12.0%
Excel, with GMV in B2, commission in B3, promotions in B4 and the refund rate in B5: =(B2*B3-B4-B2*B5)/B2
The $60,000 of leakage is 20.0 per cent of commission revenue. Promotions belong here, as a reduction of revenue, rather than in marketing: a credit that lowers what the buyer pays is a price cut, and IFRS 15 and ASC 606 generally treat consideration payable to a customer as a reduction of revenue too. Where the marketplace acts as agent, revenue is the commission, reported net; recording the full GMV as revenue would not change a single dollar of contribution.
| Line | Driver | $ | Per order |
|---|---|---|---|
| Net revenue | 12.0% of GMV | 240,000 | 12.00 |
| Payment processing | 2.5% of GMV | −50,000 | −2.50 |
| Customer support | $0.80 per order | −16,000 | −0.80 |
| Insurance, trust and safety | 0.5% of GMV | −10,000 | −0.50 |
| Variable hosting | $0.20 per order | −4,000 | −0.20 |
| Contribution margin | 160,000 | 8.00 | |
| Paid acquisition | 3,000 × $30 | −90,000 | −4.50 |
| Contribution after marketing | 70,000 | 3.50 |
The same $160,000 can be quoted three ways: 66.7 per cent of net revenue, 53.3 per cent of commission revenue, or 8.0 per cent of GMV. The first sounds like software. The third is the one that compares across marketplaces with different commissions, and the per-order figure of $8.00 is the one that pays back acquisition: at a $30 CAC a new customer has to place 3.75 orders before the marketplace has earned its money back, before any fixed cost.
Why payments dominate. Processing is 2.5 per cent of GMV but 20.8 per cent of net revenue. A marketplace with a thin take rate is, economically, a payments business with a margin squeezed from both sides.
| Headline commission | Net take rate | CM per order | CM % of GMV | CM % of net revenue |
|---|---|---|---|---|
| 10% | 7.0% | 3.00 | 3.0% | 42.9% |
| 12% | 9.0% | 5.00 | 5.0% | 55.6% |
| 15% | 12.0% | 8.00 | 8.0% | 66.7% |
| 20% | 17.0% | 13.00 | 13.0% | 76.5% |
Every point of commission falls straight to contribution, because none of the cost lines depend on it. Cutting the commission from 15 to 10 per cent to win supply removes 62.5 per cent of the contribution per order, which is why a price war between marketplaces is so much more expensive than the headline suggests.
| Average order value | Net take rate | CM per order | CM % of GMV | Orders to repay $30 CAC |
|---|---|---|---|---|
| $40 | 9.0% | 1.40 | 3.5% | 21.4 |
| $60 | 10.7% | 3.60 | 6.0% | 8.3 |
| $100 | 12.0% | 8.00 | 8.0% | 3.8 |
| $150 | 12.7% | 13.50 | 9.0% | 2.2 |
Basket size matters more than the commission. Of each dollar of GMV, 11.0 cents survive the percentage costs, and $3.00 of costs are charged per order whatever the basket, so contribution reaches zero at an order value of $27.27. A low-basket marketplace can show a reasonable take rate and still need twenty-odd orders per customer to recover acquisition.
The usual error is to take commission revenue, deduct only the costs that look like cost of sales, and charge payment processing on the commission rather than on the basket. Here that gives a contribution of $272,500, 90.8 per cent of revenue, which overstates the true figure by $112,500 a month: it misses the promotions, the refunds, the insurance and most of the processing fee. In a diligence pack, ask for the processor's invoice and the promotions ledger, and rebuild net revenue from GMV before reading any margin the company presents.
The second mistake is comparing take rates across categories without the basket. A 12 per cent take on a $100 job and a 12 per cent take on a $40 delivery are different businesses, as the table shows.
Compute the net take rate from GMV after promotions and refunds, cost every variable line on its true driver, and quote contribution per order and as a share of GMV. Then test it against acquisition cost: here $8.00 an order against a $30 CAC. The payback arithmetic is in how to calculate CAC payback, and the unit economics model behind the book is in the free workbook for The Venture Capital Associate.
GMV is the total value of transactions on the platform; revenue is the part the marketplace keeps. On $2,000,000 of illustrative GMV and a 15 per cent commission, revenue is $300,000 before promotions and refunds and $240,000 after, a net take rate of 12.0 per cent. When the marketplace acts as agent it reports the commission, not the GMV, as revenue.
Report both, but compare marketplaces on GMV. The same $160,000 of illustrative contribution is 66.7 per cent of net revenue and only 8.0 per cent of GMV. The revenue figure flatters a business with a low take rate, because costs such as payment processing, here 2.5 per cent of GMV, are charged on the whole basket.
Per-order costs do not shrink with the basket. With $3.00 of costs per order and 11.0 cents of each GMV dollar left after percentage costs, contribution is $8.00 an order at a $100 basket but $1.40 at $40, when a customer must place 21.4 orders to repay a $30 acquisition cost.
This article is one calculation from The Venture Capital Associate. The book takes the same case from first principles to the decision, chapter by chapter, and every figure it prints is a live formula in the free companion workbooks.
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