Money, Pricing & Model

How do I model unit economics for a marketplace where I have to acquire both supply and demand?

A starting point

A marketplace has two CACs (one for each side) and its economics only work when the take rate on transactions eventually covers both, so you must model supply acquisition, demand acquisition, and the liquidity that connects them. The hard part is that early on you often subsidize one side, which can look like terrible unit economics until liquidity kicks in. As a starting point, track cost to acquire each side separately and the revenue per successful match, because a blended marketplace number hides which side is actually breaking your model.

Go deeper

Hand-picked from around the web, each with a note on why it earns your time.

3 resources 2 link-checked

Read

✍️ Essay
✓ Link checked Free Intermediate

Why we picked it This is the canonical a16z reference that defines the marketplace vocabulary you actually need before you build a model: GMV vs revenue, take rate, match rate, and market depth (which is how liquidity really shows up). It keeps you honest about the fact that a marketplace has two sides to feed, so your unit economics have to reflect both supply and demand, not just orders. Treat it as the shared language, then plug your own numbers into it.

13 Metrics Every Marketplace Company Should Track

From Andreessen Horowitz (a16z) by Jeff Jordan, Li Jin, D'Arcy Coolican, Andrew Chen (a16z)

  • GMV is not revenue: your revenue is only the take rate slice of GMV, so model the two separately from day one
  • Liquidity is the make-or-break metric, tracked as match rate and time to match, not as headline user counts
  • Unit economics for a marketplace has to fold in the cost of building both sides, since supply attracts demand and vice versa
Open a16z.com →
📖 Book
✓ Link checked Paid Intermediate

Why we picked it Before you tune CAC and take rate, this book gives you the structural picture of why marketplace economics compound: network effects, the chicken-and-egg cold start, and how pricing on one side subsidizes the other. Co-authored by Sangeet Paul Choudary, it stays readable while grounding the strategy behind the numbers you will later model. Read it as the framing layer under the spreadsheets.

Platform Revolution: How Networked Markets Are Transforming the Economy and How to Make Them Work for You

From W. W. Norton & Company by Geoffrey G. Parker, Marshall W. Van Alstyne, Sangeet Paul Choudary

  • Network effects, not features, are what make a two-sided model defensible, so your model should show them kicking in
  • You often price and subsidize one side to seed the other, which is why a naive per-side CAC read can mislead you
  • Solving the cold start (which side to build first) shapes every early acquisition and pricing choice you make
Open wwnorton.com →
📄 Article
Free Intermediate

Why we picked it Most CAC math quietly assumes one funnel, and that breaks the moment you have to pay to acquire both sellers and buyers. This piece walks through a fully burdened, two-sided CAC: it allocates seller acquisition cost across the buyer base using your seller-to-buyer ratio, with a worked example you can copy into a spreadsheet. It is the practical companion to the a16z framing, the how after the what.

How to Measure CAC in a Two-Sided Marketplace

From Natalie Luu, Lightspeed Venture Partners (Medium) by Natalie Luu (Lightspeed Venture Partners)

  • A real marketplace CAC blends buyer and seller acquisition cost, weighted by how many sellers you need per buyer
  • The seller-to-buyer ratio is the lever that decides how heavy each order really is to acquire
  • Work it with concrete numbers (their sellers cost 500 each) so your LTV/CAC reflects both sides, not a flattering single-side figure
Open medium.com →

People also ask

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