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Will your marketplace soar or sputter out?
It may depend on one critical metric that many startups ignore.
Here's how to figure out if you have a "layer cake" or a "leaky bucket" ⬇️
It may depend on one critical metric that many startups ignore.
Here's how to figure out if you have a "layer cake" or a "leaky bucket" ⬇️
What is this magic metric? Gross merchandise value (GMV) retention.
Most companies calculate user retention, or how many users from a cohort return monthly.
GMV retention is similar, but focuses on how much a cohort spends (or generates) on your marketplace each month.
Most companies calculate user retention, or how many users from a cohort return monthly.
GMV retention is similar, but focuses on how much a cohort spends (or generates) on your marketplace each month.
This is calculated monthly and displayed in "spaghetti charts" where each line represents one cohort.
Say Cohort 1 sold $50k in month 1 and $25k in month 2 - that's 50% seller GMV retention.
Ideally, retention flattens out over time. In some cases, it even "smiles" (curves up).
Say Cohort 1 sold $50k in month 1 and $25k in month 2 - that's 50% seller GMV retention.
Ideally, retention flattens out over time. In some cases, it even "smiles" (curves up).
Investors also look at trends over time to get a sense of whether retention for newer cohorts is improving or getting worse.
Why is this so important?
A company with 50% GMV retention will be ~2x ahead of a co with 25% GMV retention in a year! (all else equal)
Why is this so important?
A company with 50% GMV retention will be ~2x ahead of a co with 25% GMV retention in a year! (all else equal)
High GMV retention implies product-market fit, as users are finding enough value to maintain or expand spend on the platform.
It also allows you to:
(1) Hit your GMV targets with slower new user growth
(2) Spend more on marketing and still see a compelling LTV/CAC
It also allows you to:
(1) Hit your GMV targets with slower new user growth
(2) Spend more on marketing and still see a compelling LTV/CAC
What is "good" GMV retention?
It's typically higher for sellers, as they build a biz on your platform and should come back often.
Publicly traded marketplaces often see 90%+ for sellers and 60%+ for buyers. But top decile cos can see 100%+ GMV retention on at least one side!
It's typically higher for sellers, as they build a biz on your platform and should come back often.
Publicly traded marketplaces often see 90%+ for sellers and 60%+ for buyers. But top decile cos can see 100%+ GMV retention on at least one side!
At @a16z, we also keep benchmarks on GMV retention for seed through Series B marketplaces.
The average company sees supply side GMV retention at 90% at m1, plateauing around 45-50% by m12.
Demand side retention starts closer to 70% at m1, plateauing around 30% by m12.
The average company sees supply side GMV retention at 90% at m1, plateauing around 45-50% by m12.
Demand side retention starts closer to 70% at m1, plateauing around 30% by m12.
More on how to calculate GMV retention (including a spreadsheet template), as well as how you can build a high GMV retention platform, on @future:
future.a16z.com/gmv-retention-marketplace-metric/
And if you're building an early stage marketplace - my DMs are open!
future.a16z.com/gmv-retention-marketplace-metric/
And if you're building an early stage marketplace - my DMs are open!
