Payment services providers typically take a percentage of every transaction in exchange for facilitating the movement of funds from the buyer to the seller.
But most buyers seek to eliminate this variability.
Marketplaces, particularly pre-IPO marketplaces, are typically valued off of a multiple of run-rate GMV (i.e. Subscribe to receive email notifications about Bob’s valuable new insights. You will know when there is a winner when the rates starting going up!! By comparison, the take-rate for food delivery is around 15% (without delivery) to 30% (with delivery), while Booking.com’s take-rate is roughly 20-30%. Founded in 1993 by brothers Tom and David Gardner, The Motley Fool helps millions of people attain financial freedom through our website, podcasts, books, newspaper column, radio show, and premium investing services. As with online marketplaces, competitive pressures define how payment providers can optimize take rates. For e-commerce businesses such as Amazon.com (NASDAQ:AMZN), eBay (NASDAQ:EBAY), and PayPal (NASDAQ:PYPL), the take rate refers to the percentage of the value of the transactions they facilitate that they get to keep as revenue. Is this a pattern of increased revenue, or has revenue been declining? If you're examining the earnings of a publicly-traded company, their quarterly SEC filings will tell you more about the company when you put them in context. Volume growth is important to ensure that the network is healthy, but the ratio of profits to volume is directly proportional to the take rate, and growth in profits is necessary to show that the company is finding the optimal take rate to balance income and revenue. This is a flawed measurement, and if you're trying to determine the economic health of an eBay store or any other retailer, a figure like GMV isn't going to offer enough insight.
Still, Alibaba’s take rate is still interesting to watch as analysts are paying close attention to it.
The Downside of Using GMV The key issue with take rate in online marketplaces is the tug-of-war between maximizing profit and keeping customers within the network.
Often, marketing costs are based on the number of people clicking through, and it's then up to the company to convince those people to buy a product. GMV is a measure of the total value of all items sold on an online store or marketplace. Additionally, GMV doesn't include discounts or returns, or the cost of keeping and storing inventory before it's sold. by Robert Solomon | Aug 17, 2015 | CPG/Retail, Matchmaking. Returns as of 11/03/2020. I will not sell or share your information with anyone.
Strategy & Solutions for B2B Cloud Providers, B2B Marketplaces and the Problem of Supplier Variability, 2020 Gartner Magic Quadrant for Procure-to-Pay Suites, Sedex: A “Rule of 70” Non-Profit Supplier Information Exchange, ‘Deep’ B2B Platforms and How to Build Them, $500 Million for Marketplace Infrastructure Providers: Mirakl and AppDirect, Mercell: A Public Public Tenders Marketplace with Aspirations, The Forrester Wave™: Supplier Risk And Performance Management Platforms, Q3 2020, Vertex Vs. Avalara: Old School Vs. New School, depend on the services that the marketplaces offer, marketplaces that connect buyers and suppliers who were previously unknown to each other can “take” 1-10%–the low-end of the range being for goods and the high-end for unique services. The week before last, I blogged about the “take rates” associated with various B2B Commerce Platforms.
Looking at a company's net income, for instance, doesn't really mean much unless you have something to compare it to. Take rate reflects the fact that a great deal of internet marketing happens in multiple stages, where the first goal is to get a customer to click on an ad, and the next is to convince that customer to buy a product. Depending on the context, a seller may be talking about either one or both. As the WSJ points out in a follow-up article today, Alibaba’s take rates may be so low (they are lower than eBay’s and PayPal’s) because they are locked in a battle with JD.com on the B2C part of their business. It's not even a good predictor of net sales, which is a more accurate representation of a company's overall financial health.
Long before e-commerce began, intermediaries have charged money to link buyers and sellers of goods and services.
For instance, if a buyer spends $100 on a product, a payment services company might pay the seller $97, keeping the remaining $3 as a fee. Gross merchandise volume (GMV) is another way for you to calculate your gross revenue that refers to the total volume in dollars of sales over a given time period on e-commerce sites such as eBay.
However, for purchase payments, the seller pays 2.9% plus $0.30 per transaction regardless of the funding source -- meaning that PayPal gets to keep extra profit if buyers use a bank account rather than a card. Of course, Alibaba has a B2B marketplace (that is how they started), but the take rate they report is not based on the Alibaba B2B marketplace, it is based on Tmall which is B2C (like Amazon) and Taobao which is C2C (like eBay). In general, though, the best e-commerce companies are those that sustain high take rates while keeping competitors at bay.
Cumulative Growth of a $10,000 Investment in Stock Advisor, Why the Take Rate Is So Important in E-Commerce @themotleyfool #stocks $AMZN $EBAY $PYPL, 2 Amazing Stats From Amazon's Third Quarter, These 3 Stocks Would Be Huge Winners From a Higher Minimum Wage, 8 Wild Numbers From Amazon's Third-Quarter Earnings Report, Amazon's Earnings Breeze Past Expectations: 5 Metrics You Should See, Amazon (AMZN) Q3 2020 Earnings Call Transcript, Copyright, Trademark and Patent Information. The Balance Small Business is part of the.
existing month x 12). The two key points were that take rates: depend on the services that the marketplaces offer; marketplaces that connect buyers and suppliers who were previously unknown to each other can “take” 1-10%–the low-end of the range being for goods and the high-end for unique services; Alibaba’s Take Rate This figure, which was commonly used in place of sales or revenue figures in the early days of e-commerce, has morphed into a somewhat outdated way that businesses measure the value of a company. In other words, if you sell 10 widgets in your eBay store for $100 each, your GMV would amount to $1,000.
The credit card networks succeeded in that strategy for a while until the merchants and government started to get involved. In the context of eBay, GMV refers to the total volume of dollars of sales on eBay and eBay-branded trading websites in a given economic period.
B2B Marketplaces can only survive if their market values supplier variability. In terms of economics, GMV is a raw figure that doesn't offer much insight into the value of the items sold because it doesn't factor in any costs accrued by the retailer. Amazon’s take rate is around 10-15% depending on the category. And Taobao did not charge transaction fees to start, just advertising fees for merchants.
What Is the Return on Equity Ratio or ROE?
The second way it is used is as an indicator of the total volume of sales by an individual seller over a recent period of time, as a method of monitoring sales performance and business health. I do not sell or share your information with anyone else. Even for e-commerce sites like Amazon, the site’s revenue is not calculated based solely on the dollar value of items sold. Were there special factors in a given quarter, such as the sale of a property, that had a one-time impact on the company's bottom line. Signup today for free, and receive email notifications about Bob's new insights.
Meanwhile, the take rate concept is similar for payment services providers like PayPal. For its part, Alibaba makes it clear they are focused on maximizing Gross Merchandise Volume (GMV) and buyers not take rate. Let's conquer your financial goals together...faster.
How much an e-commerce company is able to charge as a take rate depends on the strength of its underlying network of users and the degree of competition within the industry.
Dan Caplinger has been a contract writer for the Motley Fool since 2006. Market data powered by FactSet and Web Financial Group. With a background as an estate-planning attorney and independent financial consultant, Dan's articles are based on more than 20 years of experience from all angles of the financial world. There are several questions worth asking that can provide more insight: Using GMV as a way to calculate a company's health just isn't a smart move, especially when there are other options. PayPal's net take rate actually depends significantly on the choice of funding source that customers make, because if customers use a debit or credit card, then PayPal has to bear the costs that the card network company charges.
As the Fool's Director of Investment Planning, Dan oversees much of the personal-finance and investment-planning content published daily on Fool.com. For online marketplaces like what Amazon and eBay offer, the take rate refers to the fees and commissions that the companies collect on sales by third-party sellers. Aron Hsiao wrote about eBay for The Balance Small Business.
In other words, if you sell 10 widgets in your eBay store for $100 each, your GMV would amount to $1,000.
Alibaba is saying it is focused on growth, not margins. The most simple formula for a retailer is to take the sales price charged to the customer and multiply it by the number of items sold. For eBay, those fees typically take the form of initial listing fees for offering goods and services on its marketplace in the first place, as well as final value fees that the e-commerce specialist collects after a successful sale.
This would work out to a take rate of 3%. In general, a high take rate is good, but it's essential that conversion rates be strong as well.
$2.4B for 2015 GMV; Take rate of about 11%; YoY growth for most recent quarter (ending Q1 2015): 45%; Etsy had a market cap of about $2.22B as of July 20, with a revenue multiple of 8.2 and a GMV multiple of 0.92 (but note that its GMV multiple was as high as 1.7 immediately following its IPO). The take rate in this case refers to the percentage of customers who click on the ad, in contrast to the conversion rate, or percentage of customers who not only took the ad but actually bought the product. PayPal actually takes that into account with certain transactions, charging no fee on personal payments funded with existing PayPal balances or from a bank account, but charging 2.9% plus a $0.30 transaction fee if the payment is funded through a debit or credit card. The first is the total volume of goods sold on eBay as a whole, across the entire website, as a measure of eBay's performance and status as a marketplace. There are a few ways to calculate GMV.
eBay has traditionally sought to move its take rate higher, boosting final value fees and taking a bigger piece of its sellers' sales. But here is the WSJ’s chart of Alibaba’s take rate over time and by user type.
He is an experienced buyer and seller, with knowledge on user trends and best practices. The Ascent is The Motley Fool's new personal finance brand devoted to helping you live a richer life. View the. Stock Advisor launched in February of 2002. The two key points were that take rates: Last week the Wall Street Journal ran an interesting article on Alibaba’s take rate.