B2B Marketplace Essential KPI Metrics

The B2B marketplace is full of levers to push and pull. Therefore, it is critical to identify correlation-causation relationships to achieve the marketplace’s inherent potential. But how do you identify these relationships, and how do you objectively track marketplace health?

To understand if the marketplace is moving in the right direction, there are certain metrics that business owners can follow, pro-actively engage with and respond to quickly if things start moving south. First, it’s important to recognize what numbers are the most impactful. To avoid “data-overload,” we recommend narrowing the focus to the few vital metrics that influence the marketplace the most. In this article, we’ll go over important B2B marketplace KPIs that you can narrow down even further to choose only those that are relevant to your industry and business.

What are KPIs?

KPIs are leading signposts used to determine business performance over time. Depending on business objectives, KPIs can be used to track and monitor business growth, sales efficiency, conversion rates and so on. KPIs vary by department, business and industry, and are subject to business-specific targets and industry standards. With that said, B2B marketplace KPIs will measure and track the company’s progress toward achieving specific marketplace goals. These could be anything from monthly recurring revenue, customer lifetime value or brand awareness.

How to identify KPIs

Here are 3 useful questions to determine relevant data points that will gauge your marketplace performance most accurately:

  1. What are your business goals?
  2. What short- and long-term objectives are you trying to reach?
  3. What are the biggest management priorities?

Once you answered the questions, identified the main business goals and priorities, and looked at the industry benchmarks, you can further set your targets. A few other issues to address at this point will include designating relevant time frames for tracking, identifying responsible individuals or teams, and articulating a well-defined agenda for following those metrics to help motivate your team members.

Types of KPIs

There are different KPI taxonomies, but this is the most basic recognized differentiation:

  • Quantitative KPIs rely on numbers to measure business objectives (ex. the number of leads to achieve).
  • Qualitative KPIs measure opinion-based data, such as brand awareness.
  • Leading KPIs aim to predict future performance like estimated conversions.
  • Lagging KPIs describe past performance, such as a sales turnover.
  • Input KPIs measure resources required to complete a specific project, such as budget.
  • Process KPIs evaluate efficiency within the organization, such as the average customer service response time.

Apart from varying by industry and business specifics, the KPIs that your business measures will depend on the company’s stage of growth. The metrics that are relevant at the early stages of business development might prove inadequate when the business matures and expands.

B2B Marketplace Metrics

Infographic:
Total revenue = (GMV)*(Take Rate)
CAC = (Total costs incurred on acquiring a customer)/(Total number of customers converted)
CLV = (CV)*(ACL)
CLV to CAC Ratio = (CLV)/(CAC)
Lead to CCR = [(Total number of qualified leads that results in sales)/(Total number of leads)]*100
AR = [(Number of users who took an action)/(Total number of users)]*100
Net MRR = (Average revenue per account)*(Total number of accounts in a month)
ROR = [(Number of repeat orders)/(Total number of transactions)]*100
ARPA = (Total revenue generated over a period of time)/(Number of accounts during the same period)
Churn Rate = [((Number of customers at the beginning of the period)–(Number of customers at the end of the period))/(Number of customers at the beginning of the period)] *100
Customer Retention Rate = [((Number of customers at the end of a period)–(New of customers acquired during the period)/Number of customers at the start of the period]*100
Buyer-to-seller ratio = (Number of transactions per buyer)/(Number of transactions per seller)
NPS = (% Promoters)–(% Detractors)

B2B marketplace business metrics are primarily measured to estimate the company’s revenue, profitability and customer acquisition. The three most important metrics you’d want to track for your marketplace are GMV (gross merchandise volume), CAC (customer acquisition cost), and CLV (customer lifetime value).

Take rate

Take rate is the average commission you take from each transaction. If you’re like Upwork or Airbnb, you might further split it between vendors and buyers; otherwise, you might prefer either party to carry the fee burden. Whatever the logic behind your take rate, it’s important to track it. Adjusting a take rate by just one percent may yield a significant increase in your overall revenue, so keeping an eye on the industry benchmarks and testing different scenarios can bring unexpected benefits.

Gross Merchandise Volume (GMV)

If there’s a single metric that you’d want to track for your marketplace, then this is it. GMV is the total sales value of products (or services) sold through your marketplace within a designated timeframe. Since GMV contains all important levers to work with and offers a more authentic picture of the marketplace, investors often prefer to look at this indicator rather than actual revenue. However, even GMV is not sufficient to determine the real health of the marketplace, so you’ll need to look at other numbers to see if the marketplace is truly realizing its potential. For starters, to arrive at your total revenue, you’ll need to take GMV and multiply it by the take rate.

Total revenue = (GMV)*(Take Rate)

Customer Acquisition Cost (CAC)

Customer acquisition cost (CAC) is the price you pay to acquire a new customer: It measures the total cost incurred on acquiring a customer over a specific period of time. CAC combines all the marketing costs and any other expenses involved in converting a lead into a buyer. Ideally, the closer CAC to zero, the better. Customers refer their friends and partners to join the marketplace without your business spending a single dollar on acquisition. However, that’s rarely the case. Especially in the early stages of growth, you’re bound to spend substantial sums on advertising campaigns to lure buyers to the marketplace. To arrive at CAC, you need to divide the total costs incurred on acquiring a customer by the total number of converted customers.

Customer Acquisition Cost (CAC) = (Total costs incurred on acquiring a customer)/(Total number of customers converted)

For example, if you spend $1,000 on marketing and advertising to acquire new buyers, 10 of whom end up buying products on the marketplace, then your CAC is $100.

Customer Lifetime Value (CLV)

Customer Lifetime Value (CLV) is the total revenue you expect from an individual customer over a span of time. CLV is always expected to be higher than CAC. Otherwise, the growth is deemed unsustainable. Arriving at CLV is a bit tricky because it includes a few other factors, such as the size of an average transaction, the expected “lifespan” of a customer and the estimated number of repeat purchases. Thus, to calculate CLV, you need to estimate the following constituents first:

Average Order Value (AOV) = Total revenue/Number of orders

Average Order Frequency Rate (AOFR) = Number of orders/Number of customers

Customer Value (CV) = AOV*AOFR

Average Customer Lifespan (ACL) = (Sum of customer lifespans)/(Number of customers)

To calculate CLV, you need to take customer value and multiply it by the average customer lifespan like so:

Customer Lifetime Value (CLV) = CV*ACL

For example, if the marketplace’s total revenue is $1,000 and the number of orders placed in June equals 50, then AOV is $20. If the marketplace serves five customers, then the average order frequency rate is 10. Having arrived at those two numbers, we can now calculate customer value: $20*10 = $200. To arrive at an average customer lifespan, we have to look at the number of years each customer buys on the marketplace. For example, for Starbucks, the ACL is 20 years. However, if you don’t have so much data and can’t wait 20 years to arrive at such a number, then you may use the shortcut formula: 1/Churn Rate percentage (we’ll discuss Churn Rate in more detail below). For simplicity’s sake, let’s assume that your ACL equals three years, then CLV will be $200*(12 months)*3 = $7,200.

Customer Lifetime Value (CLV) to Customer Acquisition Cost Ratio (CAC)

The customer lifetime value (CLV) to customer acquisition cost (CAC) ratio is used to identify the efficiency of the overall business operations. For example, if your CLV to CAC ratio is 5:1, then it means that for every single dollar you spend on the marketplace, you earn an additional $5. Here’s how to arrive at the number:

CLV to CAC Ratio = (CLV)/(CAC)

For example, if your CLV is $1,000 and CAC is $100, then CLV is 10:1.

Lead to Customer Conversion Rate (Lead to CCR)

Lead to customer conversion rate (Lead to CCR) is also known as lead conversion or sales conversion rate. This is a crucial metric to evaluate the efficiency of the sales funnel. The customer conversion funnel essentially tracks the path that a customer goes through to complete a purchase. Identifying areas where customers have difficulties or bounce off the website can have a tremendously positive effect on improving conversions. For example, if a prospective buyer looks through the catalog but doesn’t proceed further in its shopping journey on the marketplace, you might have several bottleneck issues, such as an ineffective search engine that’s unable to return relevant results, lack of assortment, weak catalog representation and so on. Similarly, if you discover that many buyers click on the “buy” button but do not follow through with the transaction, then you might have a problem with a transaction flow, such as a lack of convenient payment or fulfillment options.

Here’s the formula:

Lead to Customer Conversion Rate (Lead to CCR) = [(Total number of qualified leads that results in sales)/(Total number of leads)]*100

For example, if your advertising campaign brought 150 qualified leads but only 25 of them purchased products on the marketplace, then your lead-to-customer conversion rate is 17%.

Activation Rate (AR)

Activation Rate measures the number of users who have taken an action over a specified period of time. Whatever action you decide to track, it needs to deliver the initial customer value (it can be a purchase, an activation of subscription and so on). Here’s the formula:

Activation Rate (AR) = [(Number of users who took an action)/(Total number of users)]*100

Monthly Recurring Revenue (MRR)

Monthly recurring revenue (MRR) is a predictable revenue that you expect to earn each month. This metric allows you to predict future revenue and estimate the performance of the employed resources. Suppose you have 1,000 customers who have recurring orders for $100 on average; then your monthly recurring revenue would be $100,000.

Monthly Recurring Revenue (MRR) = (Average revenue per account)*(Total number of accounts in a month)

Repeat Order Ratio (ROR)

Repeat order ratio (ROR) measures the percentage of transactions that are repeat purchases. The higher the percentage, the more money you can afford on acquiring new customers. Conversely, if the number is low, then you might run into a problem when trying to grow. This way, if ROR is steadily growing, then you’re moving in the right direction.

Repeat Order Ratio (ROR) = (Number of repeat orders) / (Total number of transactions)*100

For example, the total number of transactions that happened via your marketplace in June equals 100; If 25 of those orders are repeat purchases, then your repeat order ratio for June is 25%.

Average Revenue Per Account (ARPA)

The average revenue per account (ARPA) determines the revenue-generating capacity of the marketplace at an account level over a specific period of time. It’s calculated by dividing the total revenue by the average number of accounts in the same period. Although sometimes referred to as a “vanity” metric, tracking it is important on many levels: It can serve as a basis for accelerating your MRR growth and helps you understand if you’re aligning your offering to the right customer. The average revenue per account should be improving over time as sales increase and the value proposition improves and becomes more targeted.

Average Revenue Per Account (ARPA) = (Total revenue generated over a period of time)/(Number of accounts during the same period)

Churn Rate

Revenue churn measures the lost revenue over time, which can happen as a result of cancellations, competitive losses, customer bankruptcies, bounced checks and so on. However, sometimes it can be a little tricky to identify what churn is in your business. For example, in cases where buyers may need something infrequently or use the marketplace to fulfill a particular purchase, which is otherwise uncommon for them, you need to decide if you can count the loss of those customers as a churn or not. To better understand the churn and what drives it, it’s a good idea to segment customers to find out what types of customers are likely to churn and when. Without going into too much detail, the simplified churn rate formula will look as follows:

Churn Rate = [((Number of customers at the beginning of the period) – (Number of customers at the end of the period))/(Number of customers at the beginning of the period)]*100 

Suppose you have 1,000 customers at the beginning of the month and 1,150 customers at the end, then your churn rate is –15%, which means you have not lost any customers on average. However, if the reverse is the case, that is, at the beginning of the month you had 1,150, but at the end, there were 1,000, then your churn rate is 15%, which means that you have lost 15% of your customer base.

Customer Retention Rate (CRR)

Customer retention rate (CRR) shows the number of customers who keep using your marketplace over time, meaning that CRR is the opposite of churn rate.

Customer Retention Rate (CRR) = [Number of customers at the end of a period – New of customers acquired during the period / Number of customers at the start of the period]* 100

For example, at the beginning of the month, you had 1,150 customers. During the month, you onboarded another 300. However, you ended the month with 1,250. Your CRR equals 82.6%.

Monitoring CRR is important because it helps quantify the efficacy of the B2B marketplace marketing strategy and customer service.

Buyer-to-Seller Ratio

The buyer-to-seller (or provider-to-customer) ratio measures how many customers one vendor can serve. The indicator varies greatly from one industry to another. In some cases, one provider can serve dozens of customers (think Uber), while in the other, a few will be considered a good benchmark to strive for (think eBay). The more customers one supplier can serve, the more you should focus on the supply. In this case, acquiring a vendor who can serve many customers at a time is more valuable than acquiring a customer. However, if you end up with a high provider-to-customer ratio (or worse, more providers than customers), you’ll have to quickly grow your customer base to achieve provider liquidity. The provider-to-customer ratio is one of the key metrics to evaluate the overall marketplace liquidity.

Buyer-to-seller ratio = (Number of transactions per buyer)/(Number of transactions per seller)

Besides the buyer-to-seller ratio, there are a few other metrics that contribute to marketplace liquidity, such as search and time to fill and utilization rate. The search-to-fill metric shows what percentage of searches or requests actually results in a purchase whereas time to fill measures the time it takes buyers to make that purchase. Utilization rate, on the other hand, is the percentage of products the vendor ends up selling over a specified period of time and can be calculated as the number of listings with transactions divided by the total number of listings.

Net Promoter Score (NPS)

One method to measure user satisfaction is to use the Net Promoter Score (NPS), which was popularized by Frederick F. Reichheld in the 2003 issue of Harvard Business Review. The score is obtained by asking your customers one single question: “How likely is it that you would recommend [product] to a friend or colleague?” The answer can be anything from zero to 10, where zero is highly unlikely and 10 is highly likely. The score question is believed to be a more accurate representation of user satisfaction rather than simply asking whether they like your product or not.

Based on the answers, respondents are segmented into the following groups:

  • 9-10: Promoters. Promoters are loyal customers who will keep buying and will refer your product to others.
  • 7-8: Passives. Passives, although not enthusiastic, are satisfied with your product.
  • 0-6: Detractors. Detractors are unhappy customers who will most likely share their disappointment with others, thus affecting your business.

The score then ranges between -100, where everyone is a detractor, to +100, where everyone is a promoter, and is calculated as follows:

Net Promoter Score (NPS) = (The percentage of customers who are Promoters)-(The percentage of customers who are Detractors) 

The positive NPS is considered good, and the NPS +50 is considered excellent. The rating should be followed over time to see if customer satisfaction has increased or suffered. Although NPS is considered one of the best indicators of customer loyalty and satisfaction, it has received a fair bit of criticism for being culturally insensitive and not a very good predictor in the long term.

KPI Reporting: Useful Resources

KPI reporting is a visual dashboard that can be incorporated into your B2B ecommerce platform to track your pre-determined metrics and analyze how your B2B marketplace performs against the targets. KPI reporting generally comprises charts, graphics, tables, diagrams, and all sorts of data visualization tools that make it easier for your team members to track important indicators over time. Having a KPI reporting widget is beneficial on many levels since it allows you to:

  • Track the most impactful data and filter out irrelevant information
  • Have a snapshot of your teams’ performance across the board
  • Make the data easily and visually accessible to stakeholders and partners
  • Set goals and motivate your team members

Below are a couple of spreadsheets that could be helpful when choosing the metrics to track:

  1. Marketplace KPI Spreadsheet # 1 (from the authors of the Version One Marketplace Guide)
  2. Marketplace KPI Spreadsheet # 2 (by venture capital firm dahni)

Conclusion

As we saw, B2B marketplace KPIs give you clues on actions to take to improve your marketplace in case it doesn’t perform to your expectations. For example, if you have good traffic but are struggling to convert visitors into buyers, perhaps you should review your value proposition or analyze the sales funnel to understand where the customers are most likely to bounce. On the other hand, if you have good conversion rates but the average order value is too low, perhaps, it’s time you integrate a recommendation engine into your B2B ecommerce platform to offer complementary products and accessories that your customers might find useful. Whatever KPIs you choose to track, they need to be specific, measurable, attainable, and relevant to your business. By concentrating on a few important metrics, you increase your chances of meeting your short- and long-term goals, and align everyone on your team on your business objectives.

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Marina Vorontsova
Technical author and eCommerce advocate