Customer lifetime value. A classic concept that is always in style -- the near-literal definition of evergreen. The DTC surge of 2020 has pushed the new guard of brands and retailers to evaluate their growth. Is all growth good? What sources might be more expensive than others? What sources may find the right shoppers? Who are the right shoppers? It is because of the DTC swell of 2020 that 2021 is the year of customer lifetime value. The concept of customer value evolves across business models and the entire commerce landscape. Case in point, the latest must-measure-metric for marketplace operators: seller lifetime value.
Marketplace operators orchestrate the engagement of two distinct types of customers -- the shopper and the seller. The emergence of the marketplace model has introduced increasing numbers of retailers and brands to this two-sided approach. And, while attracting, converting and retaining shoppers is the legacy competency of marketplace retailers (alongside buying, merchandising and other pillars of retailing), the seller engagement has risen to prominence in this marketplace era.
And, just as retailers measure the value of the customer through the tried and true lens of lifetime value, a similar approach applies to the seller - seller lifetime value. SLTV measures the lasting value of the seller relationship - and Mirakl’s Enterprise Marketplace Index shines the light on the metric.
With the value of a seller pegged at nearly $110,000 alongside an average commission rate of 13.5% (as commissions vary widely by category, see the EMI’s appendix for category-specific rates), a single seller is contributing nearly $15,000 to a marketplace in a year To synthesize this into lifetime value, the Seller Report shares a retention rate of 93%, and more importantly a GMV retention of 164%, meaning that a cohort of sellers exhibit significant year-over-year growth.
Taken together, seller lifetime (gross merchandise) value reaches $585,009, providing a contribution of $78,857, as measured over a three-year lifetime.
A surprisingly small number of sellers paves a profitable path to incrementality; a community of only 13 sellers provides an incremental $1 million in contribution. And, to reach an incremental $10 million in GMV, marketplace operators must attract and retain only 17 sellers.
While no measure of LTV -- customer or seller -- is complete without acquisition and service costs layered in, the value of a seller, factored for seller retention, highlights the eye-popping metrics that are generating so much retailer interest in marketplaces.