Q: I’m building a marketplace and am wondering, what KPIs should I focus on and track?

As you probably know, marketplaces hold a special place in my heart. I spent many years optimizing both sides of the Airbnb marketplace, and later spent hundreds of hours researching a series on kickstarting and scaling a marketplace. Based on this work, along with conversations with a dozen marketplace founders, and the insights many of you shared in this Twitter thread, below are my recommendations for the four most important metrics to track and optimize in any burgeoning marketplace:

1. Fill rate: Percentage of intentful sessions that end up converting
2. Bookings growth: Number of completed transactions per week/month
3. Supply growth: New active supply per week/month
4. GMV growth: Dollars going through your system per week/month

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Note, these are in addition to the metrics every founder should be watching, no matter the business model, such as retention, user growth, payback period, etc. For completeness, I cover these and a host of other valuable marketplace metrics, at the bottom of the post.

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A big thank-you to Alex Taussig (Lightspeed), Ania Smith (TaskRabbit), Angela Tran (Version One), Dan Hockenmaier (Faire), Emma Guo (Offsyte), Grant LaFontaine (Whatnot), Kevin Tan (Snackpass), Matt Bendett (Peerspace), Mike Duboe (Greylock), and Mike Ghaffary (Canvas) for contributing to this post.

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Also, I have dedicated posts on metrics for consumer businesses and PLG SaaS businesses.

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Let’s get into it.

1. Fill rate: Percentage of intentful sessions that end up converting

This metric is the ultimate measure of marketplace health, because it’s the essence of what a marketplace is—a place people can consistently come to find what they want. It also bakes in important input metrics like supply quality, availability, and booking conversion, since in order for you to convert a purchaser, you need to have (1) the right supply, (2) that’s available and interested at the right time, and (3) a funnel that converts people.

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As an example, this would track the percentage of Airbnb guests who searched with dates and ended up booking a home, the percentage of DoorDash customers who searched for a cuisine and ended up ordering food, and the percentage of Uber ride requests that led to a ride.

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Sarah Tavel calls this “happy GMV”:

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Happiness >> how many transactions you accumulate.This is not to say that you shouldn’t grow. But if you think of growth as a means to increasing the average level of happiness per transaction (instead of the goal itself), it will focus you on quality growth over vanity growth.

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a16z calls this “match rate”:

“It’s important to measure your successful ‘match rate’—the rate at which buyers can find sellers, and vice versa. How to define this metric depends on the unique business.”

Many people call this metric “liquidity”—an ambiguous term I’ll cover at the end of this post. To Alex Taussig, one of the smartest people I know on marketplaces, this metric is primarily how he evaluates every new marketplace startup:

"The prime directive of a marketplace is to generate liquidity where none existed before. The founding insight for most great marketplace businesses is principally a ‘liquidity hack.’ Uber hacked liquidity by paying drivers to circle key neighborhoods even with no passengers. Airbnb hacked liquidity by paying for professional pictures of homes to give guests a better sense of quality. Faire hacked liquidity by guaranteeing items would sell and offering net 60 terms to retailers. thredUP hacked liquidity by processing merchandise on the seller’s behalf. The list goes on.

So when I evaluate early-stage marketplace business, my analysis focuses on the liquidity hack and how effective it is for both new and repeating users. When it comes to metrics, I often examine the probability that an initiated transaction will be successful and watch it change in cohort time. Every company has a slightly different way of accounting for this liquidity metric, so the best analysis usually references your own benchmarks and watches how liquidity improves as new initiatives take effect. When I see that founders have unlocked novel liquidity and can consistently drive the metrics ahead of the initial benchmark, I get quite excited.”

To operationalize this metric, you’ll need to identify what point along the user journey signals that the user is “intentful.” At Airbnb, this was a guest searching with specific dates. At Lyft/Uber, I suspect it’s somebody entering a destination, or even just opening up the app. At Etsy, it’s likely searching for a specific keyword.

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Benchmarking what is good here is difficult, because it can range from under 5% for an e-commerce marketplace to over 80% when you narrow in on bottom-of-the-funnel conversion. The most important thing here isn’t hitting a specific number, but a laser focus on optimizing it.

“At TaskRabbit, we’re currently most focused on fill rate (or invoice rate, as we call it) as our north-star marketplace performance metric. This gives us a good view of the efficiency across our funnel ecosystem from the signal of the intent to successful completion. We also break it down across multiple decision points in the funnel to help us see opportunities for improvement and understand what is working well.”

—Ania Smith, CEO of TaskRabbit

2. Bookings: Number of completed transactions per week or month

If fill rate is the ultimate measure of marketplace health, bookings is the best way to track marketplace growth. Unlike GMV (which is also incredibly important, as you’ll see below), bookings removes confounding variables like average order values, pricing changes, and outlier purchases. It directly tells you whether your marketplace usage is growing or shrinking.

“You can tell a lot about the marketplace health by digging deep into bookings growth; for example, bookings growth by first-time users (user acquisition), repeat bookings growth (user retention), bookings growth within an organization (network effect).”

—Emma Guo, CEO of Offsyte

At Airbnb, this was was our north-star metric, as it continues to be for the majority of marketplaces in one form or another:

• Uber and Lyft: Rides
• Airbnb: Nights booked
• Cameo: Orders
• Hipcamp: Nights outside
• eBay: Items sold
• Peerspace: Bookings
• Offsyte: Events booked

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