For any company that is looking to get into a marketplace, the concept of ‘take rate’ can be quite overwhelming. Take rate simply refers to the amount of money collected in fees or commissions for each transaction made. It’s an essential component to understanding how your payment process works so you can ensure success and profitability as your business grows. In this blog post, we’ll provide you with everything you need to know about take rates, including why they are important and what they mean for your bottom line. Read on to get started!
What is the Take Rate?
Take rate is a term that describes the percentage of transactions or orders that are taken from a total number of customers. It’s used commonly in e-commerce marketplaces including travel, hospitality and food delivery industries to measure the success of their business. The higher the take rate, the more successful businesses typically are since they are able to generate more revenue.
Take rate can serve as a useful indicator of how well a business is doing and can help guide decisions such as when to increase marketing or allocate resources in order to maximize sales. Knowing the take rate can also tell businesses what kind of return they will get on their investment.
By keeping a close eye on the take rate, businesses can make informed decisions about how to best optimize their efforts and maximize profits.
Why Is It Important For Startups to track the Take Rate?
Following are the reasons why tracking the Take rate is important for Startups:
- Take rate is an indicator of how much money a Startup will make or lose in the long term. It helps measure the success and profitability of the business model.
- By tracking take rate, Startups can understand how their pricing changes are impacting their revenue and expenses. This can be used to optimize the pricing structure and ensure that the business remains profitable.
- Take rate can also help determine how much of the customer base is retained, which is important for any Startup’s growth and success.
- Knowing the take rate also helps Startups identify areas where they are not making money, as well as opportunities to make more money.
- Finally, tracking take rate allows Startups to proactively adjust pricing and revenue strategies according to their changing business environment. By doing so, they can ensure that their revenue continues to increase over time.
Overall, tracking take rate is a critical part of any Startup’s success story.
How To Calculate the Take Rate?
Here is the formula to calculate the Take rate:
Take Rate = (Total Revenue / Gross Transaction Volume) x 100
For example, let’s assume that you have a business with a total revenue of $10,000 and gross transaction volume of $20,000.
To calculate the take rate for this business:Take Rate = ($10,000/$20,000) x 100 = 50%Therefore, the take rate for this business is 50%.
This means that out of every $100 in transactions made, the business will keep $50.
What factors affect the Take Rate?
The following factors affect the Take rate:
1. Payment Processing Fees:
The fees associated with payment processing can affect your Take rate. This includes fees charged by the card network, banks, and any other third-party processors.
2. Merchant Category Codes (MCCs):
Different MCCs will have different rates for every transaction a merchant processes. Depending on the type of business you have, the associated MCC will affect your Take rate.
3. Chargebacks:
Chargebacks can drastically reduce the Take rate for a merchant due to penalties and fees that need to be paid back to customers.
4. Volume Levels:
The more transactions a merchant processes, the better their overall Take rate may be. Many payment processors will offer discounts to merchants who maintain high-volume sales.
5. Risk Level:
Merchants that are considered high-risk may have higher Take rates due to the added security needed to protect their customers’ information and accounts. It is important for a merchant to assess their risk level before entering into an agreement with a payment processor.
6. Payment Gateway Fees:
Some payment gateways may charge additional fees on top of the Take rate. It is important to understand all fees associated with a payment processor before signing up.
7. Currency Exchange Rates:
International transactions will be subject to currency exchange rates, which can affect the Take rate depending on the countries involved in the transaction.
8. Promotional Offers:
Some payment processors may offer promotional discounts or other incentives to merchants who are processing a large volume of transactions. Taking advantage of promotional offers can help reduce the Take rate.
By understanding all the factors that affect the Take rate, merchants can make more informed decisions when selecting a payment processor and negotiating rates. Keeping these factors in mind can help merchants save money and get the most out of their Take rate.
What is a good Take Rate?
A good take rate varies depending on the type of business, product or service being offered. Generally speaking, a take rate of at least 10% is considered to be an acceptable level of success. However, this may vary with different categories and industries. For example, subscription-based businesses such as streaming services may have take rates as high as 40-50%.
Take rates may also differ depending on the pricing strategies used and other factors, such as customer loyalty or convenience. Ultimately, the goal should be to maximize profitability while still providing a good value proposition for customers. As always, it’s important to carefully monitor and adjust your take rate over time based on customer feedback and other metrics.
Here we can see take rates across some platforms:
What is an example of Take Rate?
If the gross merchandise volume (GMV) of an e-commerce platform was $600 million in 2021, they would receive a total referral fee of $90 billion. This is calculated by multiplying the GMV with the 15% take rate of the third-party sellers who are active on the platform. In addition, a payment service provider would receive a transaction revenue of $200 million in 2021.
This is calculated by multiplying the total payment volume (TPV) of $10 billion with its 2% take rate.
Therefore, the total referral fee and payment service provider take rate are $90 billion and $200 million respectively.
Source: Wallstreetprep
Tips to improve the Take Rate
following strategies can help to improve the Take rate :
1. Improve the product offering:
Take rate depends on the offerings that you make to your customers, therefore it is important to keep innovating and improving your products. Try to provide unique services, attractive offers and ensure customer satisfaction with the product offered.
2. Create an efficient delivery system:
No matter what you offer, if it is not delivered properly, customers will look for other options. Therefore, it is important to invest in an efficient delivery system to ensure quick and timely delivery of the products.
3. Focus on customer service:
Good customer service can help to win the trust of customers and bring them back time and again. Ensure that your customer service team is well trained and responsive to queries and requests from customers
4. Improve marketing campaigns:
Regularly review your marketing campaigns and ensure that you are targeting the right audience with the right message. Focus on providing valuable content and increasing brand loyalty through personalized services.
5. Use analytics to track performance:
Analyzing data can help to identify areas of improvement in order to improve the Take rate. Use analytics tools to track performance and find opportunities for improvement.
6. Improve payment methods:
Make sure that customers can make payments in a secure and convenient way. Offer different payment options such as cash, card, online banking etc. that are tailored to the needs of different customers.
7. Leverage technology:
Technology plays an important role in improving the efficiency and accuracy of operations. Invest in technology to automate processes, reduce errors and improve customer experience
8. Offer rewards:
Offering rewards is a great way to incentivize customers to return again and again. Try offering loyal points or discounts to customers who use your products and services. This will create a sense of loyalty among customers and encourage them to make repeat purchases.
9. Use customer feedback:
Customer feedback can help you identify areas for improvement and understand what customers want from your business. Encourage customers to provide their feedback by setting up surveys, polls etc. and use the data to improve customer experience.
10. Track competitor activities:
Keep a close watch on your competitors and analyze their strategies to understand what is working for them and where your business can improve. This will help you stay ahead of the competition and increase your Take rate.
With these tips, you’ll be able to take your Take rate to new heights!
The Bottom Line
If you want to improve your take rate, consider what items on your website or app might be causing users to experience anxiety. Once you identify those elements, work on redesigning them so that they are more user-friendly and don’t trigger negative emotions. Doing this will not only improve your take rate but also create a better overall experience for your users. Have you ever abandoned an online purchase because of how the website made you feel? What other factors do you think contribute to a high or low take rate?