The Marketplace Glossary: Essential Terms Every Founder Must Understand
Building a marketplace is exciting, but the language around it can get confusing fast. New founders often jump straight into solving hard problems like liquidity, trust, and supply acquisition without having a solid handle on the terms that shape the business. That is where mistakes stack up. You start misreading the model, chasing the wrong metrics, or assuming you have traction when you really do not.
The biggest trap is treating GMV as revenue.
It is not. It never has been. And misunderstanding that one definition can send a young marketplace down the wrong path.
GMV is the value of transactions happening on your platform. Revenue is the money your company actually keeps. The difference between the two is your entire business model. If you do not understand that gap, you cannot forecast correctly, raise capital effectively, or build a sustainable company.
Below are the core terms every marketplace operator needs to know, the ones investors, buyers, and experienced operators expect you to understand cold. I could probably write an entire article just on the importance of GMV, Net GMV, and Revenue, but for now I have included all of the major definitions in this guide. If there are terms I am missing, and I am sure there will be, feel free to reach out and let me know which ones I should add or expand on.
GMV (Gross Merchandise Value)
GMV is usually the first big number founders talk about, but it’s often misunderstood. Gross GMV is the clearest leading indicator of a marketplace’s health. It shows the raw transaction energy flowing through your ecosystem — the demand you’ve created, the supply you’ve onboarded, and the liquidity you’ve managed to unlock.
GMV doesn’t tell you your revenue, but it does tell you whether your marketplace is becoming the place where transactions actually happen. When GMV grows consistently, it means more matches, more activity, more engagement, and ultimately more leverage across every part of the model.
Think of this as the broadest view of marketplace momentum. You can diagnose:
Supply strength (availability, pricing, quality)
Demand strength (traffic, conversion, purchase intent)
Liquidity (how well the two sides meet)
Seasonality patterns
Traction by geo, category, or cohort
If Gross GMV isn’t growing, nothing else will. It’s the first place seasoned operators look to understand whether a marketplace is moving in the right direction.
Completed GMV / Net GMV
Completed GMV strips out cancellations, no-shows, refunds, failed payments, chargebacks, fraud, and other operational loss points. It’s not as flashy as Gross GMV, but it’s where your real, monetizable value lives.
The spread between Gross and Completed GMV is one of the most useful diagnostic tools in the business. It tells you if you have:
Leaks in your funnel
Trust or safety gaps
Operational inefficiencies
Bad supply quality
Pricing mismatches
UX issues blocking completion
Settlement problems
High-friction points that buyers or sellers can’t get past
Completed GMV is where great operators shine because almost all of these gaps are things you can fix. When the Gross-to-Completed spread gets tighter, your economics get better, often dramatically.
Revenue
Revenue is the portion of GMV your company actually earns. It’s the money that hits your books, pays your team, fuels marketing, funds product development, and ultimately determines whether you have a real business.
Many early founders celebrate GMV growth without realizing their revenue model is fragile, misaligned, or too small to support the cost structure of the marketplace. Strong revenue is the combination of two things: the right take rate and the right type of transactions flowing through your platform.
Revenue matters because it tells you:
• Whether your unit economics work
• If your take rate is high enough to cover operating costs
• How much you can spend on growth
• Whether you can survive seasonality
• How fast you can scale your team
• What valuation you can defend
You can have a marketplace doing millions in GMV and still be losing money. You cannot build a durable company until your revenue model is tuned, tested, and defensible.
Take Rate
Take rate is the percentage of each transaction your marketplace keeps, and it’s one of the most powerful levers in your entire business. It dictates how much revenue each unit of GMV produces and determines whether your economics can support marketing, support, trust and safety, product development, and all the operational work required to keep a marketplace healthy.
Not all marketplaces charge fees the same way. Some platforms charge only the demand side. Others charge only the supply side. Many charge both. Because of this, take rate is not always a single number. It often needs to be calculated separately for buyers and sellers so you understand exactly where your revenue is coming from and whether your monetization structure matches the value you provide.
A strong take rate isn’t about charging more. It’s about delivering enough value that both sides are willing to pay for it. It reflects the confidence your users have in your platform and the amount of friction, risk, and complexity you remove from the transaction.
Your take rate should be shaped by:
• The quality and scarcity of your supply
• How much trust your marketplace creates
• The protections you offer (insurance, guarantees, verification)
• UX improvements that reduce friction in discovery and booking
• Your positioning vs competitors
• The depth of your ecosystem and repeat-use behavior
Even small changes in take rate have outsized impact. A one or two point improvement can lift revenue, and contribution margin, more than a large increase in raw transaction volume. That’s why getting take rate right is one of the earliest and most important steps in building a sustainable marketplace.
How Take Rate Differs From Revenue
Founders often blur take rate and revenue together, but they’re fundamentally different concepts.
Take rate is a percentage.
Revenue is the actual dollars your company earns.
Your take rate defines what portion of each transaction you keep, but your revenue is the sum of all those portions across your Completed GMV.
For example:
If your marketplace has $1,000,000 in Completed GMV and a 10 percent take rate, your revenue is $100,000. Change your take rate to 12 percent and your revenue jumps to $120,000, without acquiring a single new customer.
This difference matters because:
• You can grow GMV while revenue stays flat if your take rate is too low
• A marketplace doing high GMV can still lose money if the take rate doesn't support the cost structure
• Small shifts in take rate can improve contribution margin more than big shifts in volume
• Monetization strategy is as important as user growth
Take rate is the mechanism that produces revenue.
Revenue is the output you use to run and grow your business.
They’re connected, but not interchangeable.
AOV (Average Order Value)
AOV tells you how much buyers spend per transaction. It influences everything from unit economics to SEM efficiency. It helps answer:
• Are buyers choosing higher-value supply
• Does your take rate produce meaningful revenue
• Are your margins improving as the platform grows
• Where should product and supply teams focus
For many marketplaces, AOV moves revenue faster than transaction count.
Total Addressable Market (TAM)
TAM is the total GMV opportunity available if your marketplace captured 100% of the market you serve. It defines the upper limit of your business and is one of the first numbers investors look at to understand scale, ambition, and long-term potential.
Liquidity
Liquidity is the heartbeat of a marketplace. It measures how effectively supply and demand find each other and complete transactions. When liquidity is strong, users get what they need quickly, providers stay engaged, CAC drops, conversion rises, and retention strengthens across both sides.
There are two layers of liquidity every founder should understand:
Overall Liquidity
This is the aggregate view — the big-picture signal that shows whether your marketplace is functioning as a trusted place where transactions happen. It blends match rates, fill rates, search-to-book conversion, and time-to-match across your entire ecosystem. Strong overall liquidity means your model is working at scale.
Market-Level Liquidity
This looks at liquidity within specific geographies, categories, or verticals. Individual markets often behave very differently. You might see great liquidity in major cities while smaller markets struggle, or one category thriving while another stalls. Market-level liquidity exposes these gaps so you can focus on the places where your flywheel needs help.
There are several ways to calculate it depending on your model. The most common include:
Match Rate:
Percentage of buyer requests that successfully match with supply.Fill Rate:
Percentage of supply inventory or availability that is booked or sold.Time to Match:
How long it takes for a buyer or seller to find a counterpart.Search-to-Book Conversion:
Users who search and actually complete a transaction.Inquiry-to-Book Rate (services and rentals):
How many inquiries convert into paid transactions.
Liquidity is not a single number. It is a set of signals that tell you whether the marketplace flywheel is spinning or stalling. Healthy liquidity is what separates true marketplaces from directories or lead-gen sites.
CAC (Customer Acquisition Cost)
CAC is the total cost of acquiring a new user, usually calculated by dividing your marketing or sales spend by the number of users gained in that period.
In a marketplace, CAC becomes more complex because you are not acquiring one type of user, you are acquiring two. You have the buy-side and the supply-side, and each behaves differently, converts differently, and requires different acquisition channels. Measuring CAC separately for buyers and sellers is essential because the economics, effort, and payback expectations are rarely the same. Supply may require higher-touch onboarding or sales outreach, while buyers may lean more on paid marketing or organic channels. When you track CAC by side, you can see where your model is healthy, where it is too expensive, and where the imbalance between supply and demand is slowing your marketplace from reaching real liquidity.
Retention Rate (Marketplace Retention)
Retention rate measures how many users continue to return to your marketplace and engage over a given period of time. In a marketplace, retention must be tracked separately for buyers and sellers because each side has different behaviors, motivations, and usage patterns. Strong buyer retention signals trust, reliable supply, and a smooth transaction experience. Strong seller retention signals healthy utilization, good earnings, and a stable flow of demand. When retention drops on either side, the entire flywheel slows down. Marketplace retention is one of the strongest indicators of product–market fit, long-term value, and the overall health of your ecosystem.
LTV (Lifetime Value)
LTV is the total value a user generates over the entire time they remain active on your marketplace. It tells you how much revenue you can expect from a buyer or seller before they churn. In a marketplace, LTV must be calculated separately for buyers and sellers because their behavior, frequency of use, and contribution to your revenue are very different.
Buyer LTV usually depends on how often they make purchases, how large those purchases are (AOV), and what portion of each transaction your marketplace keeps (take rate). Seller LTV is often influenced by utilization, earnings potential, repeat engagement, and the fees or services they pay for. A seller may transact less frequently but produce far more revenue per year, which is why splitting LTV is so important.
A simple way to calculate buyer LTV is:
Buyer LTV = Average Order Value × Purchase Frequency × Buyer Take Rate × Expected Lifespan
Example:
If buyers make two purchases per year at an AOV of $100 and your take rate is 15%, and they typically stay engaged for three years:
$100 × 2 × 0.15 × 3 = $90 Buyer LTV
Seller LTV often follows a similar pattern but may include subscription fees, listing fees, or add-ons:
Seller LTV = (Annual GMV × Seller Take Rate ) × Expected Lifespan
Example:
If a seller generates $50,000 in marketplace GMV per year, your take rate for the sell-side is 20%, and they stay active for four years:
$50,000 × 0.20 × 4 = $40,000 Seller LTV
Understanding LTV by side helps you determine how much you can spend on acquiring buyers and sellers, where your economics are strong or weak, and whether your model can scale efficiently.
Contribution Margin
Contribution margin is an important financial metrics in a marketplace, yet one of the least understood by early founders. It represents how much money is left after subtracting the variable costs tied directly to each transaction.
These variable costs often include:
• Payment processing fees
• Refunds
• Chargebacks
• Customer service
• Trust and safety costs
• Partner payouts
• Insurance or underwriting fees
Contribution margin tells you:
• If each incremental transaction is profitable
• How scalable your marketplace truly is
• Whether you can afford paid marketing
• How quickly you can grow without raising more capital
Contribution margin is where marketplaces quietly win or lose. You don’t need massive revenue if each transaction produces a strong contribution margin. Conversely, poor contribution margin can kill a marketplace even if GMV is growing fast.
When contribution margin improves over time, everything else becomes easier.
Supply-Side vs Demand-Side
Also referred to as the sell-side and buy-side, these are the two core user groups in any marketplace. Each side has different needs, incentives, economics, and churn patterns. The supply side cares about earnings, utilization, and quality of demand, while the demand side cares about availability, price, trust, and ease of use. Treating them the same, or measuring them as a single group, breaks the model and leads to misaligned strategy, poor retention, and stalled liquidity.
Utilization
Utilization measures how often your supply is actually being used or generating value. In marketplaces built around services, rentals, or assets, utilization is one of the strongest indicators of supply-side health because it directly affects seller earnings. High utilization means providers are busy, booked, or rented out at a healthy rate. Low utilization means supply is sitting idle, which leads to frustrated sellers, lower retention, and weaker liquidity. Utilization can be tracked as a percentage of available hours booked, nights occupied, jobs completed, or inventory moved, depending on your model. When utilization rises, sellers earn more, churn drops, and the entire marketplace becomes stronger.
Churn
Churn measures how quickly sellers or buyers stop using your platform. In a marketplace, churn is especially important because each side leaves for different reasons and each departure weakens liquidity. Rising seller churn often signals low utilization or poor earnings, while rising buyer churn usually points to weak supply, pricing issues, or friction in the experience. Churn is one of the strongest early indicators of product–market fit and trust, and tracking it separately for each side helps you diagnose where the real problems sit.
Low-Frequency vs High-Frequency Marketplaces
Marketplace models generally fall into two broad categories: low-frequency and high-frequency. The difference comes down to how often users return and how often transactions occur.
High-frequency marketplaces are platforms where buyers and sellers interact regularly, sometimes daily or weekly. Think ride-sharing, food delivery, tutoring, task marketplaces, or gig labor platforms. These businesses thrive on repeat behavior, habit formation, and fast feedback loops. Liquidity builds quickly because users are constantly in the market. High-frequency models benefit from strong retention, high engagement, and predictable usage patterns, but they also require operational excellence and consistent trust and safety to keep the flywheel spinning.
Low-frequency marketplaces involve purchases or transactions that happen infrequently, often a few times per year or even less. Examples include boat rentals, vacation rentals, large home services, automotive, weddings, or major equipment rentals. These models do not rely on daily usage. Instead, they rely on strong SEO, brand trust, seasonality understanding, high-quality supply, and excellent service during the moments when users do need them. Because transactions are more spread out, liquidity takes longer to build and retention looks different across both sides.
Understanding which type of marketplace you are building is essential. High-frequency models lean heavily on repeat engagement and habit loops. Low-frequency models lean on brand, trust, conversion quality, and market depth. Each one demands a different approach to marketing, product, and operational strategy.
Trust & Safety
Trust and Safety is the invisible framework that keeps your marketplace functioning reliably. It covers every system, policy, and process that protects buyers, sellers, and the platform itself from harm. When trust is strong, users feel confident transacting. When it breaks, liquidity collapses quickly.
Trust and Safety typically includes identity verification, fraud prevention, dispute resolution, payments compliance, content moderation, and policy enforcement. Within these areas are several important sub-categories of fraud and risk that every marketplace should monitor. Common examples include friendly fraud, where a buyer disputes a legitimate charge; credit card fraud, where stolen cards are used to make purchases; account takeover, where bad actors gain access to trusted user accounts; and supplier-side fraud, where listings, credentials, or availability are misrepresented. Other risks include synthetic identities, double bookings, collusion, off-platform transactions, chargebacks, and refund abuse.
A strong Trust and Safety program balances user experience with protection. It keeps good users safe, filters out bad behavior early, and ensures your marketplace remains compliant with financial, legal, and platform-specific requirements. It is one of the most important foundations of liquidity, because users only return to marketplaces they trust.
A Quick Caveat
Every marketplace model has its quirks: rentals, services, retail, ticketing, staffing, logistics, B2B, and C2C all behave differently. The terminology above applies broadly, but the way you interpret the signals will depend on your specific constraints and flywheel. Still, almost every successful marketplace operator ends up relying on the same core definitions to understand the business.
Bringing it Home
You can’t build a healthy marketplace if you don’t understand the mechanics behind it. GMV, liquidity, take rate, AOV, LTV, supply quality, trust, and completion rates are not just metrics. They are the engine. Learn them early, track them often, and build the habits that make your marketplace stronger every month.
If you’re building something new or trying to make sense of the numbers you already have, reach out. I’ve spent years navigating these exact challenges and helping founders turn early traction into durable, growing businesses. I’m always happy to talk marketplaces.
