Wall Street Prep

Take Rate

Guide to Understanding the Take Rate Concept

Learn Online Now

Take Rate

How to Calculate the Take Rate (Step-by-Step)

The take rate is the percentage of a seller’s sales that a third party collects as part of an agreed-upon arrangement.

Namely, there are three different marketplace types where the “take rate” term is common:

  1. eCommerce Product Marketplace → e.g. Amazon, Shopify, Etsy, eBay
  2. Fintech Payment Provider → e.g. PayPal, Stripe, Block (Cash App), Zelle
  3. Service Marketplace Platform → e.g. Airbnb, Uber (and UberEats), Lyft, Grubhub, DoorDash

For marketplaces and payment providers, their primary — or one of their main sources — of revenue is from the fees earned on the sales and transactions processed on their platforms.

Conceptually, the take rate functions like a commission fee charged by a product affiliate, but the difference is that these business models are much more scalable, and the value-add is the platform/service itself.

Marketplace Take Rate Fee Structure (Industry Benchmarks)

Fixed Take Rate Fee vs. Variable Service Fee

The business models of marketplace companies tend to consist of two core components:

  1. Fixed Take Rate Fee
  2. Variable Service Fee

While the former is relatively straightforward, the variable service fee is contingent on numerous factors such as the product category, weight, and average order value (AOV).

The more active the marketplace is in facilitating the transaction between the consumer and the producer, the higher the take rate (and vice versa).

For product-oriented marketplaces, the take rates can range between 5% to 25% (but most pay ~15% on average), whereas service-oriented marketplaces are usually priced marginally higher.

The process of calculating the take rate is straightforward, as the amount charged (i.e. the revenue inflow to the marketplace) equals the product of the tax rate and the applicable metric, e.g., gross merchandise volume (GMV) or total payment volume (TPV),

Take Rate Formula

Specific to an eCommerce product marketplace (e.g., Amazon), the formula for calculating the take rate is as follows.

Referral Fee (Commission) = Take Rate × Gross Merchandise Volume (GMV)

The earnings received from the platform’s perspective are determined by the GMV and take rate.

Similarly, the formula for payment providers is as follows.

Transaction Fees = Take Rate × Total Payment Volume (TPV)

The only difference is that rather than the GMV, the total payment volume (TPV) is used.

Take Rate Calculator — Excel Model Template

We’ll now move to a modeling exercise, which you can access by filling out the form below.

Submitting ...

Step 1. eCommerce Marketplace Take Rate Calculation

Suppose an eCommerce platform’s business model involves taking a percentage of a third-party seller’s revenue in exchange for the right to sell on their platform.

Given the product category and selling price, the average referral fee incurred by the third-party sellers active on the platform is priced at 15% of its gross merchandise volume (GMV).

If the GMV in 2021 was $600 million, how much would the eCommerce company receive in total referral fees?

The product of the $600 million in GMV and the 15% take rate is $90 billion, which represents the revenue stemming from the take rate.

  • Referral Fee = $600 billion × 15% = $90 billion

Step 2. Payment Service Provider Take Rate Calculation

For the next part of our exercise, we’ll calculate the transaction revenue received by a payment service provider.

In exchange for managing a company’s online payment processing system (e.g., checkout platform, security, identify verification), the participants must pay a 2% fee on the total payment volume (TPV).

Assuming the TPV was $10 billion in 2021, we can multiply that amount by the 2% take rate to arrive at a transaction processing revenue of $200 million for the payment service provider.

  • Transaction Revenue = $10 billion × 2% = $200 million

Take Rate Calculator

Step-by-Step Online Course

Everything You Need To Master Financial Modeling

Enroll in The Premium Package: Learn Financial Statement Modeling, DCF, M&A, LBO and Comps. The same training program used at top investment banks.

Enroll Today
Comments
guest
0 Comments
Inline Feedbacks
View all comments
X

The Wall Street Prep Quicklesson Series

7 Free Financial Modeling Lessons

Get instant access to video lessons taught by experienced investment bankers. Learn financial statement modeling, DCF, M&A, LBO, Comps and Excel shortcuts.