When does it become more costly to sell on Marketplace than inworld?

I’ve a theory, that I suspect most merchants have already run through their heads, but which has only just occurred to me…

Marketplace is actually costly for a successful Second Life merchant.

Consider the math. First I’ll look into how much is ‘lost’ in the fee taken by Linden Lab for each sale. The 5%. Then we will compare that to the cost of owning premium land at various tier breaks. After that I’ll comment a bit about what occurs if you rent land instead, or if you use the various enhanced features of Marketplace.

At a 5% service fee for every sale a merchant makes on Marketplace, how much does it take to be charged $10 US-currency. I’ll use this number for my math as its a nice round figure.

As of right now, $10 buys you… (runs off to check) L$2480. When I became active again in SL, in 2009, that same $10 got you L$2600. The figure fluctuates – but tends to be fairly stable. It has had a downward trend – your money buying you less lindens – but a slow one.

By converse… Losing L$2480 today is losing 10 dollars. It took losing L$2600 back in 2009 to lose 10 dollars. For people outside the USA, this figure will math differently. Run my math below using your own conversion rates and VAT (if applicable) locally. The more of your local real life money it takes to buy linden dollars… the more Marketplace will hurt your profits, unless it balances equally on the other side with a similar cost for paying for a premium account (is VAT charged on that fee as well).

A 512m premium account costs $9.95. Lets just round that up to $10. That actually favors marketplace to round that up… (By contrast if you pay your premium quarterly or annually – Marketplace becomes much more expensive in comparison).

For marketplace to cost you L$2480, or $10 – in a month you have to do L$49,600 in sales.

Now for me that would be insanely high. I have a sort of non-shop and I make maybe L$100 a month out of it. :) My “Shop” is mostly there because I like building places and having places… I guess that’s a fixation from having grown up rather harsh and even for a time homeless. You folks do not even want to know how much I spend on land in SL. I purposefully avoid looking and split it across 5 accounts so I will be less likely to know… :)

On the other hand if you consider your SL business a viable one, L$49,600 linden had better be small… That’s only $200 dollars. Or… one cup of coffee at Starbucks (OK maybe not… but prices sure seem to be headed that way sometimes…)

I think my mobile phone bill every month is higher than that… San Francisco is not a cheap place to live…

But how much volume is that in SL terms? Lets assume your average product sells for 350L. For most places I shop that’s cheaper than what it really is… For a few high volume places its high. I’ll call it normal because I hope it is and not the 500-600 I’ve been seeing more often of late. :)

At that average price, you need to sell 141.7 items a month.

Pipe dream territory for me. But when I go to some popular shops, I suspect they make that many sales in a matter of days.

If I look instead to some brand name mesh places… where I think the average price is L$500… They need 99.2 sales in a month – which is really about 3 and a third a day…

If you are not making sales like this – you are not a successful merchant. You’re just a hobbyist like me. Frankly if you’re the kind of merchant who can “pay real life bills” with Second Life, and I know a few of them, you’re making about $2000-$3000 real life dollars a month in SL. Or… L$496,000 – L$744,000.

Ok… so lets say you have just made exactly L$49,600L in sales on Marketplace. Just now, some fool bought your ‘prim in a box’ and got you to that number. Linden Lab has taken away 5% of that this month – for $2480. If you had sold those items inworld, they would not have taken away ANY of your profits, but you would have paid them $2480 in tier for your little 512m shop.

EVERY SINGLE SALE YOU MAKE ON MARKETPLACE AFTER THAT POINT LOSES YOU MONEY.

Every further time they charge the 5% fee – that is money Marketplace it taking from you that having an inworld shop would not have taken.

Now some very successful merchants get by on a 512m shop because they have zen-like design skills and know about product display. Others cannot as they lack these talents, and so need more land. And some are just land junkies (waves paw).

So here is a list of tier costs, and how much in sales on Marketplace would have instead paid for that land, always rounding up to nearest dollar:

Base Land
Premium + Tier
Total Land
With Group Bonus
Premium + Tier
Cost
Marketplace Monthly Sales
with same cost
512m 563m $10 L$49,600
1,024m 1,126m $15 L$74,400
1,536m 1,689m $18 L$89,280
2,560m 2,816m $25 L$124,000
4,608m 5,068m $35 L$173,600
8,704m 9,574m $50 L$248,000
16,896m 18,585m $85 L$421,600
33,280m 36,608m $135 L$669,600
66,048m 72,652m $205 L$1,016,800

So the way to look at this chart is if you are making more than the linden dollars of any entry up there – consider if you think a shop on a plot of land of the size listed in the group land column could make the same amount of sales. If so – you belong inworld and not on Marketplace.

I strongly urge people here to consider that they don’t need a mega-sized shop to do well. Very effective shops exist in SL on rather small plots of land. Often they are more successful than the giant shops because they are built by people who know about shop display, product placement, and designing for an appealing ‘shopping-mood’ experience.

You can’t control the environment on Marketplace – how appealing your products look in that grid, what the user is experiencing when browsing there, what other products they see next to it, and so on. You can’t set the mood.

Effective inworld shops know that inworld they can control all of this – and motivate people to buy.

Counter examples of badly laid out shops that create a negative shopper experience litter the grid. I won’t call out malls here because some great shops are found in malls – and some horrid shops are found stand alone. But if you DO know how to design a shopping experience – consider very strongly who is adjacent to you in that mall – are they making your customers feel alienated by having ugly displays that people encounter when camming around or walking through?

That is why I began my focus on premium people – they have the ability to control for that.

But mall renters, and shops on estates – are often MORE valuable for keeping SL alive – they support land tier of the places we enjoy. Rent your mall shop only at a place you want to see stay alive in SL… and one that cares about the quality of merchant shop builds…

Renting at malls and on estates is often dramatically CHEAPER than going premium. This is because of discounts as one holds more tier – which get partly passed on to renters to encourage them to rent.

So if you put your shop there… then Marketplace is even LESS attractive… If you could rent a shop for say… 1,500L a month… that’s only going to be $6.05 US dollars (plus the 30 cent fee to buy lindens). If you can make L$30,000 a month, that rental shop inworld is a better deal than Marketplace. And what I see here is that often merchants will pad this with some small mall vendors they rent for even less in places with known good volume (this seems the trend in the furry community) or the landing spots of roleplay venues that attract people looking for the kinds of designs that merchant sells (if you sell genre wear or make genre furnishing).

But this requires keeping track of whether or not your inworld sales are enough to meet the breakpoints.

ANYTIME 5% OF YOUR SALES INWORLD IS MORE THAN THE COST OF THE LAND YOU COULD HAVE BEEN ON, SELLING ON MARKETPLACE WOULD HAVE BEEN MORE EXPENSIVE FOR YOU IN FEES.

But what about all those enhanced listing features on Marketplace? Lets put aside whether or not they work…

Well lets not. I will say it right here and now: they do work.

If they don’t work for you, its because your listings are bad. You need to improve your listing images and maybe even your actual products.

So how do I know they work?

Well… lets be brutal here – where do you think I get ideas for what I end up buying half the time I buy from marketplace… Yep: as a consumer, who is not your competition, I’ll be brutal and say I bought from the person who’s enhanced listing caught my eye. The other half of the time was from a search. Granted much of the time I quickly favorite enhanced listings and return to them later – sometimes months later. Once a year later…

Most of my shopping is inworld though – but that is just preference. Often I look in one and buy in the other. I almost never buy from a merchant I can’t find inworld. I can clearly think of two examples – and they were fairly cheap allowing me to overcome my concerns.

So… enhanced listings… they work.

But they also cost you a LOT, and you could easily pay for a larger shop inworld where you could have a lot more control over the experience – which frankly works even better. A vast portion of my inventory is things I bought that were in an inworld shop nearby whatever had brought me there originally.

I will see things rezzed around in a theme – and that theme will make me realize something like “oh, I like how that chair goes with this bed over here, and I have a similar bed… I think I’ll buy the chair. And what’s this picture frame by the chair, and oh look at that coat that matches the pants I got last night…”

$$$ – how it happens. Good display.

On Marketplace – your enhance listing is often sitting there next to some ‘forced XXX HUD for Vampire Furry Breedables’ that is listed in ‘General’ for who knows what reason… and I have been known to click to the next page just to get that thing off my screen, just as I notice you, click back, but you’re gone. Now instead I have assorted child AV and Gatcha machines and am like… well… none of that’s for me though the gatcha machine looks nice enough, wonder if I can descript it and rez it by my SL Home’s fishtank?

- Yeah… Marketplace is too random.

And, as the point of this blog noted: actually more expensive for a merchant than it might seem at first. Just because you can list it all for free – doesn’t mean its free to sell it.

If you’re a new merchant or a struggling merchant; Marketplace is good. But if you have a brand name that attracts people – you are paying fees you shouldn’t be paying, and you could control that better by creating an inworld experience instead…

1 Comment (+add yours?)

  1. Dee Darwin
    Jan 08, 2014 @ 12:39:36

    I enjoyed this PC, it is food for thought. Thanks:)

    Reply

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