What are some of the key elements that contribute to variable costs in a marketplace ? Do you see emergence of AI and automation leading to fundamentally different dynamics in cost structures for marketplaces?
You spoke about some of the below
- Customer support,
- trust/safety, insurance, and
- acquisition costs can be massive costs for the business,
Great article! I noticed in the graph that the contribution margin in theory should be less than the gross profit. However, when I reviewed a company's data, I found that the contribution margin is consistently higher than the gross profit value. Could you explain what could be the reason behind that difference?
A big under explored driver for COGs is the payment fee (credit, debit, etc.) as you mention, which can vary massively and make cost predictions difficult. I'm building out a product in just this space for markeptlaces and platforms at the moment and I'm seeing many payments resulting in a net loss, often to the surprise of our customers.
This is such a useful piece - thanks, Colin. I have a question...
Would customer support and developer costs be considered as COGS or variable expense? Or neither?
Great read!
Wondering why you include acquisition costs in the contribution margin when they are closer to fixed expenses rather than variable / COGs? Thanks!
Great points!
What are some of the key elements that contribute to variable costs in a marketplace ? Do you see emergence of AI and automation leading to fundamentally different dynamics in cost structures for marketplaces?
You spoke about some of the below
- Customer support,
- trust/safety, insurance, and
- acquisition costs can be massive costs for the business,
.... and the list goes on.
Great summary!
Great article! I noticed in the graph that the contribution margin in theory should be less than the gross profit. However, when I reviewed a company's data, I found that the contribution margin is consistently higher than the gross profit value. Could you explain what could be the reason behind that difference?
Great article, Colin.
A big under explored driver for COGs is the payment fee (credit, debit, etc.) as you mention, which can vary massively and make cost predictions difficult. I'm building out a product in just this space for markeptlaces and platforms at the moment and I'm seeing many payments resulting in a net loss, often to the surprise of our customers.