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A take rate refers to the fees online marketplaces (such as Amazon or eBay) or third-party service providers (such as PayPal) collect for enabling third-party transactions.
Put simply, a take rate is how much money a business makes from a transaction. Take rates help companies understand how well the business is doing. Typically, higher take rates indicate that a company is successful because it can generate more revenue.
By keeping a close watch on their take rates, companies can make better business decisions — for example, knowing when to allocate resources to maximize sales or increase their marketing efforts.
Although take rates are not new, the term has become more popular with the increase of companies like Airbnb, Shopify, Etsy, and PayPal. However, the card networks like American Express, Mastercard, and Visa have used take rates to define their revenues for many years.
Understanding how important online marketplaces are to ecommerce, PayPal purchased shopping tool developer Honey Science Corp. in 2019 for about $4 million in cash because it wanted to do more than just process payments. The company's goal was to increase its take rates via the marketplaces.
A take rate also allows investors to figure out how businesses such as Amazon and PayPal capture more customers and generate revenue.
How to Calculate a Take Rate
A take rate, which is the percentage of gross merchandise volume collected by the marketplace, is typically between 10% and 30%.
To calculate the take rate, divide the amount of revenue earned from a transaction by the total amount of the transaction, then multiply by 100 to get a percentage. For example, a company that earns $4 from a $100 transaction has a take rate of 4%.
Another take rate example would be an individual buying a shirt for $10 and using a payment service provider to complete the transaction. If the payment service provider charges a $2 fee, the take rate would be 20%.
The average size of an order and how often transactions occur help establish the take rate. For instance, service marketplaces such as Uber and Lyft that enable frequent, lower-cost transactions usually charge lower take rates. On the other hand, platforms like Airbnb that enable higher-cost, infrequent transactions charge higher take rates on higher-value orders.
Factors That Affect a Take Rate
When it comes to product marketplaces that enable transactions on behalf of third-party sellers, the take rate can differ based on the goods that are offered. As an example, the take rates Amazon charges vary based on the type of product it is selling. That means that the take rate for electronic items is not the same as the take rate for household products.
Chargebacks can also reduce a merchant's take rate as a result of the penalties and fees that the merchant needs to pay back to its customers.
Additionally, the more transactions merchants process, the higher their take rates (and vice versa). That's because many payment processors will offer discounts to companies with high-volume sales.
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