Keep the take rate low

🌈 Abstract

The article discusses the importance of keeping the take rate low in a marketplace business model, and how this can lead to long-term success. It provides insights from the CFO of Turo, a peer-to-peer car sharing platform, on their strategy of lowering take rates to acquire more hosts and guests, which ultimately led to tripling the size of their business in 2021.

🙋 Q&A

[01] Keep the take rate low

1. What is the key lesson the article discusses about keeping the take rate low?

• One of the hardest lessons in business is to leave more value on the table than you take off. If you do, good things tend to happen.
• The theory is to keep the take rate as low as possible for as long as possible, in order to put as much economics in the hands of the participants (hosts and guests) so that the marketplace can scale.
• Making short-term cuts to your own economics can pay back in the long term by getting past the initial transaction and building a place to play long-term games with long-term people.

2. Why did Turo decide to lower their take rate by 5 points across the board?

• It was a unique opportunity to acquire hosts and guests during the "summer of revenge travel" in 2021, when demand for car rentals was extremely high due to the car rental shortage.
• Lowering the take rate provided an economic incentive for hosts to add more cars to the platform, and for new hosts to join. This helped Turo increase supply, especially in high-demand markets like Hawaii.

3. How did lowering the take rate help Turo scale their business?

• By creating an on-ramp for new hosts and guests, Turo was able to triple the size of their business in 2021, despite the 5-point reduction in take rate.
• The decision to not take the last penny for themselves, but give it to the hosts to grow their business, helped Turo acquire a whole new cohort of hosts and guests that they wouldn't have otherwise.

[02] Raising rates over time

1. Why is it beneficial to raise rates over time?

• As you add more value to the platform over time, you can substantiate a claim to a higher share of the economics.
• When you do raise rates, it has a much bigger impact if you do it against a larger base of customers. A price increase with 7 million guests is twice as powerful as one with 3.5 million guests.

2. What is the key lesson about playing the long game?

• Having the patience to play the long game, and the courage to make bold moves when you spot unique market opportunities, can produce long-term revenues.
• Organizing the business in a way that keeps the take rate low allows the hosts to flourish and build powerful businesses. This builds trust and faith in the business model.
• Over time, as the platform grows with more participants, you can start to increase the benefit you get from making everyone successful.