Minimizing leakage in a marketplace for offline services

"How do you deal with offline transactions?"

If I had a dollar for every time someone asked me that question...

Leakage is a problem that exists in any marketplace that deals with face to face services. It’s just like in fairy tails: when a charming customer meets a handsome service provider and they like each other - they want to stay in touch and might end up doing it outside of the platform.
Incredible customer satisfaction, amazing retention, except they all happen outside of your product, which is kind of a bummer…

Before I talk about how we deal with this phenomenon, let me start by saying this:

There’s no hermetic way to solve a marketplace leakage. Anyone who claims differently is either lying or simply too blind to see it. 

There are, however, many ways to mitigate this risk and minimize the leakage.

Evaluate your Product/Marketplace Fit: 

Before diving into the tactical actions to minimize leakage, it’s important to understand the WHY.
Why would any of the suppliers (or customers) want to take the activity offline? From my experience, there are at least 4 inherent problems that cause leakage, and may reveal a lack of product/market fit (or as I call it: product/marketplace fit):

Problem 1 - The price is “unfair” for one of the sides

If the customers feel that the prices are too high, they will try the product a few times and when the right opportunity arises - they will try to take the relationship with one service provider offline. The same goes for the supply side if the price is too low or the revenue fees are too painful.
If one of the sides of the marketplace feels that the price is unfair - this side will be the troublemaker.

Problem 2 - The product sucks

Back to product basics: you have to have a product/market fit. If your product doesn’t provide enough value wrapped with an amazing UX, or if your product doesn’t solve the problem(s) of both sides of the marketplace - they will soon leak out of the platform.

Problem 3 - The service is not commoditized

Although we are talking about face to face services - in some industries the service providers are perceived to be “faceless” (i.e. drivers, delivery people), and therefore easily replaced, while others become much closer to the customers (i.e. babysitters) and are much harder to find, and be replaced. Dealing with highly sensitive services (such as babysitting) increases the chances of leakage.
If finding the perfect service provider is perceived to be more valuable than keeping the product - you end up having leakage.

Problem 4 - The marketplace deals with too frequent and repetitive services

A leakage is more likely to happen if your marketplace deals with repetitive transactions that are happening very frequently and involve the same customers and the same service providers.
For example, a customer will probably not try to keep in touch with a masseuse if he orders a massage once a year, but if someone trains with the same personal trainer 2 times a week, it will encourage both sides to eventually strike an agreement outside of the platform.
If the frequency is very high, and the same people meet again and again - they end up leaking out.

Examine your marketplace in the eyes of the 4 problems above - each one of them alone can drive leakage, but if few of them exist in your marketplace you may need to make some strategic changes to the product before dealing with the leakage problem.


The perfect marketplace provides a required service that’s hard to consume, frequent enough to create a sustainable business but not too frequent, and provides a good and convenient service quality with a fair price.


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How to deal with a marketplace leakage 

The following actions can help reducing leakage - let’s dive into each one:

1. Provide enough added value for everyone to stick around

Make sure your product solves viable problems.
The most basic pain for both of the sides of the marketplace is to find each other in order to consume/deliver the service. The core product should solve this pain and hook them up efficiently:

• For the demand side - the product must provide an optimal experience, maximum convenience, and 10x efficiency. 
• For the supply side - the product must enable significant revenue growth, efficient time management, and waste reduction. 

When your product provides enough added value - even if some users (customers or service providers) are leaking offline - they will eventually run into the same problems that brought them into the platform in the first place. When that happens - they will realize the true value of the product and return for a longer time.

2. Build a healthy price model 

The challenge is to find a price point that fits both sides (supply and demand) and still allows getting a decent fee (you need money to pay your developers, don’t you?) out of each transaction to create solid unit economics:

• If the service is too expensive, customers may not use it or use it occasionally as a lead generation tool to find good service providers and pull them offline. 
• If the price is too low, and a cut is handed over to the marketplace - this means that the service providers are making less money than the direct alternative. 

Find your balance point and include techniques to drive retention with the likes of loyalty cards, bonus deals (10 + 1) periodic discounts, referrals and more. These techniques will help retaining users while minimizing leakage caused by price.

Now let’s switch to the supply side:

Carrot and stick

Since your relationship with the suppliers is closer and more personal - you can use the "carrot and stick" with them to minimize leakage:

3. Hold a stick, even if you don’t use it

Every service provider must sign an agreement not to approach users for the provision of services outside the framework of the product. It should be clear and agreed that if such case happens - there will be severe penalties: they will be banned from the platform and be charged a painful fee. Pulling customers offline is just like stealing. That’s the stick.
Make sure to occasionally remind everyone in the supply community about this agreement and warn them from the consequences that will happen in case they are caught stealing customers. Using real (or fictive) examples can be done from time to time to intimidate the service providers and to show an example of what could happen if they are caught.

4. Monitor your supply - the old school way

Monitor your service providers with some old school techniques: by sending surveys after the service ends (fine-tune the exact timing for maximum engagement), or even calling them once the service is over to see how it was.
Part of those quality assurance surveys should check for potential leakage but don’t expect the customers to be on your side too much, especially if they just talked to one of your service providers about doing business offline…

5. Manage a secret shoppers program

Maintain a list of potential secret shoppers (the most loyal customers whom you feel comfortable contacting and offer some benefits in favor of becoming secret shoppers). Plan this in a way that will ensure every service provider gets to visit a secret shopper at least once a week, month or a quarter - whatever fits your business and scale.

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6. Monitor your supply - the “big brother" way

Monitor your service providers outgoing phone calls (through a call log API that exists in Android) - once you recognize a phone number of one of your customers - you may cross-reference the time and day with the calendar of the service providers and automatically track suspicious phone calls that don’t have correlated bookings. Note that there are some new restrictions for using this API, so there’s a process to go through before you can add this to your product. Some marketplaces can use location to cross-reference such cases.
Whatever you choose to do - make sure to follow the GDPR guidelines and respect the privacy of your users. If you decide to monitor your service providers - they must be notified in advance, as some of them may not agree to work under such type of supervision.

7. Measure your service provider’s drop rate

Customer retention is a key for the long term sustainability of your marketplace, so measuring the repeated use of each cohort across time is a must (here are 4 ways to analyze your retention numbers).
But what if you knew the retention rate of each and every service provider in the marketplace?
Such kind of an “individual retention rate” (or the contribution of each service provider to the repeat usage of the customers) could teach you about the quality of each individual and the contribution to the overall performance of your marketplace, plus, it can locate leakage.
At Missbeez, we call it a ‘drop rate’, and it measures how many of the customers that were served by this service provider dropped out of the platform following the last touchpoint (booking) with this specific individual. Of course, it’s not 100% bulletproof, especially if most of your users are first-timers, but once you reach enough volumes, and enough repeat customers - the behavior patterns are more accurate, and the ‘drop rate’ metric becomes pretty useful and can reveal some interesting insights.

Once you know the drop rates of each of your service providers - it’s easy to see who’s contributing to the overall retention rate and who’s causing a churn. 

Once you have the data in place - it’s quite simple:

• If the system identifies a service provider who’s highly rated, highly popular (based on various metrics every platform surely has), but has a very high drop rate - it might be that this provider is pulling customers out of the marketplace.
• There’s also the possibility that this service provider is simply delivering a bad service which causes the churn, but that can also be cross-referenced with other quality metrics such as rating, likes, favorites, etc.

Regardless of the actual reason - this individual is causing customers to churn, either because they are unhappy with the service, or because they are too happy with the service and take it offline. 
Either way - this individual is bad for your business and should be kicked out of the system (after performing a deeper examination of course).
Here’s a made-up example to showcase this approach:



In the example above, Provider #5 has a decent favorites rate and a high rating, but the number of repeat customers is very low - which means a high drop rate. Same goes with Provider #12. Both of them are causing a high churn, although their overall quality indicators are high.

Provider #14 on the other hand, suffers from a poor favorites rate and a very low number of repeat customers. This one is probably not as good as we would like our service providers to be, although the rating is not very bad (but as a rule of thumb in marketplaces - the rating is always higher than the actual performance due to the nature of the customers).

8. Use a “carrot” from time to time

Enough with the sticks, let’s talk about some positive ways to minimize leakage.
Just like having an individual “drop rate” for every service provider (which expresses the churn), you can also measure the number of customers who came back to the platform after being served by this individual (as seen in the table above). You can even measure how many of those repeat customers asked for for the same service provider (if that’s an applicable option in the product).
Once you know how to measure this “positive” metric - you can start promoting it and use it to motivate your service providers.

1. Share this metric publicly with the service providers - this can motivate them to excel and improve their KPIs
2. Build a bonus plan or a gamification system based on this metric
3. Share this metric with the customers as a “popularity” metric. Often enough, this technique alone is more powerful and engaging than money, bonuses or punishments because it promotes the level of professionalism of the service providers, something that is highly important for many of them.

Summary: 

Severe leakage in a marketplace can point to serious pricing problems or even a lack of product/market fit.
Explore the nature of your marketplace services - maybe they are too frequent? Make sure your product provides enough added value to hook the users on both sides and keep them engaged.
Leakage cannot be fully prevented, but with enough incentives on both sides, and some smart monitoring techniques on an individual level - it can be tracked, managed, and minimized.

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