A Practical Checklist for Marketplace Founders

Most marketplace companies spend their first years searching for balance between supply and demand. Some never reach it. A few achieve liquidity early, then face the challenge of maintaining it while expanding. Building a marketplace is fundamentally complex: every decision affects two interdependent groups whose needs evolve at different speeds.

Investors understand this dynamic. When they evaluate a marketplace, they look beyond surface metrics like revenue or user growth. They assess whether network effects are real, whether liquidity is improving, and whether the underlying structure becomes stronger as the business scales. The question is always the same: will this system reinforce itself, or will it break once paid acquisition slows down?

Mike Ghaffary, an operator turned investor, developed a concise framework to evaluate these dynamics. His Marketplace Checklist has become a widely used reference among founders and investors because it focuses on the mechanisms that determine whether a marketplace can sustain growth. Below is that checklist, expanded with commentary from the SNR Growth team based on our work advising and building marketplace businesses.

1. Which side values the other more?
   Identify which side drives the flywheel. In some models, demand is the scarce asset; in others, supply holds the power. Prioritize acquiring and retaining the side that is harder to attract or more critical to the value proposition.
2. How is each side acquired efficiently?
   Sustainable marketplaces develop durable acquisition loops through referrals, partnerships, content, integrations, or workflow dependencies. Heavy reliance on paid acquisition signals weak network effects and limited compounding growth.
3. Are cross-side network effects measurable and improving?
   Each incremental supplier should enhance the experience for buyers. Track the impact of additional supply on conversion rate, time-to-match, or repeat usage. If these metrics improve with density, network effects are functioning.
4. Are there same-side network effects?
   Growth on one side can undermine quality if unmanaged. Excess supply can lead to price pressure and lower standards. Implement systems for quality control, discovery, and reputation to balance availability with performance.
5. What are the switching costs?
   If participants can transact directly outside the platform, the marketplace has limited defensibility. Switching costs arise from embedded tools, historical data, payments, trust systems, and convenience. Retention should be structural, not purely relational.
6. What are LTV and CAC for both sides?
   Treat supply and demand as distinct customer segments. Calculate lifetime value and acquisition cost independently. A marketplace is healthy only when both sides generate positive contribution margins and predictable retention.
7. How is liquidity defined and measured?
   Liquidity is the single most important indicator of marketplace health. Define it explicitly—typically the percentage of listings or requests successfully matched within a given timeframe—and monitor it by geography, category, and cohort.
8. How frequently do users transact?
   Transaction frequency determines engagement and retention dynamics. High-frequency categories compound faster; low-frequency ones must build additional value through broader use cases or adjacent services.
9. What is the average transaction size?
   Transaction size shapes your economic model. High-frequency, low-ticket marketplaces depend on operational efficiency. Low-frequency, high-ticket categories require deep trust and strong retention levers. Plan your acquisition and monetization strategies accordingly.
10. What is the take rate and is it justified?
    A sustainable take rate must reflect real value delivered to users. Payments, fraud protection, logistics, and guaranteed demand can justify platform fees. Without a clear value exchange, disintermediation becomes inevitable.
11. Does acquisition efficiency improve with scale?
    In a true network-effect business, incremental acquisition becomes easier over time through reputation, density, and referrals. If growth costs increase with scale, the network effect is likely weaker than assumed.
12. How fragmented is supply?
    Fragmented supply creates resilience and pricing power; concentrated supply increases dependency risk. Monitor concentration metrics early to avoid strategic exposure to a few dominant partners.
13. Is the initial focus narrow enough?
    Liquidity emerges first within constrained markets. Concentrate resources on a specific geography or category until depth is achieved. Expansion should follow only after density and retention are proven.
14. How will the marketplace expand beyond the initial niche?
    Successful expansion follows adjacency—nearby geographies, related categories, or overlapping customer bases. Each step should leverage existing network density rather than starting from zero.
15. How is the transaction experience being improved?
    Matching participants is only the beginning. Enduring marketplaces enhance the transaction itself through trust mechanisms, workflow automation, insurance, payments, or data insights. Product improvements at the transaction layer create long-term defensibility.

Applying the Checklist

At SNR Growth, we use this framework as a diagnostic tool to evaluate the structural health of a marketplace. It highlights operational weaknesses before they become strategic problems.

Most marketplaces that plateau share the same underlying issues: insufficient liquidity, weak supply retention, or limited reason for participants to remain on-platform once they connect. Reviewing these fifteen areas with real data helps teams locate the specific constraint holding back growth.

If liquidity is improving, users are returning, and switching costs are rising, the foundation is strong. From that point, scale becomes a matter of execution rather than structural repair.