Zero Commission Marketplace: How Tropic’s Revenue Model Rejection Drove Growth

Zero Commission Marketplace: How Tropic’s Revenue Model Rejection Drove Growth

When your competitors are all doing the same thing, sometimes the boldest strategy is doing the opposite. In a recent episode of Category Visionaries, Tropic founder David Campbell revealed why his company rejected the standard marketplace revenue model – and how this decision became a key driver of their growth.

The Problem with Procurement Platforms

The genesis of Tropic’s zero-commission model came from a deep understanding of their market’s dysfunction. “This is a market where there’s tremendous bias and where every platform that is supposed to be helping you is actually funded privately by the supply side, even including Gartner,” David explains.

This conflict of interest creates real problems for buyers. Campbell witnessed this firsthand at Microsoft, where a customer struggling with layoffs couldn’t get help right-sizing their contract: “The company got locked into a contract for software that they could not afford, no budget, didn’t even need plenty of tools that had no value to them as a business for seats that they certainly didn’t have because they laid people off.”

The Decision to be Different

When building Tropic’s marketplace, they made a radical choice: zero commissions. “The only reason it was easy for us is because we got crystal clear on our vision at the beginning of launching Tropic,” Campbell shares. “Our vision is purchasing paradise… and that means that we’re 100% aligned to one side of the equation. We’re 100% aligned to empowering the buyer.”

This wasn’t just an idealistic stance – it was a strategic calculation about trust. “Maybe there are quick wins to be had if you can get this up and running for a year,” David notes. “But I don’t like referral fees as a general premise… if you call it marketplace revenue, then maybe you can get away with a big multiple, but if it’s really just a referral fee, it’s kind of tough.”

Managing Vendor Relationships

This decision could have created tension with vendors, many of whom are also Tropic customers. But Campbell found the opposite: “Everyone sort of recognizes that this is the cost of entry. Like, if you want to benefit from the scale and the data that we have, and that’s really key to our product strategy.”

The marketplace became a way to balance relationships: “One way of kind of extending an olive branch that connects those two teams and sort of enforces harmony across this ecosystem that is totally unique to Tropic is we have what we call an open source marketplace.”

The Power of Finance

This strategy aligned perfectly with shifting market dynamics. “The power of the finance team in 2023 outweighs the power of basically any other team,” David observes. “Because we’re all, Tropic included, not graded explicitly on top line growth anymore. We’re actually graded much more explicitly on bottom line efficiency, retention.”

This shift gave their buyer-aligned model extra potency: “The CFO has tremendous empowerment to enforce a mode of operating within the parameters of Tropic as platform.”

Results That Speak

The impact? “We’re winning in deals competitively, eight times out of ten,” Campbell shares. Their zero-commission stance has become a key differentiator in a crowded market: “When I think about our end users, every CFO literally 100% of the CFOs that I’ve sold to at Tropic are millennials… And this generation, millennials in particular, like me, like these CFOs that I work with, are extremely skeptical of what came before.”

For founders, Tropic’s experience offers a compelling lesson in business model innovation. Sometimes the most powerful move isn’t finding new revenue streams – it’s deliberately choosing not to monetize in ways that could compromise trust. In a world where buyer skepticism is high and trust is scarce, maybe the best revenue model is the one that puts trust first.