How To Start An Online Marketplace Business — Updated Guide 2020
By: Nikunj Shingala
Tags: Marketplaces, Marketplace App, Onlinemarketplacebusiness, Business, Online Marketplace

Growing traffic numbers, booming revenues and an ever-increasing demand for products listed on your platform. Feels like a dream. Isn’t it?

The marketplace business model gives you just that — the opportunity to grow.

Amazon is an amazing example of the world’s biggest marketplace. The Amazon growth story is also the story of growth in the number of marketplaces.

If you look at the numbers, you’ll see massive growth in the online marketplace segment.

No wonder Jeff is going to be a trillionaire soon. Shopping habits have changed and so is the fortunes of marketplace owners.

If you look online, you’ll see everyone is searching about marketplace building opportunities.

Enthusiasts and opportunity seekers keep asking questions about marketplaces.

1. How can I sell things online fast?

The best way is to create an online marketplace for your niche. You can sell anything with a marketplace and even invite other sellers to grow your product base.

If you want to sell things fast, you really should think of launching your own marketplace platform because Amazon won’t let you sell fast. (Too many sellers on the platform already competing for attention)

2. How to create an online marketplace?

You need three things to create an online marketplace, the idea, the business model, and the team.

If you can think of a concept, translate it into a profitable business model and have the people who can bring the concept to reality, you can easily create an online marketplace.

3. How much will it cost to build and launch an online marketplace?

That’s a really subjective question. Everything depends on your industry, the technology you use, the features you want to have, the markets you want to cover.

A fair range for standard marketplace development would be around USD 50,000–70,000, give or take.

4. How does a marketplace make money?

Marketplaces charge commissions from sellers or have a subscription plan for sellers who want to be listed. Some even use promoted/sponsored listings to drive their revenues.

It all depends on the type of marketplace and how it is monetizing its reach among the sellers and consumers.

5. What are the most popular online marketplace business models?

The most common and popular business models for an online marketplace are commission-based marketplaces and sponsored listing marketplaces.

Almost every successful marketplace started with these models. Some even adopt a subscription-based revenue model to succeed.

We’ve been working on marketplaces for a long time and feel like it’s time to answer everything, at once.

Think of this blog as your go-to resource for all things marketplace- from successful online marketplace models to the process of creating your own marketplace.

Online Marketplace Business Model: How Do Marketplaces Earn Money?

Let’s admit it: we are all here for the money. No one can change the world without money in their pocket. So, when marketplaces are improving lives and simplifying shopping experience, it is important to understand they’re also growing their revenues. And it’s not a bad thing, too.

Now, if you’re thinking of launching your own marketplace, you need to understand the marketplace models that are working in 2020.

Simply put, a marketplace caters to both sides of the delivery chain- it brings sellers closer to buyers who want to buy a product or a service.

( Image Source: jshopping )

Now, coming to money matters, marketplaces earn based on the type of marketplace they are. A marketplace business earns revenues using either of the following ways:

Commission-based Marketplaces: Sellers pay a commission for each sale on the marketplace platform.

Sellers pay a commission for each sale on the marketplace platform. Subscription-based Marketplaces: They charge a fixed subscription amount from sellers to come on board.

They charge a fixed subscription amount from sellers to come on board. Freemium Marketplaces: Some features are free and for more, the sellers or buyers have to pay money. Digital asset websites like Unsplash work on a similar model.

Some features are free and for more, the sellers or buyers have to pay money. Digital asset websites like Unsplash work on a similar model. Listing-focused Marketplaces: The marketplace asks for money for a product/service listing on the platform.

The marketplace asks for money for a product/service listing on the platform. Featured Ads/Promotions-based Marketplaces: The marketplace charges for promotions and advertisements on the platform from the sellers.

Why Marketplaces Rock in 2020?

Rocking would be an understatement for marketplaces. After the pandemic, they are flying off the charts. What started as a convenience trend, now has turned into a necessity and that’s the reason, launching a marketplace would be a great business opportunity for you.

Uber, the world’s largest taxi company, owns no vehicles. Facebook, the world’s most popular media owner, creates no content. Alibaba, the most valuable retailer, has no inventory. And Airbnb, the world’s largest accommodation provider, owns no real estate. Something interesting is happening. — Tom Goodwin

Still, if you’re not convinced, here are more reasons why a marketplace can be a powerful revenue engine:

High Demand: Users are buying more products online after the pandemic

Users are buying more products online after the pandemic More Choice: A marketplace offers more options to shoppers compared to a dedicated online store.

A marketplace offers more options to shoppers compared to a dedicated online store. Scalable: Marketplaces are scalable- more sellers will lead to more products which will attract more customers.

Marketplaces are scalable- more sellers will lead to more products which will attract more customers. Minimal Inventory Investment: Startups don’t need to invest in physical inventory reducing capital requirements.

Before You Begin Your Online Marketplace Business

You’ve done your research and have made up your mind to launch your own marketplace. But before you begin, there are two things you must decide beforehand. This will affect the success factor of your marketplace app or website.

1. Research Target Audience

Before moving ahead with an idea, carefully outline your target audience. Ask questions from real users if they want such a marketplace. Go to internet forums to check the demand.

If possible, conduct a live survey online. You don’t need money to research. You just need to have a plan. Here is a great way to get started with researching and documenting your audience.

This step will give you an insight into how to choose the perfect online marketplace model users would love using right away.

2. Choose the right online marketplace business model

Once you know what users want, you can choose from one of the popular online marketplace models — freemium, subscription, listing, ad-based, or commission-based. You can also think of something completely different in case real users want that.

The best thing in this case would be that you will be building around user expectations and not the other way around.

Managing Your Marketplace Operations

Let’s say you’ve sorted out the model. But before you approach an app developer or a consultant to get started, you’ll still need a scope of work.

Your app or platform should have several features to make it appealing for sellers and buyers. So, before we move ahead, let’s take a look at how you’ll manage various aspects of your marketplace.

1. Seller Onboarding & Management

“No one likes a ghost town. When the market shimmers with diversity and variety, customers get attracted.”

As a marketplace, you’ll need sellers to succeed.

Right from the first day, you’ll need a compelling reason for sellers to join your platform. If you do your audience research right, you’ll also know what your sellers would want.

So, the first step would be to reflect your value proposition in the landing pages you create to onboard your sellers. Your landing page should be:

Clear and consistent

Mobile responsive

Detailed with informative copy including

What’s in it for sellers

Eligibility criteria, if any

Details of the approval process

Frequently Asked Questions

Testimonials from happy sellers

Way to reach out for more information

Focused at a single action — sign up for onboarding

Your first communication would determine your relationship with the sellers. So, be careful about how you wish to present your marketplace.

The best way is to have an easy signup process followed by a vetting process. If you are building a subscription-based marketplace, you will need to have a payment gateway for sellers to pay you before completing the signup process.

It would be nice if you offer them a free knowledge base to get started once they sign up. It can contain the tips, how-to guides and more information to make the most out of the marketplace.

Once your seller comes on board, you’ll need to give ways to add details to their seller profile, upload products, manage reviews, add descriptions, etc.

2. Managing Productsm

“If you can give them what they want, when they want, they would keep coming back, no matter what you have to sell.”

The beauty of marketplaces — you don’t have to manage your own inventory.

But this doesn’t mean you won’t have to manage products on your marketplace. You would still need a system to catalog, show and sort the products sold by a different seller.

There are two systems for managing your product. Either you can be like Amazon, where multiple sellers sell the same product to customers, or be like Etsy, where just one seller owns and sells all the products.

Usually, a marketplace goes the Amazon way where multiple sellers can sell the same product.

The way you sort it out would affect the cost of marketplace development.

Also, you need to determine how much liberty you want to give to the sellers to upload and manage their products.

Tips to improve product management in marketplace

Allow sellers to add products in bulk or provide onboarding service

Offer a way to integrate existing online catalogs to your marketplace

Optimize your product listing forms and make everything in ‘Ready to Publish’ mode

1. Managing Payments

“If you can make them trust you with their money, there’s nothing that will stop your growth.”

Customers and vendors would need a secure payment gateway when they use your marketplace.

Also, as you’ll be a marketplace, your payment gateway should allow customers to pay for products/services from multiple sellers at once in a single checkout.

Choosing and managing the payment gateway will be your biggest decision that will determine the user’s shopping experience.

While choosing a gateway, just keep in mind that it should cater to your multiple requirements:

Allow sellers to pay subscription fee (in case you’re on a subscription model)

Streamline customer payments for products from multiple vendors

Automated seller payouts from your platform to their accounts

Your payment flow would lead you to a specialized marketplace payment gateway.

If you can’t find any, you will have to take the long route to create a system that can handle invoicing, taxation, payment charges, reporting, reconciliation and a lot more. In such a case a marketplace development expert would come in handy.

2. Order & Shipping Management

“You don’t leave the engines dry when the ship runs because of them”

Though order fulfillment won’t be your concern if you are not managing inventory, but you’ll need to give your sellers the tools to assist with order management.

If you want, you can take care of fulfillment just like Amazon FBA, but if you want sellers to be responsible, you’ll have to get proactive.

The sellers should find your platform easy to manage in terms of communication, delivery updates, shipping rules and more. Also, there should be a high level of customization and integration with shipping providers from the start.

Also, when someone orders from your platform, he/she will expect updates on their order. So, you will have to sort things like:

Order tracking management

Third-party APIs for shipping service providers

Creating SLAs for standard shipping rules across your marketplace

Setting a minimum/maximum standard for shipping costs and speed

Upfront shipping date intimation and staying on schedule would affect your conversion rate and ultimately success. So, you really need to make this work for your sellers and your marketplace

3. Customer Management

“When you treat them with care and respect, they would bring their friends, relatives and acquaintances to make them feel the same.”

If sellers are your engine, customers are the fuel that runs those engines. So, you really need to be careful about how you manage the customers on the platform.

For the starters, they should feel secure for signing up on the platform and giving you their payment details, address and other personal information. Secondly, your interface shouldn’t challenge them but assist them in their shopping journey.

Personalized product feed, filters, a dedicated profile for them to track their orders, addresses, past purchases, etc. would help them engage with the marketplace.

At the backend, you should have a robust system to manage customer profiles. Also, their preferences should be secured in a secure way for everything you want them to feel for your marketplace brand.

Essential App Features You Need to Run Your Marketplace Business

You’ll have to carefully plan for the features you need, keeping all the aspects in mind.

Miss on something here and you will be missing out on your growth story. It’s not that one can’t update later, but the best marketplaces start with at least the basic functionality.

It is better to develop an MVP for your marketplace business first with basic features and evolve on-the-go. Here are some features, you should consider for your marketplace MVP.

End-Users

- Simple Registration Process

- Multiple Payment Options

- Real-time Push Notifications

- Social Media Integration

- Detailed Ratings & Reviews

- Interactive Product Pages

- Filter-based Product Listing

- Detailed Order History

- Order Tracking

- Automated Follow-up Emails

- Recently Viewed Products

Vendors/Sellers

- Simplified Onboarding- Signup & Login

- Insightful Report & Analytics

- Easy Product Management

- Intuitive Inventory Management

- End-to-end Order Management

- Inclusive Returns Management

- Automated Payments & Settlement Module

- Real-time Notifications

Admin/Owners

- User Management

- Seller Management

- Logistics Management

- Category Management

- Payment & Refund Management

- Offer & Discounts

- Reports & Analytics

Realize Your Dream: Steps to Create Your Online Marketplace

Okay, now we’ve set a solid foundation, let’s move on to building a structure. Right?

You’ll need to have a clear direction for transforming your dream into a reality. And we’ve figured four specific steps that would add the clarity you need.

1. Outline Specifications

Based on your marketplace business model, and the features, it is wise to create a basic specification. This can include the feature list, your user workflows and writing the basic concept.

If you feel it’s too much work, you can even talk to an app development/product development expert who will guide you in translating your vision into tangible product features to help with development.

2. Work on the MVP

Once you’re done with the requirements, you need developers who can work on the requirements.

Now, if you are just beginning, it won’t be a wise idea to hire a full-time team for your product.

Offshore development can be a great way to get hold of resources who can work on your MVP and help you build it. Don’t know anything about remote development?

Here is a detailed blog on hiring remote teams in 2020 that would help you get started with MVP development.

3. Gather Feedback and Improvement

Let’s say you have a team in place. They’re working on your idea and making progress with the MVP. But isolation won’t take you anywhere in 2020.

The whole point of MVP app development for an online marketplace is to gather feedback early on, pivot and adapt to the user expectations.

Agile development should be your choice if you really want to build a marketplace that shoppers love.

4. Launch

Iterations would bring you to a stage where you’ll get raving reviews by your testers and live audience.

At this point, you can think of launching your platform to the world and get started with the show. You can plan a soft launch or go full-on with a dedicated marketing campaign to start attracting visitors to your store.

5. Recipe for Online Marketplace Success: What all do you need?

Let’s say you have managed to launch your online marketplace. But that’s just a battle half won. If you want to be successful in online marketplace business, you will need:

Growing user base

More sellers/service providers on the platform

Increasing brand awareness in your target market

You’ll get the perfect recipe that will take you places if you’re smart enough to add the above ingredients early on. That’s where you will need a launch and marketing plan for your online marketplace.

Your launch and marketing plan should include everything — target audience analysis, organic marketing strategy, SEO efforts, mediums you’ll use to market your brand new platform, content marketing strategies, paid promotion plans and more.

The first marketing plan won’t be a perfect one but you need to make sure it is in sync with the audience you’re trying to target. If your prospective users are more active on social media, your marketing plan should focus more on such platforms. If you feel you need to bring attention through organic search, focusing on content marketing and SEO can give you great results.

Also, you will have to incorporate the other element of your success in the marketing plan too — a way to bring your platform to the attention of prospective sellers.

You can perform research on how you will balance both the stakeholders and increase visibility to get desired traction for your online marketplace. When you plan for marketing from the beginning, you will have better insights to adapt and grow on-the-go.

The Economics of Creating an Online Marketplace: How much will it cost?

We’ve come a long way — from discussing the idea to talking of the launch. But you have the one question that overshadows everything. What would it cost you to launch your own marketplace? Right?

Well, as you see, it is a lot of work to create a successful marketplace in 2020. And you can’t think of doing all that with just a one-person army or a small team.

You would need analysts, product managers, developers, UI/UX designers, testers, marketing experts and more to make your show a hit. Engaging everyone would cost money too.

That’s why we said it’s better to hire remote teams instead of building every capability in-house.

Remote teams charge by the hour, based on their location and you can easily find a team that can develop your store and helps you launch it within a range of USD $5,000-$20,000.

Rounding it Up

You’d really be doing yourselves a favor if you start considering possible business models for your marketplace soon. With the world moving towards a digital economy, you need to start soon.

Ideas are cheap but execution makes all the difference. If you really want to execute your plans for building an online marketplace, we would like to hear you out. We’ve built some great marketplaces over the years.

We believe we did good work; our clients love us for what we did for them and think you’d love us more when we get on a call. So, why don’t we get started right from this week, itself?