The need to start an online marketplace business is bigger right now is bigger than ever. 2020 brought the worldwide covid-19 pandemic, and customers now prefer buying everything online, trying to avoid going to crowded places and malls. Are you also looking to start a new online marketplace? Well, you are in the right place! In this article, we will discuss the main things to keep in mind while starting an online marketplace from scratch. But before that, let’s cover the basics.
What is an online marketplace?
Online marketplaces are eCommerce platforms where multiple third-party sellers list their products for sale. The customers then purchase the products and the marketplace handles the payments and generates revenue via fees. Marketplaces are significantly different from online stores where the customer can directly buy the products from the store owner. Starting a marketplace is a great way to create a community and start a thriving eCommerce business.
How to build an online marketplace from scratch?
Now that we have understood what online marketplaces exactly are, let’s see how someone can build an online marketplace from the scratch. Following are the main things to keep in mind while creating an online marketplace.
- Research your target market: Before starting any business, including an online marketplace, it is important to thoroughly research your target market. To build a successful marketplace, you need a clear understanding of the market, the users, their needs, and the solutions they are looking for. Also, make sure you have extensive knowledge about your competitors. This will help you understand what their customers like, and more importantly, what they do not like about that specific platform.
Ask questions like –
- What does the industry look like?
- Who are your target users and what are their main goals and expectations?
- Where do they buy from and what makes them buy from there?
- What do your sellers expect from you?
- How can you make the experience of your sellers better?
Getting answers to such questions will help you understand the market better, and build better solutions for your users.
- Choose the right business model: Your marketplace will only be successful and feasible for you if you can generate revenue out of it. And the most important aspect of generating revenue for any online marketplace is choosing the right business model. No matter your industry or background, designing a viable business model before starting an online marketplace will always be beneficial for you in the long run. There are several business models that you can adapt for your marketplace based on your situation and requirements –
- Sign-up fees
- Subscription fees
- Product listing fees
- Selling fees
- Processing fees
- Third-party ads
Choosing one or a combination of these business models is always a great idea for your online marketplace. Some of these business models might not be profitable to you right away, but as your business grows, these business models will be the soul of generating revenue for your business.
- Plan your marketplace operations: Once you have started your online marketplace website, you also have to manage it successfully. There are many things that you have to deal with regularly. Managing marketplace operations can get quite complex to its nature of two-sided problems.
Mentioned below are some of the challenges that you will be tackling regularly as a marketplace owner –
- Managing sellers
- Managing products
- Processing payments
- Configuring logistics and shipping information
- Order management
- Marketing and content management
- Seller and customer relationship
Make sure you have a detailed plan to manage your marketplace operations before you start your marketplace. If you can successfully manage all the things mentioned above, your marketplace operations will run smoothly, and thus bring more revenue to your business.
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- Outline the essential marketplace features: You can always start your online marketplace with a few basic features, and then keep updating the platform from time-to-time. This will be beneficial for your business. However, it is better to outline the essential features beforehand, and include them when your platform goes online. This will help you get the best of those advantages from the very start. You can divide the essential features for your marketplace into 3 categories –
- Features for sellers & buyers.
- Features for the platform itself.
While every marketplace owner has a different set of essential features based on the kind of platform they are trying to create, it is better to know those features from the beginning and include them in the platform before putting them online.
- Choose a marketplace payment solution: As a marketplace owner, you will also have to monitor the various types of payments that will be done via your platform. This includes payments from customers, payments from sellers, payout to sellers, and other payments like third-party advertisers. The most complicated out of these is receiving payments from the customers. When you receive any payment from the customer, there are three parties involved; the buyer, the seller, and the platform.
There are three basic ways in which you can collect the payments from your customers –
- Direct payments: This is when the customer buys a product, and the payment is directly made to the seller.
- Aggregated payments: Here, the entire amount is collected by the platform and is later distributed to the sellers in the form of payouts.
- Split payments: Split payments are when the customer’s payment is instantly split at checkout and distributed between the seller and the platform.
- Select the right marketplace software: At this point, you are well aware of the market you are getting into, what business model you will choose, and your plan for operations management, features, and payment procedures. It is now time to choose the right software where you can get the most benefits out of your online marketplace business.
There are 3 essential groups where you can look for the best marketplace software based on your requirements –
- Cloud or hosted marketplace software: These are the easiest software to get started with little to no technical knowledge
- Self-hosted marketplace software: This software is designed specifically to offer marketplace solutions. Here you have a lot more modification and customization options since you have complete access to the source code.
- Multi-vendor CMS extensions: Lastly, there are several types of Content Management Software like WordPress, Magneto, or OpenCart, that can help you build an online marketplace business. All you have to do here is create a website and add a multi-vendor extension to it.
Well, there you go! Now that you know all the essential steps to creating an online marketplace business, you can assemble a great team, build your marketplace platform, and launch your marketplace. We hope this article has been helpful to you. Thank you for reading and all the best with your online marketplace business!