Dreaming of becoming the next Jeff Bezos or Pierre Omidyar? Want to build an online marketplace and connect sellers and customers around the world like Airbnb or Fiverr?
Here’s what you need to consider and understand to build a successful business!
What is an online marketplace
In essence, it’s a place for commercial transactions, but it should not be mistaken for e-commerce.
In an online marketplace, the website owner allows third parties to sell their products or services to customers in his or her platform. The owner is not responsible for the product inventory nor for invoicing clients.
That been cleared up, now what does it take to build an online marketplace?
Define a business model
The first question you need to answer is: what’s going to be the business model to generate revenue and pay off all your hard work? A model that is scalable and sustainable in the long-term!
It’s common to find marketplaces charging commissions, memberships, adds and listings fee, premium services and so on. LinkedIn uses the Premium subscription model for companies, recruiters and job seekers, providing extra features; Airbnb and Uber charge commissions from their users.
Your choice depends if it’s a B2B, B2C or C2C platform, which kind of products and services are marketed, and what value you can provide for both sides in the transaction. Make your unique selling proposition clear for providers and clients to justify this cost.
Ask yourself: what customers want to find and feel when purchasing online? What are the biggest challenges to sellers and providers? Find out what people need!
Have a look at similar platforms like the one you want to build and check the features they offer and why people love them so much. That’s the moment to really spy on your competitors!
Don’t underestimate the power of providing an incredible user experience, as people are driven by the subconscious. If clients and providers feel good when using your marketplace, they’re more likely to recommend it to their friends and colleagues.
If you build an online marketplace targeting freelancers, such as UpWork, consider offering a tool so they can keep track of their income, deadlines, keep a portfolio and so on. Or if like Booking, offer specials conditions and discounts for recurrent travelers.
But don’t forget you need to offer something that makes your service special and essential to the users, which will simplify and change the way they do things.
At this point, the client already found what he or she wanted, but there’s still one important step: how they’ll pay for the service or product, called the checkout process? And how the provider will receive the money?
The checkout must be the simplest as possible, otherwise, people will just leave. A common step is to add a cart, so customers continue shopping and pay at the end. In case of services, the cart may not be required, so people could be redirected straight to a booking and payment details page, for example.
You might want to ask clients to log in before paying. It can help gather information about users, marketing insights and retarget. Also, most online marketplaces use a rating system for both clients and providers to avoid fraud and other issues. It’s about trust too!
First of all, you need to define the payment flow and method. Remember it should inspire trust in your customers! So, this is key to build a successful online marketplace.
Credit cards are very popular, but if you target students, not the best option. Also, not everyone is comfortable with typing their credit card number. Plus, to accept credit cards you either need to become PCI compliant or have a payment gateway to handle the bureaucracy.
So, unless you have a business dedicated to handling money, you’ll need to look for a payment processing solution, such as PayPal, Dwolla, Stripe and Apple Pay, the options are countless.
Each of these solutions will present different conditions on tariffs, payment flows, multiple currencies, technical support, fraud protection, and you need to choose the most adequate for your business.
Establish a reasonable purchase flow, so your customers get their orders and the providers their money. The best way to do so is to verify the anti-fraud and security available in the payment solution you chose and each country’s regulation.
Build the first MVP for your online marketplace
In the beginning, you will want something like an e-commerce platform that offers a marketplace plugin. For a better overview of available options, check this video where Amaury, CEO and founder of My CTO Friend explains the pros and cons of different technologies.
Though this is a temporary option and will require you to redevelop someday, it's a good way to start. When you are ready to take the next steps, look for evolving solutions that can make the development of the next steps easier.
Evaluating your success!
As in any business, well-defined goals and metrics play an important role to evaluate how successful or not. So choose your key performance indicators wisely.
Since we are talking about an online platform, some numbers will always matter like the bounce rate, monthly active users, how long a session lasts, but when it comes to business, you need to add some figures to the count.
Now, some others are more relevant when it comes to a marketplace are repeated purchase, liquidity, gross merchandise volume (GMV), customer acquisition cost (CAC), customer lifetime value (CLV). and provider-to-customer ratio.
These numbers will indicate how healthy your business is and you should set periods to analyze them.
What is the total sales value of the products sold in one month?
How much does it cost to acquire customers?
How many clients a provider can serve?
How much this client spent as an active user?
Do these clients make new orders?
It’s also highly recommended to run customer satisfaction surveys asking about how their experiences have been so far and how it can be improved. And it should happen since your very first MVP!
We hope this has given you some ideas about what you must consider building an online marketplace. Though it seems complicated, it shouldn’t be.
Start by creating a roadmap so that you can define what your needs are and the next steps. If you don’t know where to start building a roadmap for your startup project, check out My CTO Friend free course!