Build a Marketplace Website: Simple Guide to Create a Successful Business Online

If you have landed here, most likely you want to build a marketplace and ride along the wave of online business.  

The truth is, there can’t be any shortcut to success yet this comprehensive guide unveils a structured process to minimize failures in your journey.

Key Takeaways: 

1. Marketplaces are profitable: Backed by statistics, the blog highlights the high revenue potential through commissions and a scalable business model.
2. Focus on a niche: Targeting a specific niche with a passionate community allows you to tailor your platform’s features and user experience, potentially leading to higher conversion rates, premium commissions, and stronger customer loyalty.
3. Challenges and solutions: The blog acknowledges the three challenges of high development costs, attracting vendors, and building trust. Learn how to build essential marketplace features with Shipturtle. 
4. Building your marketplace with Shipturtle: It provides a roadmap for validating your marketplace idea, crafting a business plan, the cost of creating a marketplace, and launching your marketplace using native solutions on Shopify. Shipturtle simplifies the process by offering essential features like multi-vendor support, product management, order splitting, commission structures, and customer communication tools.

Types of Online Marketplaces

Fit your marketplace project into our system of classification before deciding to build a marketplace. Here’s how we classify different types of marketplaces:

I. Nature of Good

• Physical: Products that have a physical form and require physical delivery, such as clothing, electronics, or furniture.
• Digital: Products that exist in digital format, downloadable, or accessed online, such as ebooks, software, or music.

II. Transaction Type

• B2B (Business-to-business) transactions between businesses. In online marketplaces, this could involve businesses selling products or services to other businesses.
• B2C (Business-to-consumer) transactions between businesses and individual consumers. This is the most common type of online marketplace.
• C2C (Consumer-to-consumer) marketplace where individuals sell directly to other consumers. 

III. Location of Customer

• Hyperlocal: Marketplaces catering to a local customer base, typically within a town or city. Deliveries are often same-day or next-day.
• Regional: Marketplaces serving a specific region within a country.
• National: Marketplaces operating nationwide within a particular country.
• Global: Marketplaces that operate internationally, serving customers worldwide.

Are Marketplaces Profitable? 

Online marketplaces account for the largest share of online purchases worldwide, emphasizing their dominance in the e-commerce space.  Moreover, B2C online marketplaces are projected to generate a revenue stream of USD 3.5 trillion, signifying immense potential to generate revenue through commission fees on each sale.  

We are witnessing even greater profitability in launching an online marketplace to grow vertical e-commerce. Marketplaces like Etsy and Reverb are reiterating the power of vertical e-commerce by focusing on a specific niche:

• Conversion rates soar as you target a highly relevant audience.
• You can command premium commission fees due to the specialized products and engaged customer base.
• Customer loyalty flourishes thanks to a curated shopping experience catering to their specific needs.

Who Should Invest in a Marketplace Business Model?

Developing a marketplace can be a compelling fit for various stakeholders:

• D2C brands gain access to a wider audience and reduce marketing costs by partnering with relevant vertical marketplaces.
• Influencers can create their marketplaces to curate and sell products while fostering a strong community with their audience.
• Community builders can connect passionate customers with businesses within a specific niche, generating revenue and fostering interaction.
• Brick-and-mortar stores can expand their reach online and create a complementary sales channel to their physical stores.
• E-commerce entrepreneurs benefit from a scalable business model with lower upfront investment compared to traditional e-commerce stores.

Benefits of the Multivendor Model

The multi-vendor model is inherent to most marketplaces that essentially creates a website where multiple sellers offer their products to a wider audience. The multi-vendor model is like the Amazon marketplace, benefitting both the marketplace owners and the vendors themselves. Let’s look into the key benefits:

• Cost reduction: By relying on multiple vendors for marketplace success, you don’t need to invest in purchasing and managing a vast inventory. This translates to significant cost savings in warehousing, logistics, and product handling.

• Cross-selling opportunities: A diverse product selection can create opportunities for cross-selling, where customers purchase complementary items from different vendors within a single transaction. This benefits both vendors and the owner by increasing the average order value of marketplace sales.

• Flexible revenue streams: Choose different revenue options like commission fees per sale, subscription fees, or freemium model for listing & prioritizing vendors.

• Enhanced customer focus: The multi-vendor model attracts a broader customer base with various needs and preferences. This allows the platform to cater to a wider audience and cater to niche markets that individual vendors might struggle to reach independently.

• Global reach and scalability: Vendors from different countries can list their products, potentially reaching a global audience without needing to navigate complex international logistics or regulations.

• Streamlined operations with automation: Many tasks related to product listings, order processing, payment processing, shipping management, and customer relationship management can be automated within the platform. This frees up your resources to focus on marketing strategies and other development initiatives.

Stages of Marketplace Platform

Any successful marketplace product can be viewed from a couple of different perspectives: lifecycle and development.

Marketplace Lifecycle

This perspective focuses on the overall trajectory of a marketplace from its inception to its potential decline. There are typically four stages:

1. Ideation and validation: This is the initial stage where you brainstorm marketplace concepts, identify a target niche, and validate the market opportunity. Here, you assess demand, competition, and potential challenges.
2. Launch and growth: Once you have validated your idea, you will start your marketplace software development, attract buyers and sellers, and focus on user acquisition and growth. This stage’s key aspects are optimizing the user experience and building a strong brand.
3. Maturity and competition: As your online platform matures, you’ll face increased competition from other websites. Here, the focus shifts towards retaining existing users, attracting new buyers to your online marketplace, and potentially expanding into new markets. Innovation and differentiation become crucial for continued success.
4. Renewal or decline: Over time, marketplaces may face decline due to changing market trends, new competitor disruptions, or failure to adapt. You may involve efforts to revitalize the platform through innovation, strategic partnerships, or a change in target audience.

Marketplace Development

This perspective focuses on the specific steps involved in building and launching a marketplace platform. Here’s a possible breakdown:

1. Concept development: Refine your marketplace idea, define your value proposition, and identify your target audience.
2. Platform development: Build the core functionalities of your marketplace, ensuring a user-friendly interface for all users. Security and data protection are also crucial aspects here.
3. User acquisition: Develop strategies to attract potential users to your platform. This might involve online marketing campaigns, social media engagement, and offering incentives.
4. Growth and optimization: Continuously monitor your marketplace’s performance, gather user feedback, and iterate on your platform to improve user experience and drive growth.
5. Scaling: As your marketplace grows, implement strategies to handle increased traffic and transactions. This may involve infrastructure upgrades, marketplace app development, and building a dedicated software development team.  

Find a Great Marketplace Idea and Validate It 

Simply creating an online marketplace to buy and sell generic products might not be enough. Identify a specific niche or problem and tailor your marketplace to effectively address it.

NIHARIKA JOSHI, FREELANCE COACH

Building a successful marketplace starts with a validated idea. Let’s discuss the process of brainstorming, refining, and validating your marketplace concept.

1. Brainstorming and identifying market gaps:

You may begin by identifying gaps in the online marketplace ecosystem through: 

• Personal experiences: Look for pain points you have faced as an online user. Perhaps you found the selection for a specific hobby limited, or the existing platforms felt clunky and unintuitive.
• Market trends: Research current market trends and identify emerging consumer needs. Are there new product categories gaining traction? Are there existing markets where technology can streamline transactions or enhance user experience?
• Community conversations: Engage with online communities and forums related to your interests. Are there recurring complaints or unmet needs that a marketplace could address? Analyze what people seek within existing communities. Moreover, is there a need to renovate how online communities work? 

2. Refining your idea: niche focus and unique value proposition

Once you identify a potential market gap, it’s time to refine your online marketplace idea. Here’s what to consider:

• Niche focus: Don’t try to be everything to everyone. Narrow your focus to a specific niche or target audience with well-defined needs and preferences. Catering to a passionate community allows you to tailor your platform’s features and user experience specifically for them.
• Unique value proposition: What makes your marketplace different from existing options? Do you offer a wider selection of curated products, a stronger focus on community building, or a unique selling experience? Identifying your unique value proposition will be crucial for attracting users to your platform.

3. Validating your idea: market research and user feedback

Having a brilliant idea is just the first step. Now comes the critical process of validation. Here’s how to ensure your marketplace concept solves a real problem:

• Market research: Dive deep into your chosen niche. Analyze the market size, competition, and potential growth trajectory. Understand the existing players in your space and identify gaps and services your marketplace can offer. Use a mix of online research tools, industry reports, and competitor analysis.
• User interviews: Talk to prospects in your target niche. Conduct paid user interviews to gauge their interest in your concept, understand their pain points, and gather feedback on your proposed solution. This will refine your decision to build an online marketplace.
• Surveys and focus groups: Conduct paid online surveys or host focus groups to gather broader feedback from your target audience. This quantitative and qualitative data will help validate your assumptions about the need for your marketplace in 2024 and beyond.

4. Refine and iterate:

The process of validation is iterative. You can continuously refine your marketplace concept by incorporating user feedback and conducting A/B testing on different features. This iterative approach will help you build a marketplace platform that is well-aligned with user needs and positions you for long-term success.

Building a B-Plan for Your Marketplace

A well-defined B-Plan serves as a roadmap for outlining your revenue model, understanding your financial viability, and day-to-day operational plans to build a marketplace business. 

Marketplace revenue model:

Choose among the common marketplace revenue models: 

• Commission structure: Define the commission percentage you’ll charge sellers on each transaction. Consider offering tiered commission structures based on product categories or seller volume.
• Subscription fees: Explore offering optional subscription plans for sellers with additional benefits (e.g., premium listings, priority customer support).
• Transaction fees: Depending on your platform, consider implementing additional transaction fees to cover payment processing costs.
• Featured listings and ads: Provide sellers with the option to pay for featured placements of their products in search results or on category pages. This increases their product visibility and can lead to more sales. You can offer various ad formats like banner ads, sponsored product listings, or pay-per-click options.
• Private label: You can develop and sell your own branded products alongside those offered by third-party sellers. This can be a good way to increase your profit margins and attract customers looking for unique offerings. However, it requires significant upfront investment and product development expertise.

Unit economics to scale your marketplace into new markets:

Here’s a breakdown of key unit economics metrics for understanding your marketplace’s financial viability:

• Freight costs: Factor in the average costs of shipping and logistics for buyers and sellers. Depending on your model, this might involve calculating average shipping fees or integrating with third-party logistics providers.
• Market sizing & margin: Research industry benchmarks for your niche and set realistic margins for your marketplace.

Remember, D2C brands generally require 30-40% margins to ensure profitability.

SAUMITRA KABRA, MYBAGEECHA.COM

• Returns management: Factor in the potential cost of returns and how you plan to manage them. Consider implementing a clear return policy and define who will bear the cost of return shipping.
• Payment processing fees: Research payment processing platforms and factor in their fees per transaction when calculating your marketplace’s profitability.
• Discounts & promotions: Plan for promotional strategies to attract users and boost sales. Allocate a budget for discounts, coupons, or loyalty programs, factoring them into your overall revenue projections.

• Customer acquisition cost [CAC]: Analyze the cost associated with acquiring new buyers and sellers on your platform. This includes marketing expenses, referral program costs, and any associated advertising spending.
• Overheads: Estimate your ongoing operational expenses, such as platform maintenance, payment processing fees, customer support personnel costs, and any software subscriptions required for platform functionality.

Operational plan to run your online marketplace business:

Here’s a breakdown of the day-to-day operations that you should consider while building a workflow for your online marketplace:

Platform Management

• User onboarding:
  • Develop a seamless registration process for both merchants and customers, requiring essential information for account creation.
  • Consider offering social media login options for faster registration.
  • Implement email verification for added security and account confirmation.
  • Provide clear onboarding tutorials and guides for new users on platform functionalities.
• Security measures:
  • Implement robust security protocols to protect user data, including two-factor authentication and secure password hashing.
  • Regularly update platform software and plugins to address security vulnerabilities.
  • Conduct penetration testing to identify and fix potential security weaknesses.
  • Have a clear data privacy policy outlining how user information is collected, used, and protected.
• Dispute resolution mechanisms:
  • Establish a clear and fair dispute resolution process for handling customer-vendor disagreements over orders, products, or services.
  • Offer multiple channels for users to submit complaints, such as email ticketing systems or live chat support.
  • Have dedicated staff trained in mediation to facilitate communication and find solutions between parties.
  • Clearly outline potential outcomes (e.g., refunds, product returns) based on the nature of the dispute.

Customer Support

• Develop a multi-channel approach:
  • Offer customer support through various channels like email, phone calls, live chat, and a comprehensive FAQ section.
  • Consider offering social media support for quick and convenient communication.
• Invest in knowledge base and resources:
  • Create a comprehensive knowledge base with articles, tutorials, and FAQs addressing common customer issues.
  • Provide clear and concise instructions on using the platform’s features and functionalities.
  • Offer self-service options like order tracking and account management tools to empower customers.
• Prioritize efficient resolution:
  • Implement a ticketing system to track and manage customer inquiries effectively.
  • Set clear response timeframes for customer support requests.
  • Train customer support representatives to handle issues efficiently and professionally.

Vendor Management

• Communication channels:
  • Establish clear communication channels with vendors, such as email newsletters, announcement boards, and dedicated support channels for vendor-specific inquiries.
  • Regularly update vendors on platform updates, policy changes, and marketing initiatives.
• Product listing management:
  • Define clear product listing guidelines outlining acceptable product categories, descriptions, images, and pricing strategies.
  • Implement a review system for vendors to submit product listings for approval before publishing.
  • Consider offering tools for bulk product uploads for vendors with extensive catalogs.
• Order fulfillment and payment processing:
  • Set clear expectations and guidelines for order fulfillment times and shipping procedures.
  • Offer vendors multiple shipping options and integrate with reliable shipping carriers.
  • Define the process for handling returns and refunds.
  • Integrate a secure payment processing system that facilitates smooth transactions between vendors and customers.
  • Establish a clear payout schedule for vendors, outlining how and when they receive payment for their sales, considering factors like processing fees and potential hold times.

Additional Considerations:

• Marketing:
  • Develop a comprehensive marketing strategy to attract both customers and vendors to your marketplace.
  • Implement online advertising campaigns, social media marketing initiatives, and influencer partnerships.
  • Consider offering promotional programs and discounts to attract new users.
• Financials:
  • Establish clear fee structures for vendors, including listing fees, commission fees on sales, and any transaction processing costs.
  • Have a system for tracking platform revenue, vendor payouts, and operational expenses.
  • Develop financial reports to monitor the marketplace’s financial health and identify areas for improvement.
• Shipping:
  • Partner with reliable shipping carriers to offer vendors a range of shipping options at competitive rates.
  • Consider offering a centralized shipping solution where the marketplace itself manages shipping logistics (optional, requires additional resources).
  • Provide transparent shipping cost information to both customers and vendors.

Start Building a Marketplace Website

With a validated idea and a well-defined B-Plan, it’s time to build your marketplace vision into reality. Here’s a breakdown of the marketplace development process: 

Marketplace vs. other websites: what’s the difference?

You must understand the nuances of single-vendor vs multivendor stores before questioning about how to build online marketplaces in your target niche. It would help you determine the type of user workflow your online marketplace platform or marketplace mobile app would need.  

Feature	E-commerce store	Online Marketplace
Who Sells Products	Business	Independent Sellers
Product Selection	Limited by business inventory	Wider variety from multiple sellers
Revenue Model	Sales of products	Commissions, fees, subscriptions
Focus	Brand promotion and product sales	Connecting buyers and sellers
Community Building	Limited	Can foster peer-to-peer transactions

Essential features of an online marketplace

While the specific features may vary depending on your niche, there are some core functionalities that all successful online marketplaces should offer:

• User accounts: Create separate account types for customers and vendors, allowing them to manage profiles, track orders, and communicate effectively.
• Search & filtering functionality: Implement robust search tools and filtering options to help buyers easily find the needed products. Consider filters based on price, category, brand, location, and other relevant attributes.
• Product listings & management: Sellers should be able to manage their product listings, including adding detailed descriptions, and high-quality images from multiple angles, setting competitive prices, and managing stock levels.
• Shopping cart & payouts: Provide a user-friendly shopping cart system to split orders between different vendors and integrate secure payment gateways (e.g., PayPal, Stripe) to facilitate seamless transactions and commission payouts.
• Order management & tracking: Allow all users to track the progress of their orders, monitor shipments, and manage any returns or disputes efficiently.
• Communication tools: Integrate tools for customers and vendors to communicate directly. This can include messaging systems, order-related updates, and customer support functionalities.

For a more detailed exploration of essential marketplace features, refer to our comprehensive resource on 40+ must-have features for building the best multivendor marketplace.  

The cost of building an online marketplace website

The cost of website development and to promote your online marketplace varies depending on several factors:

Factors	Development cost
Building from scratch	$100,000 and upwards
Open-source solutions	$10,000-$20,000
Pre-built marketplace template (On Shopify)	$3,000-$10,000
Outsourcing cost	$50 to $200 per hour

• Platform choice:
  • Building a marketplace website from scratch: This offers the most control and flexibility but can be the most expensive option. Expect costs to range from $100,000 and upwards, depending on the complexity of features and the development team’s location and experience level.
  • Open-source solutions: Open-source platforms like WooCommerce or Magento offer a more cost-effective solution, typically starting around $10,000-$20,000 for initial setup and customization. However, ongoing maintenance and development needs can add to the overall cost.
  • Pre-built marketplace templates: Platforms like Shopify (coupled with apps like Shipturtle) offer pre-built marketplace templates with drag-and-drop functionalities. These can be a good starting point for launching a basic marketplace quickly and affordably, with costs ranging from $3,000-$10,000 depending on the chosen platform and any additional customization required.
• Features & functionality: The complexity of the features you integrate will significantly impact development costs. Advanced features like customized search filters, multi-currency support, or social media integrations will require additional development time and resources, increasing the overall cost.
• Development team: Hiring an in-house development team offers greater control over the project but can be expensive, especially if you require a team with specialized marketplace development experience. Outsourcing development to agencies or freelancers can be a more cost-effective option, but vetting their experience and expertise is crucial. Depending on location and experience, expect to pay software developers anywhere from $50 to $200 per hour.

Additional cost considerations:

• Payment gateway integration: Integrating secure payment gateways like PayPal or Stripe will incur additional fees associated with transaction processing.
• Ongoing maintenance & support: Maintaining a secure and functional platform requires ongoing maintenance and updates. You may need to factor in the cost of ongoing development support or retain a team for bug fixes and security patches.
• Marketing & user acquisition: Attracting quality traffic to promote your marketplace requires marketing efforts. You should account for expenses related to online advertising, social media marketing, or content creation strategies.
• Analytics: Integrating with business intelligence tools like Power BI allows you to analyze platform data and make informed decisions. However, these tools often have subscription fees associated with them.
• Shipping Solutions: Integrating with shipping carriers or logistics providers can streamline order fulfillment for vendors but may involve integration costs and potential ongoing fees.
• Accounting Software: Integrating your marketplace with accounting software can automate tasks like financial reporting and payment reconciliation. Integration costs and subscription fees for accounting software need to be considered.
• Legal and Regulatory Compliance: Depending on your location and industry, there might be legal and regulatory requirements for operating an online marketplace. Factor in potential costs for legal consultations and ensuring compliance.

3 Challenges of Creating an Online Marketplace

Building a successful online marketplace comes with its own set of hurdles:

1. High cost and effort

• Limited functionality: Popular e-commerce builders like Shopify are great for single-vendor stores, but they lack the core functionalities essential for multivendor online marketplaces. Such missing features include:
  • Vendor dashboard: Shopify stores don’t offer vendor dashboards where sellers can manage their orders, inventory, and payouts.
  • Managing orders and payouts: These platforms lack the functionalities to automatically split orders, route them to vendors, and handle payouts.
  • Order splitting: The ability to automatically split an order containing products from multiple vendors and route each portion to the respective seller for fulfillment.
  • Complex checkout options: Offering various checkout options like single or split checkouts depending on whether the order contains items from one or multiple vendors.
  • Advanced tax structures: The ability to configure tax rules based on vendor location, product category, and customer location to ensure accurate tax calculation and compliance.
• Custom development costs: Developing these functionalities from scratch requires custom development, which can be expensive and time-consuming. Hiring a team of experienced developers can significantly impact your initial investment.

2. Finding brands to list

Attracting established brands, particularly in competitive niches, can be tricky. Here’s why:

• Risk aversion: Established brands might be hesitant to invest time and resources in a new, unproven marketplace, especially if there are well-established competitors already capturing a significant market share.
• Uncertain ROI: Brands need to be convinced that their online marketplace can deliver them a good return on their investment, meaning attracting customers and generating sales.

3. Building trust on both sides

• Customer trust: Customers need to be confident that your platform offers a secure and reliable experience. This includes:
  • Secure payment processing: Implementing secure payment gateways to protect sensitive customer information during transactions.
  • Dispute resolution system: Having a clear and fair process for handling disputes between customers and vendors in case of issues with orders or product quality.
  • Transparency and clear communication: Providing transparent information about product listings, seller policies, and shipping details fosters trust with customers.
• Vendor trust: Vendors need to believe that your platform provides a fair and supportive environment. Here’s what you can do:
  • Vendor selection & approval process: Implementing a vendor approval process can help ensure the quality of products and services offered in the marketplace.
  • Fair commission structure: Establish a clear and fair commission structure that incentivizes vendors to participate while allowing you to maintain profitability.
  • Marketing and customer acquisition support: Providing marketing tools or resources to help vendors promote their products within the marketplace demonstrates your commitment to their success.
  • Efficient payment processing: Ensure timely payouts to vendors to maintain their trust and confidence in the platform.

Pro-Tip: Create a Marketplace Website Development on Shipturtle + Shopify

Launching a B2C marketplace, B2B marketplace, an online marketplace like Airbnb, eBay, Fiverr, or a marketplace for used products requires strategic vendor acquisition, and reliable marketplace software to incorporate unique peer-to-peer transaction features. 

Fortunately, Shipturtle offers a simple technology stack over a native marketplace application for Shopify online stores, allowing you to grow your marketplace cost-effectively.

Shipturtle helps you to build a minimum viable incorporating the following essential marketplace features and beyond: 

Multi-vendor support:

• Inviting and onboarding multiple vendors to your marketplace.
• Vendor dashboards for managing products, orders, and store performance.
• Separate vendor permissions to control access and actions within the marketplace.

Product management:

• Adding, editing, and removing products by both merchants and vendors (depending on your setup).
• Bulk product uploads for efficient product addition.
• Powerful vendor product syncing with external platforms like Shopify and WooCommerce.

Order management:

• Order splitting for handling orders with products from different vendors.
• Order processing, fulfillment, and tracking for both merchants and vendors.
• Managing digital order fulfillment.
• Handling Non-Delivery Reports (NDRs).

Shipping management:

• Integrating various shipping partners to offer different shipping options.
• Configuring shipping profiles for vendors
• Setting up shipping zones and rates.
• Generating shipping labels and tracking shipments.
• Third-party live shipping rate calculators for dynamic shipping cost estimates.
• Managing customer returns.

Commissions & payments:

• Defining commission structures for vendors (if applicable to your marketplace model).
• Managing product commissions and vendor payments.
• Generating commission invoices.
• Payment integrations with services like PayPal and Stripe Connect for facilitating vendor payouts.

Customer management:

• Integrating WhatsApp for customer communication.

Frequently Asked Questions

1. Is it hard to build a marketplace? 

Building a marketplace can be a complex process that requires careful planning, dedicated resources, and the right development team. It involves creating a platform where buyers and sellers can interact, conduct seamless transactions, and build lasting relationships.

2. How do you build a simple marketplace?

You can create a basic online marketplace using Shipturtle, a multivendor marketplace app designed for Shopify online stores. It streamlines the process by offering pre-built features for vendor sync, order splitting, automated fulfillment, and various checkout options, eliminating the need for complex custom development. This allows you to focus on vendor acquisition, marketing, and building a vibrant community.

3. Can I create a marketplace on Shopify?

Shopify itself lacks built-in features crucial for marketplaces, like vendor onboarding, order splitting, and advanced tax structures. Consider Shipturtle, a native Shopify plugin offering pre-built multivendor marketplace features for a smoother and faster launch. You can also incorporate C2C functionality into your marketplace on Shopify with Shipturtle.