6 critical questions to answer before launching your own marketplace

How to launch your own marketplace

Launching a successful online business is not easy. Most e-commerce start ups fail soon after launch, so it’s extremely important to be as prepared as possible to make sure your business falls into the small number of lucky ones. The good news is that if you want to start an e-commerce business today – creating an online marketplace is the way to go. It is one of the most successful online business models and now is the best time to enter proceedings and corner a sweet market niche.

There is a lot of work that needs to be done at the conceptual stage to make your business works, so ensure that you’ve covered all the essential aspects. Leading online marketplaces like Amazon, eBay, Etsy, Upwork had a strong vision and a smart strategy behind their success. In this article, we’ve drawn from our learnings and expertise, our clients’ experiences, as well as analyses of the most successful online marketplaces. As a result, we came up with the top critical questions to answer before you start your online marketplace business. Knowing the answers to these questions will help you minimize your risk, guide your business towards future successes, and set your marketplace’s tone from the start. 

How to attract sellers?

Your sellers are a large part of your business equation. Giants like Amazon can show how sellers’ prioritization can be an effective strategy. By acquiring new sellers, you automatically expand your product range and make your marketplace an indispensable platform for customers that appreciate a variety of choice. Etsy is another excellent example of a company that championed their sellers by offering small business owners an outlet and a voice.

Now, the crucial question is – how do you attract sellers in the first place?

People often think that you need buyers to find sellers or sellers to find buyers in the beginning. This is a “chicken and egg” problem and there is no exact recipe on how to start. Often, it depends on the type of marketplace you’re launching. Generally speaking, however, our experience shows that attracting a critical seller mass is far more significant. Sellers might not guarantee you customer traffic but they definitely can secure a good mix of products/services which will make use of your traffic and ensure good healthy conversion rates.

The only scenarios where it makes sense to focus on developing your buyer side first is if your offering already has an existing established customer base, such as Social Media platforms, High Volume Blogs, Influencers on Instagram or YouTube with their own sites as well etc. In these situations you have a critical mass or “tribe” of buyers that are extremely invested in the sector – you can leverage these buyers to build a marketplace by demonstrating the traffic and “intent” to potential sellers.  

Why should people sell with you?

This is the question that sellers will most likely bring up, or at least be thinking, down the road. But in fact, the challenge of building the supply side is one of the first aspects you need to address, even before you start creating your marketplace.

What additional value are you creating for your sellers? The best approach to answering this question recognizes that it is always challenging for individual businesses, especially small ones, to attract clients. Having an online marketplace platform that easily connects buyers and sellers saves the seller energy, time, and most importantly, advertising budgets. A successful online marketplace can expose sellers to millions of consumers, in a way that they could not achieve independently. If you look at this from a financial perspective – as long as your commission or service cost can compete with the marketing spend needed to bring the customers to the seller’s owned site, it is a smart decision to join your marketplace. At the end of the day, business is all about profit.

How can you keep your marketplace “sticky” and prevent disintermediation?

One of the challenges marketplace owners have after starting an online marketplace is disintermediation. Keeping your marketplace sticky and preventing disintermediation is critical to the longevity and strength of your business. Making your marketplace sticky means keeping both buyers and sellers trading on your platform and not having them leave, i.e., drive customers to a seller’s owned channel or completing the transactions outside of your marketplace.

Successful marketplaces have prevented disintermediation and maintained stickiness by creating an environment in which sellers can easily access customers and reach new broader audiences. Companies like Amazon and Etsy provide tremendous value to their sellers by connecting them with millions of people worldwide, offering transparent platforms with easy navigation and taking some burden off the seller’s plates.

But not only a good customer base can make your marketplace indispensable. Finding other seller’s pain points and inventing ways to solve their everyday problems will make your marketplace much more valuable. Upwork is a good example of how the marketplace can solve customers’ and sellers’ problems. When hiring a freelancer on Upwork, an escrow is held from the client before the freelancer’s work starts. This provides much-needed security for the service transaction. Moreover, milestones functionality is available, which makes the payment process clear and convenient. The reviews and seller profile rankings also build additional trust and authority for good vendors, which is harder to achieve outside of the marketplace.

In a nutshell, when you make your online marketplace more convenient and profitable than the alternative, you ensure strong referrals and organic business growth. 

View the CEO of Omnyfy, Fabian Rebeiro talk about the evolution of online marketplaces and how incremental value offering to participants has driven how marketplaces have changed from merely creating buyer/seller connections through to providing an entire suite of tools in which sellers can deliver their service on the marketplace.

What does your monetization strategy look like?

Developing the right monetization strategy is a critical component of your company’s early success.  A lot of questions need to be answered here. Will you charge vendors to participate in your service, will you make it a free platform and make your money from commission, or a combination of both? Depending on the type of marketplace you are trying to launch, you will want to think carefully about which option makes the most financial sense. For example, when in a service marketplace, sellers would pay a commission fee, while other businesses who sell products might charge the buyer.

Once you have decided either to charge vendor, buyer, or both, you must determine how much to charge. At Upwork, a 20% commission is charged to freelancers. This model works because the quality and abundance of contracts make it worth the charge. However, there is no one-size-fits-all model. Websites like Amazon charge individual sellers $.99 for each item sold in addition to a closing fee, which can range from $.45 to $1.35. Amazon offers a free individual plan for sellers and provides vendors with the option to pay a monthly professional selling plan for $39.99 a month. Bottom-line is to do your research. Running market research is a good way to get some benchmarks specific to your industry. Find companies that resemble yours and find out what their models look like.

Also, don’t forget to simply ask the question of your sellers – how much do they pay today to secure their leads and make a sale (Cost of Acquisition) and work out how much additional value you can deliver by offering more targeted, specialised buyers.

How are you streamlining fulfilment? 

Similar to streamlining your messaging to your sellers and buyers, streamlining fulfilment is a critical component of your marketplace business model.

Depending on the type of your marketplace, fulfilment can mean delivery, appointment booking, service engagement or communication. But regardless of the type of fulfilment, you need to make sure that both vendors and customers have every tool necessary for a smooth buying and selling experience. Upwork is a good example where the fulfilment process is seamless and convenient. Upwork implemented video calls and messenger, so the contractor and freelancer do not need to go outside of their platform to communicate. Streamlining an end-to-end service allows all parties to stay engaged and brings us back to the point that convenience creates stickiness.

Transparency during the fulfilment process is another factor of success. To manage all parties’ expectations, both buyers and sellers need to understand exactly what the fulfilment process looks like. If a seller doesn’t know what is expected of them or how to interact with your platform, it can leave them feeling frustrated and potentially cause them to lose customers, which, in turn, will cause you to lose them. Sloppy fulfilment can be beyond damaging for a business.

Platforms like Amazon, for example, invest a lot into polishing their fulfilment and delivery process. They have recently developed their own Uber-like delivery platform called Amazon Flex to manage “last-mile delivery”, aiming to hit a same-day delivery timeframe worldwide. This is a great example of taking the effort to exceed customers’ expectations.

Airbnb has also worked a lot on polishing their delivery process, which is in this case – effectively connecting the property owners with visitors. Ensuring safety, transferring the keys, accommodating the communication between parties – every single step of the fulfilment process is well thought through, creating a seamless experience for both sides of the marketplace.

Why should buyers buy from your marketplace?

Finally, the last but probably the most important question: how to acquire customers after building your marketplace and how to secure your first buyers? 

The concepts of traditional marketing are never obsolete when it comes to customer acquisition. Given that there is an enormous number of marketplaces, you must first define your value to the customer and find your points of differentiation. Ask yourself who you want to sell to and why your target customers should buy from your marketplace and not elsewhere. This will help you to form the right thinking about your brand and value proposition. It is always easier for niche marketplaces to pass through this stage, as they are usually built with the customer in mind.

Next, focus on channel strategy and content plan as key attributes of your customer acquisition strategy. Answering the questions on where to find your target audience and what may attract them to your marketplace will help you build the necessary marketing assets and promote them through the right channels. The classic sales funnels and customer journey frameworks work great to map out and visualize your customer acquisition approach.

Finally, consider the community aspect of your marketplace. Building an engaged community around your brand will help you grow your marketplace. Etsy is wildly successful with this model and does an excellent job through marketing to create what feels like a community of artisans that keeps customers engaged and buying into the brand.

Ultimately, there are a lot of other factors to think about as you begin your journey to build your business, but these questions will provide some answers to guide your early decisions. One of the major differences between successful marketplaces and their unsuccessful peers is the foundation upon which they built their brand and business models. The most successful marketplaces found their answers to the above questions and elegantly created business models that successfully appealed to buyers and sellers. Planning at the front-end of your business can only serve to allow for a better shot at making the transition to take your place amongst the top marketplaces in the world.