Have you been a user of an online marketplace and thought “why didn’t I think of this?”. Today we’ll discuss our top steps for starting an online marketplace from idea creation to launch. Stick around with us over these next few weeks as we map out how to start an online marketplace and discover what the most successful online marketplaces are doing and how you could potentially improve yours!
Before we dive into creating an online marketplace, we have to understand what it involves.
A marketplace can be broken down into 3 simple things:
- A 3rd party “seller” offers their goods/services on a platform.
- A “buyer” uses the platform to source and purchase goods/services.
- The marketplace is the platform that handles all transactions between “buyers and sellers” and generates revenue through fees.
In order to have a successful marketplace, you’ll have to have a high demand for both “buyers and sellers” to want to use your platform.
Let’s get into the steps to creating an online marketplace!
1. Find the Idea
Most businesses are created from solving a problem. So, what problem are you looking to solve and is there a market for it? According to CBInsights, “no market need” is the #1 reason startups fail.
Questions to ask yourself when getting started:
- Is it a viable industry?
- Will there be a mass supply and demand for it?
- Is the market too niche or maybe over saturated?
- How often will “buyers” be using your site?
Do your research, you’ll need a clear understanding of your market, who your vendors and end users are and what solutions they are looking for. And possibly most importantly, how do you stand out from the competition. What makes you the best option?
Tip: Best to get started with strangers in the industry of choice and not your friends and family (hint: they are biased). Attend events, conferences and ask them if there is a need for such a product. If you have a list of contacts, do a short survey of no more than 10 questions.
2.Choose your Business Model
Congratulations! You have done your research and it seems you have a great idea in the works. But how will you generate revenue?
There are 4 ways a marketplace typically monetizes its platform:
| Sign Up Fees: | Sellers are charged an initial flat rate sign up fee. While this is a great way to initially collect revenue, keep in mind that this is just a one time fee. Thorough your platform you’ll want to find other ways to monetize things with your sellers. |
| Subscription: | Subscription models seem to be the most favorable. This model can have different tiers to choose from as well, ranging from basic to more advanced features and capabilities. A seller would be willing to pay a monthly subscription fee as long as their profits far exceed that cost. This in turn keeps revenue generating monthly instead of a one time fee. |
| Listing or Insertion Fees: | These fees can be collected from your sellers when they list or sell an item on your platform. The charge can be a flat or variable amount depending on the price or the category of the product. |
| Selling Fees: | If you have experience selling on platforms such as Amazon or Etsy, then I’m sure you’ve encountered selling fees. Some platforms call them transaction fees or services fees, but ultimately these are the fees that you’ll be charging a seller when they receive and process new orders on your platform. |
Deciding on a way to monetize your business will also affect your operations (how you collect, when, etc.) If you are unsure about how to monetize, launch your product first and then try different methods to see what works best.
3.Operations
Supply or Demand
Do you focus on the demand or supply side first? The chicken vs the egg. If you’ve done your research correctly then you should be able to identify who your buyers are and how to attract them to use your platform. From there, you can build your marketplace around capturing sellers. If you can show these sellers that you have customers already interested in your product/platform it will be much easier to attract them.
Tips to Attract & Manage Your Sellers:
- You’ll need to be able to convey your unique value proposition
- Sign up page should be UI and outline how platform works
- Plan the seller capability and their level of control
Logistics and Shipping
If the item is tangible, will you or the seller be responsible for shipping? If you are responsible for shipping, there will be added steps such as obtaining the product from the seller. However, if the seller is responsible for shipping, they’ll also be responsible for management of the shipment, tracking and adhering to the delivery rules you have set.
Payments
Selecting the right payment processing company for your marketplace will be crucial. You’ll want to work with a company that is familiar with the space you’re in. If you choose the wrong payment processor, unfortunately you could incur a lot of unexpected costs.
Things to consider when choosing a payment processor:
- What types of payments will I be dealing with?
- What payment solutions are available in my country that meet the requirements?
- What is the cost of using the platform?
Software
- Cloud or hosted software
- Standalone Solutions
- Multi vendor CMS extensions
Another thing to consider pre launch is who will be working with you. Maybe you’re going into this solo, maybe you’re looking for a team. Whichever direction you choose we recommend having experience in development and design, sales and marketing and operations. And if you don’t there are always marketplaces to find freelancers on!
4. Test and Refine
Having a pre launch really allows you to get your product out there early and see what’s happening. What are the trends and traffic patterns to your site? Is the buying and selling process simple? You can gauge what is working and what needs to be revised. Use this feedback to consistently tweak your product to align with your customers needs.
Gather feedback, iterate and improve.
5. Launch and Grow
From your pre launch you should now know which direction to take your marketplace.
Integrity & Trust
You are now the middle man between the buyer and seller. Having clear policies and high standards will not only keep loyal end users, but it will also attract quality sellers. The reputation of your platform will have a huge impact on your growth. Secure Payments and proper dispute resolution will also be another thing you’ll have to deal with.
Focus
You need to focus on your sellers and make sure you are providing them with the best customer experience. This from making it easy to list their products, manage their inventory, or get paid quickly. Hence, choosing a payment processor is important to keep sellers happy. Let’s take a look at 5 things to consider when choosing a payment processor:
- Cost and fees (transparent and hidden)
- Geographic parameters- does this processor have limitations to the amount of countries it can make payouts to
- Security tools
- Speed to market and scalability
- Customer Support
borderless was built with marketplaces in mind. We’re focused on making bank payments simple, transparent and accessible. With borderless you can:
- Pay to 100+ countries, in 99+ currencies.
- Self-serve recipient on-boarding and reduce bank data liability
- Real-time payment tracking
- Avoid bank fees with local delivery
- Automate payouts using our robust API
Adapt
As your business grows, your user base may become more diverse causing you to cater to a wider market. Don’t let this intimidate you as some of the best businesses we know once started out as something completely different.
Conclusion
Starting an online marketplace just like any other business will come with its fair share of trial and error. Throughout the hurdles keep in mind that an online marketplace key focus should be to have a healthy supply and demand working in its favor. Both users of your platform need to see the value of using it. Without that you won’t have a viable, sustainable business. Remember! You may have the greatest idea in the world but if you can’t make money from it it’s sadly not a business. In our upcoming blog we will dive into what’s trending amongst the most successful online marketplaces and how you too can get in on it!
Create your borderless™ account today and start saving on payment processing fees using code GETSTARTED22, or contact a member of our team to schedule a demo or ask any questions!