An online marketplace is a type of ecommerce business that can be rewarding to start, but it also has its own set of challenges. If you’ve ever considered doing some online selling similar to the marketplaces you see online such as Facebook Marketplace, Amazon, Etsy, or Airbnb, this is the article to start with. This article will teach you everything you need to know about online marketplaces, including what they are, how to start one, and how to become marketplace sellers.
Are you ready to start selling online? Continue reading.
What is an online marketplace?
An online marketplace is a type of ecommerce store where multiple sellers can sell their products or services to customers. Facebook Marketplace, Amazon, Etsy, Airbnb, and eBay are all examples of online marketplaces. Because there are many merchants (hundreds of thousands, in fact) who can sell their products to customers who browse the online shopping website, these online stores are considered online marketplaces.
Traditional ecommerce stores sell a single brand’s goods and services, but ecommerce marketplaces have many marketplace sellers who sell online on their site. They have a more extensive product offering, which may entice more visitors to browse their website. One of the primary benefits of online marketplaces is that they attract a large amount of digital foot traffic, which can result in increased exposure for merchants on their site.
The fact that all online sellers use the same checkout process brings them all together. Customers who shop on an ecommerce marketplace do not need to click away to different websites to complete the transaction; instead, they can purchase from a variety of merchants on the marketplace at the same time, even if the merchants are not affiliated with one another.
When customers make purchases on sites such as Facebook Marketplace or Amazon, the merchants they buy from are notified that their product has been purchased, and each online seller can then individually ship and send the customer the products that were ordered from them.
This means that, while a customer can complete a single transaction when purchasing from multiple sellers, their products will be shipped from each seller individually, resulting in a shipping package from each merchant from which they ordered a product.
Essentially, the experience for online shoppers is similar to shopping from several different online sellers at the same time while being able to pay all of the merchants in one transaction rather than many transactions.
Another feature that connects online marketplaces is that they are typically focused on a single niche. Amazon, for example, began as a booksellers’ ecommerce marketplace. Airbnb began as an online marketplace for renting out rooms in San Francisco. Facebook Marketplace began by creating a profile for users, which eventually led to the development of a large userbase, allowing for online shopping. When they focus on a single niche, they are more likely to succeed because it gives consumers a reason to shop there, and when they do shop there, they know what to expect from the online sellers.
It is also known as a “Collaborative Economy” or a “Sharing Economy” because it is typically composed of merchants who collaborate to share or sell idle assets on a community-accessible marketplace.
Why Should You Create an Online Marketplace?
One of the primary reasons for launching an online marketplace is to assist third-party sellers in selling more products and to assist shoppers in gaining easier access to goods or services.
Sellers on online marketplaces benefit from your creation of a space where they can sell goods, spaces, or services online at a lower cost, higher quality, or in a more convenient manner.
Starting an online marketplace is advantageous because it requires no inventory. This makes them an appealing option for entrepreneurs who want to provide a service or solve a problem without investing a lot of their own money. Merchants source inventory because they sell or rent their goods or services on ecommerce marketplaces.
How to Establish an Online Marketplace
There is a lot of online literature out there about how ecommerce entrepreneurs can start their own online businesses, but those online businesses tend to focus on solo entrepreneurs who want to sell their own products on their own websites. That is not how online marketplaces work, so a different approach is required.
- Create Online Marketplaces
Sharetribe is the best online marketplace platform we’ve found and recommend for building yours. The ecommerce industry recognises Sharetribe as the most dependable, user-friendly, and cost-effective way for entrepreneurs to launch their own online marketplace. Any entrepreneur can use their software to create a well-designed online marketplace in the most efficient and secure way possible.
Creating one from scratch with a team of web developers would cost you thousands of dollars, but Sharetribe costs much less and allows you to have your site up and running much faster than if it were built from scratch. Start your online marketplace on a hosted platform like Sharetribe to keep things simple, streamlined, and efficient.
- Online Shopping Malls Niche
Focusing on a single niche will lead to greater success in the long run. Choose a niche market to which your online marketplace will cater. This is a critical step in the process of launching an online marketplace because it will influence what you sell on your website, the merchants who sell there, and the customers who shop online.
- Choosing a Minimum Viable Product Category
With Facebook Marketplace and other marketplaces out there, it’s easy to get caught up in thinking about how you’ll scale yours to serve millions of customers right away. We urge you not to fall into this trap, because it takes a long time to build something as large as Facebook Marketplace, and you can still build a successful one without being a giant in your industry.
When you’re just getting started, we recommend focusing on your Minimum Viable Product (MVP) and developing it. Don’t get caught up in how you’ll build the biggest ecommerce marketplaces; instead, focus on building one that a small subset of your niche market truly believes in, and start from there. Thinking too big too soon will almost certainly cause you to feel overwhelmed by everything you need to do and accomplish to get there. However, by focusing on developing your MVP, you will be more likely to stick with it for years to come, which is how you will grow.
Make something that at least ten users will be interested in, and then use their feedback and experiences to grow from there. As previously stated, Facebook Marketplace and Amazon both began small, and so can you.
- Creating an Online Sales Budget
Starting an online marketplace, like any other ecommerce business, will require some initial investment. Fortunately, you don’t have to buy or create inventory for online selling to take place, which saves money. Your budget will most likely include the following items:
The Price of the Ecommerce Platform:
Using a hosted online marketplace platform, such as Sharetribe, will necessitate monthly or yearly payments.
Advertising Costs for Online Sellers:
To set up shop on your online marketplace, you’ll need merchants with products to sell, and when you’re first starting out, you’ll need to reach out to a lot of sellers to get some to actually start selling on your site. This means a lot of outreach, which means you’ll probably need some advertising money. Whether it’s social media advertising, influencer advertising, print advertising, or something else, you’ll almost certainly need to spend money on advertising to get sellers on your ecommerce marketplace.
Customers’ Advertising Cost:
Customers will not rush to you if they are unaware that you exist. To get customers to start shopping on your site, you’ll most likely need to spend some money on advertising.
Don’t spend too much money in the beginning while you’re still learning. It may be tempting to invest as much capital as possible, but keep in mind that growth will take time.
Instead, focus your efforts at first on obtaining free advertising, whether through SEO or your own social media. Allow your online marketplace to generate its own revenue before investing heavily in it. Even if the growth is slow, it will help to validate your online marketplace concept.
- Recognizing Your Worth
Finally, when it comes to creating an online marketplace, don’t forget to keep the main outcome in mind. What are you hoping to achieve with your online marketplace? How does it benefit those in the niche market it serves? Any online marketplace’s goal is to connect merchants and customers within a niche to sell or rent goods or services, so consider how that works and how you want to bring it to life.
Different Types of Online Marketplaces
There are several types of online marketplaces, and while they all operate in a similar manner, there are minor differences that can impact the shopping experience, the types of products sold, the customers who shop there, and the service that the online marketplace promises to provide.
- Physical Goods
Some online marketplaces only sell physical products. This means that merchants create or provide physical products that must be shipped to customers who buy them.
Customers will receive shipping packages from each merchant they order a product from when you have an online marketplace that sells physical products, which can impact their user experience. It means they’ll be receiving multiple packages, which can be confusing if they don’t know what to expect. Customers who shop on your physical product online marketplace should be aware that, while they may be completing a single transaction, the products are sourced from individual merchants and the products they’ve ordered will arrive separately from each separate merchant.
- Digital Goods
Digital product marketplaces are another type of online marketplace. These online marketplaces sell digital products that can be downloaded to computers or smart devices immediately after purchase, eliminating the need for customers to wait for their products to be shipped and receiving products one by one from each separate merchant from which they order. Creative Market is an example of a digital marketplace, where designers and creators sell digital assets such as stock photos, logo templates, graphic designs, and more.
- Real Estate and Spaces
Another type of online marketplace is one that allows customers to rent or sell property, rooms, event spaces, or locations. Airbnb is a great example of this type of online marketplace because it allows property owners to rent out rooms, apartments, houses, or properties all over the world.
This type of online marketplace presents its own set of challenges, such as government regulations, property insurance, and booking confirmations, all of which must be followed and organised in order to be viable and successful.
Other online marketplaces can sell services to their customers, and merchants can rent or sell their wares to the marketplace. These types of online marketplaces can offer digital services that can be completed online, such as website development services, or they can offer in-person services, such as painting and restoration work. Fiverr, for example, is one of the most popular online marketplaces for selling services.
The Difficulties of Launching an Online Marketplace
Building online marketplaces is not the same as building online stores. Here are some of the most significant challenges you can anticipate when launching an online marketplace:
- Persuading online sellers and shoppers to choose you
Attracting merchants and customers to use your online marketplace will be your most difficult challenge when you first launch it. Because you’re new, you’ll need to build trust with merchants so they’ll sell on your site, and you’ll need to make sure customers know your marketplace exists so they’ll think to shop on it.
It will be difficult to persuade merchants to sell on an online marketplace if there are no customers already shopping there, and it will make no sense to attract customers to your online marketplace if no merchants are selling their inventory there.
By contacting suppliers first before attracting customers to your online marketplace, you will also increase the inventory supply that your marketplace has to offer, which is critical for customers once they arrive on your online marketplace. There is no reason for your customers to shop on your marketplace if there is no inventory, so secure the goods and services before you begin attracting customers.
Consider reaching out to merchants who already sell on Amazon, eBay, Facebook, or Etsy to begin finding merchants to sell goods and services on your online marketplace. This demonstrates that they are already comfortable selling on online marketplaces, and if you provide them with a compelling reason to sell on yours as well, they may be interested. Look for merchants who sell products that are related to the focus niche of your online marketplace.
When you’re just getting started, Sharetribe’s article on How to Build Supply for Your Marketplace can be a valuable resource for attracting merchants to your online marketplace.
- Providing a valuable service
Online marketplaces can only be long-term successful if they solve a genuine problem for both merchants and customers. This is why it’s critical to validate your idea before launching your online marketplace, so you don’t end up with a failed marketplace months or years later because it didn’t provide value to merchants or consumers.
As previously stated, take your time building your online marketplace and don’t invest too much capital upfront in case your online marketplace idea doesn’t stand the test of time. It is preferable to gradually expand your marketplace so that you can adjust and adapt to merchants’ and consumers’ needs as you go, resulting in the creation of an online marketplace that provides value to those merchants and consumers and thus becomes a successful online marketplace in the long run.
Concentrate on solving a problem for both merchants and customers, and you’ll be more likely to provide a useful service to both.
- Dealing with rivalry
Even if you believe you have a brilliant idea for an online marketplace, it is likely that someone else has already considered it. Although competition can be an impediment to starting and growing your online marketplace, it should not completely deter you from pursuing it.
If there is already an online marketplace, you must find a way to compete with them. Try competing on price, selection, quality, choice, the number of merchants, geographic area, or anything else that gives your online marketplace a competitive advantage over others.
If you are unsure whether there are any existing online marketplaces that are directly competing with your online marketplace idea, be aware that someone else is probably working on the same idea as you, and you will eventually face competition. If this is the case, your only option is to execute your online marketplace idea better or faster than anyone else who is starting a similar online marketplace, so think about how you can do so.
- Costs in the Market
Every marketplace requires revenue and profit to survive, so you’ll need to devise a viable strategy to ensure that your marketplace generates the revenue and profits it requires to survive without eroding seller margins and scaring them away. Here are some cost-cutting suggestions:
- Funding must come from the community you serve, so think about how your customers will fund your online marketplace.
- You must “own” each transaction, which usually means charging a commission on each one you facilitate. This aids in the generation of revenue for your online marketplace. Top online marketplaces typically charge 20-30% commissions as seller fees.
- Focus on the number of transactions that occur on your online marketplace rather than the number of users. Your online marketplace exists to facilitate transactions, and that is most likely how you will earn revenue, so that is the most important metric to monitor.
- Consider how you will pay your merchants and how they will profit from providing inventory to your online marketplace. You must also consider when to transfer money from the customer to the merchant. It generally makes sense to transfer money from a customer to a merchant only when you are confident that the customer will receive the goods or services they paid for without any problems, such as refunds.
How to Run a Profitable Online Marketplace
- Decide on an online marketplace business model.
Your online marketplace business model will influence how you earn revenue and profit, as well as how your merchants earn revenue and profit. It’s a critical component of any online marketplace, and you should decide on it before you launch.
You can choose from the following online marketplace business models:
Commission-Based Business Model
This is the most common type of online marketplace business model, and it entails earning a commission on every transaction that occurs on your online marketplace. It’s an ideal business model because you’re guaranteed to earn revenue from each transaction, and it fosters trust among merchants and customers because they understand that facilitating successful transactions is important to you because you’ve invested in it.
Membership/Subscription Fee Business Model
With this business model, each merchant or customer pays a membership fee in order to sell or buy on the online marketplace. Using this business model ensures a consistent monthly revenue stream, but it may deter merchants and customers from using your online marketplace.
Listing Fee Business Model
With this business model, your online marketplace will charge merchants a fee to list their goods or services on your website. The listing fee may be based on a flat rate or a percentage of the value of the good or service, and it is typically used when the number of listings a merchant has posted on the online marketplace is valuable.
Lead Fee Business Model
Because there is often a lot of value at stake, this business model is more common in business-to-business (B2B) industries. When this business model is used, the customer posts a good or service that they are looking for, and merchants pay a fee to bid on the work. This is not a common online marketplace business model, but it can be effective in certain industries.
The freemium business model is ideal for online marketplaces that facilitate the sale of low-cost items. When this business model is used, merchants and customers can use the online marketplace for free, and the online marketplace will offer additional services that merchants and customers can purchase to increase the value of the online marketplace. Insurance, vetting services, and delivery options are examples of such services.
Ads and Featured Listings Model of Business
When using this business model, merchants can often list their goods or services on an online marketplace for free, but they must pay a fee to promote their listing to a viable audience. This ensures that merchants will use the marketplace, but the online marketplace will still earn revenue from merchants eager to sell their goods or services.
Any combination of the following business models:
These business models are frequently combined to create more advantageous conditions for merchants to sell their products and for online marketplaces to earn consistent revenue.
- Provide a Beneficial User Experience
Creating a great user experience is an important part of creating a great online marketplace. Customers will simply go elsewhere if merchants can’t run their online businesses or customers can’t do their online shopping the way they want to. Make it as simple as possible for customers and merchants to connect so that a transaction can occur. To make your online marketplace as efficient as possible, you can incorporate the following elements:
Have a Smart Search Function
When customers come to your online marketplace with a specific goal in mind, a search function will be critical to their success. Make sure your online marketplace has a smart search function so customers can find exactly what they’re looking for as quickly as possible.
Make Your Marketplace Searchable
Some customers may arrive at your online marketplace knowing exactly what they want, whereas others may not. Customers who aren’t sure what they’re looking for need to be able to browse your marketplace, so make your online marketplace browser-friendly. This could imply utilising categories, filters, and menus to assist browsers in navigating your marketplace.
If you’re providing services, or if your online marketplace focuses on renting items rather than selling them, you may need to use specific systems to ensure that everything runs smoothly. These systems could be calendars, booking systems, maps, and so on, and they could be critical to the operation of your online marketplace.
Merchant and customer profiles
It is likely that merchants and customers will need to create profiles on your online marketplace in order to create listings, access their purchase history, manage their orders, and so on, so your online marketplace will need to be equipped to handle these profiles and define how they can interact with one another. Remember that most people prefer to check out as a Guest, so make that an option for customers.
Mandatory Listing Information
You should decide ahead of time what kind of information merchants on your online marketplace must include in their listings so that it is consistent across all merchants. Consistent information across all third-party sellers will assist customers in making informed purchasing decisions, which can have a significant impact on their experience on your online marketplace.
Best Practices for Starting an Online Marketplace
When it comes to bringing your online marketplace to life, your launch will have an impact on how your marketplace progresses over time. To get the attention of people who might be interested in what your marketplace has to offer, use promotion channels such as an email list, advertising, press, influencers, and online communities such as Product Hunt.
Whatever method you use to draw attention to your online marketplace when it launches, it’s arguably most important to instil trust in each and every user who visits your website as soon as it goes live. No matter how many visitors your promotion tactics bring to your website on launch day, concentrate on instilling trust in them as they interact with your online marketplace.
Among the strategies for instilling trust in visitors to your online marketplace are:
Make a Good First Impression
The appearance of your website, the types of products you sell, the quality of your merchants and their products, your FAQ Page, and your About Page can all have an impact on a visitor’s first impression, so put in the effort to make it a good one.
Prepare Inventory for Sale
Make certain that products are available for purchase by your customers. You don’t want to drive visitors all the way to your website only to have nothing for them to buy.
If there is still room for improvement on your marketplace, let customers know that you’re working to make things run more smoothly and that you’re working hard behind the scenes to provide them with the best online marketplace experience possible. Customers value transparency, so if there are any hiccups during your launch, make sure to keep customers updated.
Whatever your online marketplace promises customers, make sure you follow through. Make no claims that you cannot fully commit to.
Allow Customer Reviews
Customer reviews help all websites gain credibility, so leave a space on your online marketplace for customers to leave their thoughts and feedback. Because customer reviews are generally not biassed in favour of the brand, other customers are more likely to believe what they have to say. When you first launch, you may not have any reviews, but as your brand grows, you will be able to accept reviews as they come in.
You now have the knowledge necessary to launch your own online marketplace. Keep in mind that selecting the right niche will be what distinguishes your website from other marketplaces in the industry. Focus first on acquiring suppliers for your marketplace, and then on instilling trust in every visitor who visits your online marketplace after its launch. Do you have an idea for an online marketplace? Begin now!