How to Build Marketplace: 10 Simple Steps You Should Complete
The eCommerce industry is growing in leaps and bounds.
In 2020, consumers spent over 4.28 trillion U.S. dollars worldwide and eRetail revenues will grow to $5.4 trillion in 2022.
eCommerce offers extremely lucrative business opportunities. If you want to join the gang but don’t want to deal with products, their shipping, storage, and so on, you can enter the business with your own marketplace – a platform that sells products offered by third-party merchants.
Online marketplaces are a part of the sharing economy, which is projected to reach $335 billion in value by 2025. Marketplaces can be used across different areas – from product retailing to the sale of services.
In this article, we discuss how to a build a marketplace in 10 simple steps:
- Define the potential to create a marketplace
- Explore the existing marketplaces on the market
- Decide on a marketplace monetization strategy
- Define your Unique Value Proposition
- Choose the best marketplace development approach
- Decide on functionality for your marketplace
- Define user roles for a multi-vendor marketplace
- Develop a marketplace, first version
- Promote your marketplace
- Track performance and plan improvements
Interested? Let’s dive right in and learn how to create a marketplace website that could win over the market.
1. Define the potential to create a marketplace
It’s easy to create an online marketplace, but only so long as you have a well-defined strategy, know the key types of marketplaces, and understand the situation in a specific market.
Let’s start with some basics that will help you decide how to build a marketplace that will have a viable chance to grow into a successful eCommerce business.
1. Define your marketplace platform idea
So, what is a marketplace?
A marketplace is an independent online platform that connects merchants and buyers.
Unlike traditional online stores, marketplaces do not always offer their own product. Instead, they allow third-party sellers to list their products for a fee.
There are thousands of marketplaces on the market. Below, you can see the projected growth of online marketplaces vs. eCommerce websites in the near future.
Amplified growth is one of the main reasons why businesses are now wondering how to create a marketplace website and join the game.
So, how do you start a successful marketplace?
Define a pain point
First of all, define a pain point that you are going to solve with the marketplace.
Take Airbnb for example. Its founders decided to solve their own problem – having an empty apartment that they wanted to rent out.
At the same time, they solved another pain point – they helped people who were looking for cheap short-term rent during a trip.
Define your target audience
Second, identify your target audience – those who’ll use your marketplace. In the case of an online marketplace, there are two types of buyer personas: service providers and customers.
When working on the buyer persona, try to describe it as precisely as you can:
- Education level
- Yearly income
- Possible pain points
- Media they use
Define market potential
Analyze the market volume for your future marketplace by exploring the target market. For example, the marketplace for vacation rentals is huge. At the same time, you will also need to explore your target local market to identify any potential.
2. Define the marketplace type
There are various types of marketplaces on the market with differences based on their business models and target audience.
Let’s dip our toes into an overview of all the possible options.
- Peer-to-Peer (P2P)
Peer-to-Peer (P2P), also known as a customer-to-customer (C2C) marketplace, is a place where customers can sell products to other customers. Confusing, right?
A great example of such a marketplace is Etsy, where individual people can sell their handcrafted goods. You won’t find big brands there, as the platform pursues a different objective.
Uber is another example of how to build a marketplace that allows individuals to offer their services to other customers.
- Business-to-Customer (B2C)
B2B is probably the most popular type of eCommerce marketplace where businesses sell directly to customers. Amazon and AliExpressare the leading examples of this business model.
- Business-to-Business (B2B)
B2B marketplaces help businesses expand the distribution of manufactured products. When you look at the market, Alibaba is the biggest such marketplace in the world with revenue reaching 109 billion U.S. dollars in 2020.
Marketplaces can also be different based on their focus and business niche.
- Vertical marketplace
Vertical marketplaces target a certain business niche. The main advantage of these marketplaces is that they serve only a specific target audience. You don’t need to try and meet the needs of different types of audiences and don’t need to stretch your marketing in different directions.
Vertical marketplaces allow for a better focus on business strategy and service quality. UNI Diamonds and Etsy are great examples if you need some inspiration.
The main disadvantage of such a marketplace is that you need to choose the niche carefully. Before development, you need to prepare a detailed plan for how to build a marketplace with a niche focus.
- Horizontal marketplace
Horizontal marketplaces use an entirely reverse business approach. These marketplaces target multiple niches at once and offer various product types, usually the most popular categories that you can see in the image below.
The main advantage of such a marketplace is that your target audience is significantly broader and you can make more profit. The key disadvantage is the difficulty of building a comprehensive marketing strategy and the huge amount of competition.
Amazon and AliExpress are the most prominent examples of horizontal marketplaces.
Before moving on, you first need to validate your idea. Without a clear idea, you won’t be able to decide how to build a marketplace.
Research is the key-note stage of marketplace website development, which pays off in the long run.
The questions below will help you define the direction for your research:
- What types of products do you plan to sell?
- Who’ll be your target audience?
- What countries do you want your marketplace to operate in?
- What is the size of the target market?
If you don’t know how to build a marketplace and need help from the field experts, MLSDev should be your next stop.
Over the course of 12 years, our offshore software development company has successfully delivered a number of projects with eCommerce and marketplace functionality.
- One of the latest marketplace examples is the Zayed C2C platform in Saudi Arabia; a place for reselling household goods in a fast, secure, effective manner, and supporting a sharing economy in the region.
- Another project we helped scale from scratch is Gopuff. The MLSDev team helped with Gopuff’s project growth from the initial idea to over 400+ micro-fulfillment centers in 650+ U.S. cities and with 7,000+ workers.
Need help and info on how to build a marketplace?
If you want to receive a consultation and feedback on your marketplace idea for free, contact MLSDev. We can conduct a competitor and market analysis to evaluate your marketplace idea. We have broad experience delivering solutions for eCommerce and want to become a driving technical force for you.
2. Study and learn from the top-performing marketplaces
Let’s move on with our exploration of how to create a marketplace website. It’s time to learn more about the best online marketplaces in the world that make billions of dollars in revenue.
Amazon started in 1991 as an online book store and grew into the biggest marketplace in the USA, eventually going on to open offline stores and become one of the biggest technology companies in the world.
In 2021, Amazon generated around 386 billion U.S. dollars in net sales. Today, it's the most visited eCommerce website in the USA with around 2.45 billion monthly visits and offering a full range of products including electronics, pieces of art, toys, and other items from 6.4 million sellers across its services.
Want to build an eCommerce website, but don’t know where to start?
Check our article How to Build an eCommerce Website from Scratch & Start Selling Products Worldwide. The guide will help you explore the waters of eCommerce web development and understand key steps and tech requirements.
When you look at eCommerce marketplaces, Etsy stands out because of its unique business model. Handmade products and vintage goods are the main focus for Etsy.
The uniqueness of the idea and easy process of becoming a seller has turned Etsy into a company with over 4.36 million active sellers, 81.9 million buyers, and annual revenue of over 1.7 billion U.S. dollars.
eBay holds the status of the biggest marketplace in the world that facilitates consume-to-consumer and business-to-consumer sales. eBay's unique feature is online auctions to sell some really unique products and collectibles. Today, the company has over 159 million active buyers and more than 10 billion U.S. dollars in net revenue.
Alibaba is one of the biggest online marketplaces in the world with over 614 billion market cap and the biggest B2B platforms. The company works both in B2B, B2C, and C2C and offers a variety of products from different industries.
Bonanza is a direct competitor to eBay. At the start of its history, it was a marketplace of collectibles and rare products like coins, books, jewelry, etc.
Just like many other marketplaces, it turned into a marketplace of all trades, offering almost any type of product. Bonanza has over 5 million visitors a month and is one of the most popular marketplaces in North America.
3. Choose the right marketplace monetization model
Marketplaces offer great business opportunities, as there are a number of monetization strategies that you can use. Let’s learn how marketplaces make money based on the monetization approaches.
- Commission – charging a fee for each transaction made through the marketplace. Commission-based is the most popular marketplace monetization strategy in the world and such giants as eBay, Etsy, and Rakuten are exploiting it.
- Subscription – customers pay a monthly, yearly, or quarterly subscription fee to have access to the marketplace. Usually, these fees grant access to some advanced capabilities, like with Amazon Prime.
- Listing fee – merchants pay a fee for every listing they create, as Flippa does. The more listings sellers create, the higher your revenue.
- Advertising – paid promotion of sellers and their products by placing them higher in search results, on the home page, or among recommended products. Amazon uses the same model with its Sponsored Products.
- Freemium – monetization by offering additional features, for example, cross-selling capabilities, advanced product listing configuration, and much more.
Want to learn more about the best monetization strategies?
Check out our article How Do Free Apps Make Money? to explore the best-performing and most popular monetization strategies.
4. Finalize your unique value proposition & strategy
If you are deciding how to build a marketplace for a new business, you will need to create your own unique value proposition and strategy from the ground up. This part of the article provides an overview of all the possible models and steps for the best outcome.
1. SWOT analysis
Decide on the problem that your marketplace will solve for both customers and merchants and what value it delivers. During your research, take a look at the competition to better understand your opportunities to stand out.
2. Business model canvas
The next step in the journey of explaining how to create a marketplace website is to finalize your USP and strategy by using the Business Model Canvas. As you work on this, you will need to fill out nine blocks to better define your idea:
- Key activities
- Key resources
- Key partners
- Value proposition (USP)
- Customer relationships
- Customer segments
- Cost structure
- Revenue streams
After you have successfully filled out all the blocks, the result will help you better understand your idea and understand if the idea is worth further development.
Above is an example of Amazon’s business model canvas, which may give you a better idea of what you need to do.
3. Marketing strategy
Building a marketplace is one thing, but making it successful is an entirely different one.
You need to start working on your marketing strategy while your project is still in development or even before you move to the development stage.
For example, you can create a landing page before the launch and collect emails from interested sellers. You can also advertise your marketplace in different communities, work with influencers to advertise to your target audience, and much more.
Usually, a marketing strategy consists of the following parts:
- Marketing campaign (paid ads)
- Influencer marketing
- SMM (Social Media Marketing)
- SEO & content marketing
- Partners (who’ll promote your marketplace)
5. Select a suitable option for creating a marketplace
When you look at available options, you will see a number of routes you can take to create a marketplace website. Usually, six ways to create a marketplace are distinguished as follows:
- Create a marketplace website from scratch
- Use a marketplace website builder and open-source eCommerce platforms like WordPress, WooCommerce, Wix, etc.
- Create an online marketplace with no-code SaaS like Shopify or WooCommerce
- Marketplace website development on top of API-based SaaS
The main benefits of builders and no-code platforms are ease of use, availability of ready-to-use themes, and the ability to launch an online marketplace platform without months of development.
At the same time, the drawbacks are more than visible. For those exploring how to build a marketplace with highly customized design and features, website builders won’t do the job. Adding new features with the help of additional plugins takes time and requires specific technical experience.
For those wondering how to build a marketplace with custom design and features, development from scratch might be the best option.
Custom web application development has a number of benefits, such as a high level of customization, no dependence on a third-party software provider, no subscription costs, no licensing issues, and most importantly, the best scalability.
The main drawback of this approach is a longer development process and a larger budget. However, this will pay off in the long run, as you won’t hit the ceiling with product development and improvement.
You will need to only hire developers who have relevant experience and they’ll create a marketplace that will grow along with your business.
Need help to implement your marketplace project idea?
Get in touch with marketplace developers who know how to build a marketplace website from scratch with custom design and features. We’ll provide you with an initial consultation and help you decide on the course of action. Don’t be a stranger.
6. How to build a marketplace: chose a functionality-set
So, let’s find out how to create a marketplace website from the feature-side point of view. With marketplace building, you always need to create two parts of the website: one for users and another for merchants.
Below is an overview and description of some must-have functionality that you can use to create a marketplace.
1. User accounts and profiles
User accounts are the most important part of an eCommerce marketplace.
Customers appreciate having a simple registration process. You can meet their needs by integrating your solution with Google and social media platforms such as Facebook, Twitter, etc.
Merchants need to have the ability to create an account and manage their private and public information that will be shown to customers.
2. Search and filters
If you want to know how to build a marketplace that sells products, the search function is the most important component of the potion. The search system should allow customers to filter products by different parameters such as price range, location, brand, size, and so on, depending on the industry you plan to choose for the marketplace.
Robust search systems integrated with AI can provide personalized recommendations based on user search history, previous purchases, etc. Typo-tolerance and search-as-you-type are also critical features when it comes to eCommerce searches.
3. Payment & other integrations
Secure payments are the first requirement when it comes to marketplace creation. A lack of preferred payment options can cause friction or lead to cart abandonment.
Therefore, you need to integrate your website with different types of payment gateways such as PayPal, Stripe, Braintree, and such systems as Google Pay and Apple Pay.
4. Shopping cart
The shopping cart is another important part of a marketplace. This page should provide users with the ability to modify the contents of the shopping cart and proceed to checkout. To improve conversion rate and sales, you can also provide personalized recommendations right within the shopping cart.
5. Security as a priority
Every eCommerce website must have an SSL certificate and pass PCI compliance. Make sure to take care of security matters during the development process.
6. Ratings and reviews
After users make a purchase, they need to have the ability to rate products, sellers, and the overall shopping experience.
7. Real-time chats
Customer support is crucial for eCommerce and having 24/7 support is a must-have today. AI-powered chatbot integration is one of the ways to improve the efficiency of customer support services and minimize business costs.
Notifications are beneficial for both customers and sellers. These notifications can be used to notify users about special deals, discounts, holiday sales, etc.
9. Other critical features
There are other tasks that you will need to take care of during development:
- Domain name – the address of your marketplace website. This should be easy to remember, easily associated with your brand, and SEO-friendly.
- Web hosting – the place where all your data will be stored. There are various hosting providers on the market including Amazon, Digital Ocean, and many others.
- SSL certificate – provides increased security, privacy, and data protection. Today, having an SSL certificate is not only a matter of security, but also a matter of successful ranking in search engines.
- CMS (Content Management System) – choose a CMS software that allows you to create, edit, and publish content without coding.
7. Define users and roles within a multi-vendor marketplace
If you want to know how to create a multi-vendor marketplace, i.e., a website where various sellers will place products, you will need to create panels for three types of users.
This is the part that you and your team will use. This panel should allow you to take care of the operational part, configure fees, track transactions, approve new sellers, and control your business.
This part of the website is designed for vendors and should include the features for merchants such as account, product management, order management, notifications, reports, etc.
This is the customer-facing part of an eCommerce marketplace with all the features targeted toward selling products.
8. Follow the process to create a marketplace prototype
Let’s find out how to build a marketplace step by step if you decide to create it from scratch.
1. Business analysis
Start the development process by preparing a detailed project specification – an overview of all your project, design, features, complexity, and third-party integrations.
The main goal of creating project documentation is to ensure that everyone on your team understands what should be done and how features should be implemented.
2. UX/UI design phase
Design is the secret to building a marketplace that will provide a high level of sales and gain love from both customers and sellers. There are a number of factors that you should consider:
- UX/UI design – design a marketplace website with the creation of wireframes (UX) that define the process of user interactions with your application. One of the ways is to combine UX and UI creation, which allows you to cut the design cost.
- Stylistics – you will need to make the marketplace design consistent throughout the whole process and all solutions, be it a website or a mobile app. If you decide to create unique branding elements like logos and custom icons, you’ll need to stick to the style.
- Responsiveness – making a website responsive is the most important requirement today. Customers should be able to use the site on desktop, mobile, and tablet, and enjoy a smooth user experience across all platforms.
3. Development phase of first marketplace version
Based on the design created during the previous stage, developers will create the first version of your application. You can start with the creation of an MMP (Minimum Marketable Product) – a marketplace with the basic set of features addressing the core, desired customer needs.
As the next step, you can proceed with the product development process and add new features and design elements. It is worth mentioning that software development is an ongoing, never-ending process.
4. Phase of marketplace testing and release
Testing is no less important than development. During this stage, Quality Assurance Engineers make sure that the website is bug-free and all the features and integrations work as they are supposed to do.
The next step is the launch of the marketplace into the real world.
9. Promote your online marketplace & grow the base
The launch of a marketplace signals the start of the next important step – marketplace promotion. In an ideal case scenario, the marketplace would attract thousands of sellers and customers and generate sales in the first days after the launch. In reality, the success of your business depends on the marketing strategy.
Here are a few tactics for how you can grow your base of sellers:
- Scan your competitors to identify sellers who might be interested in your marketplace. If they are selling through one sales channel, they might be interested in extending to new channels. Promote your marketplace among these merchants and invite them to your platform.
- Look for merchants in the target region, get in touch with them, and offer them special offers for joining your marketplace.
- Check industry-oriented social media groups to connect with your target audience and get inspiration for further marketplace improvements
Below are a few ideas for how you can attract customers to your marketplace:
- Create a landing page and start promoting your marketplace before its launch. Ask both customers and sellers to leave their emails to get notified upon release.
- Connect with industry leaders and influencers to promote the marketplace among the target audience.
- Become an active member of Facebook groups and industry-oriented forums to attract attention to your platform.
- Start your own blog to utilize content marketing in pursuit of getting initial users and growing a customer base.
10. Track the marketplace performance & improve
Operating a marketplace is a challenging task, especially when it comes to performance tracking. Concentrating your attention only on transactions is a doomed strategy that doesn’t provide a broad picture of performance.
You will need to keep an eye on a number of metrics:
- CAC – Customer Acquisition Cost is the price you pay to attract a new customer. You will need to take into consideration all the costs including your marketing expenditures, support, community management, etc.
- LTV – Life-Time Value means the total amount of revenue you get from each customer. Ideally, this metric should be lower than the CAC, otherwise your marketplace isn’t growing. While calculating this metric, you will need to take into account the customer retention period, the number of repeat purchases, and the size of the average transaction.
- GMV – Gross Merchandise Value allows you to estimate the total value of goods or services sold through your marketplace.
- AOV – Average Order Value provides insight into how much and how frequently your target audience is willing to spend.
- NPS – Net Promoter Score allows you to measure user satisfaction and their readiness to refer your marketplace to other customers.
Based on the data collected, plan the ongoing development of the marketplace, its support, and improvements. Consider DevOps services as a way to ensure high scalability of the marketplace in the long run.
Wondering about the benefits of DevOps services for your business?
Check out our article DevOps Services: Ultimate Guide on explaining the service’s top practices, tools, and benefits where we explain why companies need DevOps and review the related processes in detail.
How much does it cost to create a marketplace website?
Generally, marketplace development cost may range from $1,000 to $500,000 or even more. However, the minimum budget for marketplace creation is around $60,000 per platform.
The final cost depends on a number of factors such as the number of features, UX/UI design, third-party integrations, and whether you are working with a dedicated development team or hiring an in-house team.
The following table provides an overview of costs to create a marketplace based on the number of the required features and design.
|Column 1||Basic (MMP) marketplace||Mid-sized marketplace||
(portals, multi-level catalog sites)
|Custom UX/UI Design||$5,000+||$15,000+||$25,000+|
|Other Costs (domain, hosting, SSL, content)||~$600+||~$1500+||~$3,000+|
|Timeline||~3-6 months||~6-9 months||9+ months (ongoing)|
|Total Marketplace Cost||~$60,000+||~$150,000+||~$300,000+|
Thinking about building your own marketplace?
We’ll gladly discuss your idea, advise you on how to build a marketplace, and provide you with an accurate marketplace website development quotation. Get in touch with us for a free initial consultation with our experts.