Supersonic Playground Ltd
Setting up an online marketplace

How to start an online marketplace

Something we’re often asked by clients and networking peers alike is how an online marketplace could be a viable business solution and how to go about starting one.

6 minute read

In this blog, we’ll cover several areas, including:

  • What is an online marketplace?
  • The pros and cons of running an online marketplace
  • Examples of successful online marketplaces
  • How to start an online marketplace

What is an online marketplace?

An online marketplace is a type of eCommerce website that allows third-party vendors to sell their products via the platform. Online marketplaces essentially give businesses or individuals the ability to create their own mini-store. Popular examples include eBay, Amazon, Depop and Etsy.

Online marketplaces make money through advertising and commission. Sellers will have to pay a fee, usually 10%, to the platform for each product they sell.

Lots of businesses and individuals choose to use an online marketplace to sell their goods when they’re better positioned, i.e. they already have an established market. This is often a niche audience who use the platform. Both sellers and buyers have the security of using a well-known service that provides protection.

The pros and cons of running an online marketplace

As with anything, there are pros and cons to running an online marketplace, so before you get started, it’s worth considering these, and whether or not it’s a suitable business model for you.

Pros

  • Online marketplaces are easier to grow since there’s no need for lots of staff to facilitate packaging, delivery etc. You’re simply enabling a transaction for another vendor/seller.
  • It’s cheaper to run since you’re not spending money storing stock, paying wages for big teams or investing in big marketing budgets, as word-of-mouth marketing will be a vital element in the success of your website.
  • The risk isn’t on you; it’s down to your sellers to think about stock, warehousing, logistics, returns, and delivery.
  • You can focus on developing a fantastic platform that provides great customer experiences, as opposed to trying to ‘make business happen’.
  • With an online marketplace, you can use commission, membership fees, listing fees, ads and featured listings to monetise your platform.
  • Online marketplaces are more attractive for sellers as there is less work involved, as opposed to setting up their own eCommerce shop.

Cons

  • It can be a challenge to get your feet off the ground. No seller wants to join a platform with no buyers, and buyers won’t use a platform with no sellers, so there needs to be some thought around promotion and how you’ll get vendors on board.
  • Marketplaces generally have lower margins than direct eCommerce. The type of monetisation model you use will impact on how much profit you make from the platform.
  • Loyalty takes time to build and can be harder if you’ve got a variety of sellers, and no ‘verification’ or ‘trusted’ status. Consider how you might manage this or niche the platform to attract the attention of a specific market.
  • While there isn’t a lot of competition out there, you will be up against big brands such as eBay and Amazon, so it’s essential to consider how you’ll differentiate yourself and contend with their offerings.
  • You’re not in control of the transaction process, which means you can’t control what gets sold.
  • You’ll also be reliant on vendors to make sales for you to make money.
  • You’re also not in control of the products that your vendors will sell. While you can set stringent standards, an inferior product, poor quality or negative customer experience with a vendor can impact on your brand reputation.
  • Third-party processing can also be an issue when running an online marketplace with providers such as Mastercard and Visa not supporting third-party transactions – find out more about your payment processing options.

Examples of successful online marketplaces

Although there’s recently been a boom of online marketplaces, it’s not a new concept. Below we’ve listed some of the most popular online marketplaces across the globe:

  • Amazon
  • eBay
  • Etsy
  • Wish
  • Alibaba
  • Gumtree
  • Not on the Highstreet
  • Autotrader

Online learning has also recently exploded, with online marketplaces being used as a means of providing those with expertise with a platform to monetise their skills by creating their own content and teaching others. An example includes Tutorful – the platform itself doesn’t sell anything or provide any content; they just provide the means and the security.

How to start an online marketplace

If you’re thinking about starting an online marketplace, then there are a few things you might want to consider to help you get started.

First of all, you’ll need a domain, hosting, an SSL certificate and a platform. Choosing which Content Management System (CMS) to use doesn’t have to be complicated or expensive. We recommend WordPress and WooCommerce to get you started. You might also want to consider how you might translate your site into an app.

When setting up your online marketplace, it’s worth doing some research into which niche you’re going to target. Going after a smaller market will give you more chance of success as opposed to leaving it wide open, as there are so many alternatives out there. Once you’ve chosen your niche, it’ll be easier to tailor the platform to their specific needs and make finding vendors easier. If you choose a niche that you’re also personally interested in, you’ll also have a better understanding of the end-user, their needs, and how to appeal to them.

The next step is getting people on the platform. You’ll need vendors to buy into your business model to attract customers. If you’ve gone niche, this step will be tricker in the outset but more sustainable and easier to take off once you’ve got started. Word-of-mouth is your best friend when you’re starting out, and if you go after niche communities, this will be much easier.

We recommend creating an incentive for vendors to get them on board in the early days. Remember, you won’t have any customers to start so this step is critical. You could consider offering no fees for the first six months or a referral fee for those that bring in the most business or additional vendors.

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