Building an online marketplace has been made easy by the increasing number of marketplace Software-as-as-Service companies, but building one that can succeed and scale in the future is a craft to be honed. Whether your marketplace is intended for B2B, B2C, services, rentals, or even digital goods, here are 4 tips that are absolutely essential to building a winning marketplace.
1. Overcoming the phobia of technology
The foremost concern that most entrepreneurs face is the fear of selecting the wrong software for their marketplace business. Companies are often deterred from building their own online marketplaces because they feel they lack the software know-how to do it right. Moreover, the perceived costs of adopting new technologies dissuade many small businesses from moving towards digital solutions. In a survey done by TechnologyAdvice, 7 out of 10 small manufacturers and wholesalers find the costliness of Enterprise Resource Planning (ERP) software a deterrence to digitalisation. Therefore, only 19 percent of survey respondents considered the possibility of adopting ERP or ERP-like technologies in the next 12 months.
The solution to this dilemma is simple: Software-as-a-Service (SaaS) platforms. Companies such as Arcadier, Sharetribe and Jungleworks lower the barriers to entry dramatically when it comes to building your own marketplace platform by providing robust marketplace technology, removing the need for companies or entrepreneurs to have any knowledge of coding and allowing anyone to build a marketplace themselves. Furthermore, these DIY SaaS companies provide their products through monthly subscription plans that are tiered based on user requirements, providing a low-risk and affordable solution to those looking to try out their products - the basic subscription package can start as low as USD$39 per month. By utilising the marketplace SaaS solutions, aspiring marketplace owners can rest assured on the technology and cost fronts and instead focus on having firm business plans and a strong understanding of the industry.
2. Own at least one side of the equation
The fundamental ingredient of a successful marketplace is a large number of buyers and sellers participating on the marketplace. The more buyers and sellers that transact on your marketplace, the larger the amount of revenue generated. Thus, an important part of creating a winning marketplace is to advertise it to attract as many buyers and sellers as possible.
However, as a startup with limited funds, marketing costs should generally only take up 20 to 25% of total revenue. With this minute amount, it is often simply not feasible or economical to grow both your buyer and seller base simultaneously. Hence, aspiring marketplace owners should try to ‘own at least one side of the equation’ before diving into creating a marketplace. This means that potential marketplace owners should have at hand a ready pool of buyers or sellers even prior to setting up the marketplace. This makes marketing and advertising costs more manageable by narrowing the target demographic to only either sellers or buyers.
Furthermore, a lack of buyers and sellers at the outset could be a symptom of a larger problem: a lack of market demand for the goods or service you want to provide. According to post mortem analysis done by CB Insights, the lack of market need ranked as the top reason for the failure of startups. New businesses in particular should reconsider their target audience or intended marketplace business if the pool of buyers and sellers simply does not exist.
3. Start with a Minimum Viable Product (MVP)
Beyond the traditional buying and selling feature options that define an online marketplace, new technological innovations have proliferated on various eCommerce platforms. These features which range from livestream to Blockchain greatly enhance the marketplace experience and bring in additional channels of increased revenue to marketplaces globally. Given the attractiveness of these features and their potential benefits, an overzealous marketplace owner may be tempted to incorporate multiple features into their user experience. However, one should note that in some instances, mixing too many ingredients into the mixture may make the broth bitter. The resulting marketplace could have too many features that the interface becomes overly complicated or unfriendly to use, extremely difficult to build, or simply not be what the user wants. Furthermore, the excessive time spent incorporating these unnecessary features could delay the product launch time, in turn risking startup failure. It is no wonder mistimed entries is ranked as the tenth largest reason why startups fail.
To combat this fear of missing out, marketplace owners should start with a Minimum Viable Product (MVP). The MVP should only have the bare minimum functionalities of what their online marketplace is trying to achieve, such as the registration of buyers and sellers and simple transactions at the start. However, this does not mean that quality should be compromised. According to Techopedia, the MVP must possess three other characteristics for it to be workable. Firstly, there must be enough value so that people are willing to use it or buy it initially. Second, it must demonstrate enough future benefit to retain early adopters of the product, in this case, the marketplace. Thus, the first two characteristics highlight the need for the MVP to have a certain level of attractiveness and functionality, albeit at a minimum.
The third characteristic is that there must be a feedback loop to guide future development. The importance of feedback cannot be overstated, as ignoring customers has been cited as the ninth largest reason why startups fail. Thus, rather than overloading features into your marketplace all at once, listen to what your users have to say, and work towards incorporating their requests onto your marketplace incrementally. This will not just improve the user experience, but also prevent unnecessary spending in the initial stages (now you have more funds for marketing or other areas of your business!).
4. Clear monetisation strategy
Finally, potential marketplace owners should focus on their monetisation strategy. Many startup founders find themselves needing to close down because they become cash-strapped due to persistent losses. This highlights the importance of having clear monetisation plans, which is rudimentary to any business’ survival.
The key question to ask then is what are the sources of revenue of your marketplace? Marketplace owners may consider if commonly utilised commission-based or subscription-based models best suits their business . Even within these models, there are finer details to be deliberated. For subscription models, do sellers pay monthly or annual fees to maintain their listings on the marketplace? Do buyers have to subscribe as well, or just sellers? What fees will be charged exactly and at what cost? Likewise, detailed considerations must also occur for commission-based models, which work by taking a percentage from sales made by sellers on the marketplace as commission. For example, a key consideration would include whether a uniform commission rate should be imposed across all products/services, or if there should be a form of differentiation between categories or sellers?
Beyond these models, there are numerous others that marketplace owners can implement to monetise their marketplace including: listing fees, premium visibility fees, payments and advertisements. The latter in particular has become a popular way to generate supplementary revenue as it has become increasingly easy to implement. Using just one line of code, products such as Google AdSense can be enabled on a site, allowing marketplace owners to simply earn through placing ads on their site. Nonetheless, it is worth noting that too many ads could hinder the user experience of your marketplace, resulting in the opposite desired effect.
Overall, there is no standard formula to monetisation, as there are too many different variables within all marketplaces to account for and what works for one business may not work for another. Nonetheless, having a clear strategy on how to generate money will save you from the certain heartbreak of having to close shop down the road due to insufficient revenue.
Clarence Siut is with the Marketing and Customer Success team at Arcadier, a SaaS company that powers next generation marketplace ideas. You can follow Arcadier on Twitter, Facebook and LinkedIn for more news and updates.