HOW TO CREATE A MARKETPLACE WEBSITE in 2023 [Startup Guide]

Are you ready to create your own online marketplace and disrupt your industry?

Marketplaces have emerged as a popular avenue for entrepreneurs to dive into the world of eCommerce and facilitate seamless connections between buyers and sellers. However, the process of building an online marketplace can be complex and overwhelming. But fret not, because we're here to guide you every step of the way. In this comprehensive guide to creating a successful marketplace, we'll take you through the entire process.

From defining your marketplace type and crafting a compelling value proposition to selecting a business model and developing your platform, we have all the insights you need. So grab a cup of coffee, get comfortable, and let's embark on your journey to marketplace success!

Why build a marketplace?

Creating an online marketplace is a lucrative business in today's digital landscape. Here are just a few reasons for its development:

1. Increased market reach and customer access.
2. Diverse revenue streams and cost efficiency.
3. Encourages competition and innovation.
4. Builds customer trust and offers convenience.
5. Data-driven insights for optimization.
6. Scalability and adaptability.
7. Lower barriers to entry.
8. Collaboration and value creation.

To see how profitable and massive this business is let’s look at some leaders in the industry. Amazon, with approximately 2.7 billion monthly visits, claimed the top spot as the most visited online marketplace, especially in the US, generating approximately $390 billion (in 2021). eBay followed in second place with around 789 million visits, and a GMV of $87 billion. Although Taobao, Tmall, and JD.com led globally, Amazon and eBay held their positions as prominent players.

By 2027, 59% of overall global retail sales will belong to online marketplaces. With an average commission of 11% is taken from each transaction, it is not difficult to imagine the magnitude of the profit from such platforms.

In fact, out of 100 online marketplaces that were surveyed in the US, 63% generate $50 million annually and the other 37% generate more than $100 million. At the same time, there are almost no expenses for manufacturing, warehouses, and equipment. eCommerce gives anyone the chance to start a profitable business with minimal investment.

Not bad, right? Now, let’s figure out how to build your own marketplace.

You will have the following steps:

• Step 1. Define the Market Niche
• Step 2. Define the Type of Your Future Marketplace
• Step 3. Determining Your Marketplace Value Proposition Step
• Step 4. Choosing a Business Model Step
• Step 5. Choose and prioritize features Step
• Step 6. Build an MVP Step
• Step 7. Launch, collect feedback, improve

Step 1. Define the Market Niche

To understand what niche you must choose ask yourself three questions:

Where do you have a lot of experience and knowledge?

It is crucial to leverage all your expertise in building a successful marketplace. Identify areas where you have expertise and a strong understanding, as this will give you a competitive advantage in the market. By capitalizing on your existing strengths, you can differentiate yourself from competitors and position your marketplace as a trusted and reliable source within your chosen industry.

Which market niches are growing?

By actively monitoring industry trends and market dynamics, you can identify niches that are experiencing significant growth. This allows you to align your marketplace with these trends and capitalize on emerging opportunities. Being aware of the latest developments and customer demands empowers you to adapt your marketplace strategy and offerings accordingly, ensuring that you are riding the wave of growth and staying ahead of the competition.

What is your perfect niche?

The perfect market niche has:

1. Minimum level of competition. Ideally, if there will be no competitors at all, but this is now possible only in developing countries or when a new category of goods appears on the market, such as smartphones and smart watches at the end of the zero years of this century. Now the new categories of goods can be called virtual reality helmets.
2. Adequate market demand. Not always people in the region where your marketplace will work will buy certain goods. For example, you can see why it’s a bad idea to sell snowmobiles in Hawaii or gadgets that use cloud technology in regions with poor internet connectivity.

Here are niche examples to help you navigate:

Step 2. Define the Type of Your Future Marketplace

An online marketplace is a type of eCommerce website that connects three parties:

• Sellers or service providers
• Buyers
• Marketplace owner (intermediary)

Before building a marketplace platform, you should thoroughly study the market. Let’s see what aspects are important to research in advance to build a marketplace.

Amazon started as an online bookstore. Then, Jeff Besos thought it was not enough to sell just books, so he started adding categories until Amazon became an “everything shop.” It transformed itself from a vertical marketplace (online book store) into a horizontal marketplace (general goods store).

Does it mean that all marketplaces should start as a one-category marketplace and then expand to more products? Not necessarily. But this is a common scenario.

Today, the market has both horizontal and vertical marketplaces. Let’s review their peculiarities.

HORIZONTAL

Amazon, Walmart, Taobao, eBay, JD.com, Alibaba are all examples of horizontal marketplaces. They offer goods and services in various categories.

Diversification allows them to cater to a larger audience, which leads to bigger sales and profit.

The reverse side of ‘no specialization’ is fierce competition because almost all horizontal marketplaces sell the same goods. Competition forces them to decrease prices and employ aggressive marketing campaigns targeted at different groups of customers to ensure large volumes and bigger profits.

VERTICAL

Etsy, Airbnb, Uber, EdEx represent vertical marketplaces. These are niche-oriented platforms that work with smaller audiences, but their profits are definitely not small.

Their advantage is that they can create more targeted marketing campaigns. They can set higher prices because the competition in narrow niches is not so great. To effectively manage this type of marketplace, you need to understand the specifics of the niche and learn the needs of the target audience.

From a technical and marketing point of view, starting a vertical marketplace is easier. Later, you can widen it horizontally and expand into other categories.

If you are going to build a marketplace website of this type, you may like to read one of these articles:

Next, determine the value proposition for your marketplace.

Step 3. Determining Your Marketplace Value Proposition

The most common reason for a startup to fail is that it does not solve a market problem. With the great variety of existing platforms, how can you build a marketplace website that will be competitive in the market? What unique value can you offer customers that others can not?

The first thing that makes a marketplace great is the ability to not only consolidate the market offerings in one place but also to enhance the service, bringing the customer experience to a never-seen-before level.

Bill Gurley, a general partner at venture capital firm Benchmark which funded many startups like Instagram, Snapchat, Uber, Twitter, and more, names ten factors of marketplace success:

1. New experience. The Uber application made it comfortable for travelers to search for a taxi in an unknown place by simply booking it through the app.
2. Economic advantage. The marketplace should help people save their resources, time, and money. Upwork allows companies and individuals to quickly find quality specialists in any part of the globe while still saving money.
3. Technological breakthrough. Technologies simplify many routine processes. Uber created the ability for users to book a taxi from a mobile phone, track the driver’s location, send the location to friends, rate the driver, and share payments. For one of our clients, Arcbazar, an architectural contests marketplace, we created an AI-based price recommendation system that suggests an optimal award sum for project winners. This feature saves clients time and eliminates stress when they have to make a decision.
4. High buyer and supplier fragmentation. Catering to different audience segments, you attract more people to your platform. For example, Airbnb provides accommodation options for different types of travelers — from economy to luxury. That increases the marketplace value and revenue.
5. Ease of supplier registration. A difficult sign-up process may de-motivate the businesses from registration. For example, to start selling goods at Alibaba, vendors need to endure a legitimacy and verification procedure. On the contrary, at Etsy, you can just create a profile and start selling right away. However, verification is important for trust-building so in many cases it cannot be omitted. Just think of facilitating the process with the help of special services.
6. Demand size. Make research on if the market is ready and big enough to have an online alternative. Some industries, like Healthcare, are huge but the offline players are very strong and hinder the new online platforms so it may take a lot of persistence to break through the hurdles.
7. Market expansion. Uber’s concept expanded to other countries outside the US, allowing travelers to use their service all over the globe while increasing the revenue of the platform. They created workplaces for millions of people around the world and made the trips cheaper than it was by traditional taxi.
8. Liquidity. Uber, Airbnb, and Amazon satisfy the popular needs of the masses, and that increases their popularity. Vertical marketplaces with rare goods and services run the risk of low traffic.
9. Payment Flow. The marketplace should charge the commission when the customer pays the seller. Such ‘invisible’ cutting of the fee during the transaction is better than billing the supplier a large sum at the end of the period. Psychologically, such a charge is not perceived by the sellers as an expense and, thus, brings less frustration.
10. Networking. Uber attracted many drivers, creating a diversity of choice and the ability to provide instant service. With a system of ratings, passengers can view the credibility, reliability, and safety of the driver.

Step 4. Choosing a Business Model

The next question you’ll probably ask is how to start a marketplace website that will make money? There are several business models that you can select from: Let’s examine how to build a marketplace website of each type:

COMMISSION

Commissions, also known as 'rake' or 'vig,' are fees imposed by marketplaces on each completed transaction, serving as a primary revenue source. To foster trust, most platforms employ the escrow method. This entails funds being held in a designated bank account until the buyer confirms receipt of goods or services, at which point the money, minus the platform's commission, is transferred to the seller.

Vertical marketplaces, operating within specific niches with less competition, often have the flexibility to charge higher commissions. For instance, compare the fees of Etsy (a diverse goods platform) and Shutterstock (a specialized creative content platform):

MEMBERSHIP/SUBSCRIPTION FEE

Subscription-based models often serve as the most viable option, especially for marketplaces like Home Exchange, Workaway, and others where defining the value of services can be challenging. Platforms may require users to pay for a subscription during registration, signifying their commitment.

However, this approach might deter sellers uncertain about platform suitability. Offering a free trial period can address this concern. Even a nominal subscription fee ensures consistent revenue, irrespective of user platform utilization. OpenTable, for instance, charges a monthly fee of $199 and requires restaurants to install reservation software for $1,295. While some small restaurants opt for more affordable alternatives, many stick with OpenTable due to its widespread popularity.

LISTING FEE

The seller pays for each listing created on the platform. The value proposition is based on the number of listings and the potential value they bring. This model is quite challenging as it is hard to attract people to post new listings again and again. That’s why it is better to mix this model with others. For example, Etsy combines listing fees with commissions.

LEAD GENERATION FEE

The platform takes a fee for each lead that matches the seller’s services. The seller is required to pay a fee for all leads, even those who did not convert. On the flip side, they do not pay a commission for each transaction and can serve the same lead for a lifetime without involving the platform again. The fee-for-lead model makes sense only if the platform attracts high-value leads.

For example, Thumbtack takes a 20% fee for a lead that matches the errand runner’s skills and schedule. When the task-poster (lead) submits a request for some task on the platform, the system looks for the most suitable taskers and sends them the leads’ contact information. However, Thumbtack taskers often complain of low lead conversion because the platform sends them inappropriate leads.

FREEMIUM

This business model means that the basic functionalities are free. If users want to upgrade for more features, they have to pay for the Premium package. There is always a risk that most of your users will be satisfied with the core functionality and will never buy a Premium membership. So there should be a range of options for different businesses. Again, this model works best in combination with others.

Etsy provides paid options in addition to commission and listing fees. Etsy Plus allows advanced shop customization, custom web addresses, notifications that goods are in stock, and discounts from partners.

FEATURED LISTINGS AND ADS

Some platforms offer free listings and transactions, but clients have the option to pay for enhanced visibility through featured listings and advertisements. OpenTable, for instance, charges $99 per month to include a restaurant in their Featured Ads section of the dining guide. This strategy works well when platforms have a large database of similar listings competing for attention.

However, sponsored ads may raise suspicion and make businesses seem expensive to users. Niche platforms with free listings can generate revenue by hosting ads from partners related to the niche.

Step 5. Choose and prioritize features

Now you need to decide on the list features, which ones must have and which ones are extra. It mainly depends on the niche you’ve chosen, but we will give you some idea:

Buyer panel

• Product search functionality: Users can easily find listings using keywords, categories, and filters.
• Saved searches: Buyers can access their previously searched items for convenient review.
• Sign up/in and buyer profiles: Essential details like shipping address, financial information, wish lists, order history, preferences, and settings are included in buyer profiles.
• Shopping cart or checkout page: Enables seamless purchase completion, displaying selected items, quantity, price, total, and offering various payment and shipping options.
• Multiple payment methods: Customers have the flexibility to choose from a range of payment options.
• Order management: Comprehensive order history, including payment and shipping status, is available for buyers to track their purchases.
• Messaging capabilities: Buyers can communicate directly with sellers through the marketplace.
• Returns and refunds: The marketplace provides a straightforward process for returns and refunds if necessary.

For marketplaces with competition there must be additional features like:

• Solution or bid list page: Each challenge has a dedicated page that showcases solutions or bids.
• Transparent winner selection: The mechanism for selecting and notifying the winner(s) is transparent, either through user voting or the seeker's decision.

Seller panel

• Sign up/in and seller profile: Sellers can create and manage their own profiles
• Seller profile verification: Admin approval is required after verifying sellers' business registration licenses and other relevant documents.
• Virtual store creation: Sellers can create their own online stores with logos, descriptions, and categories alongside listing products in shared stores.
• Products upload: Sellers can list products with detailed descriptions, categories, attributes, photos, prices, ratings, reviews, and payment and shipping details.
• Orders management: Sellers receive, fulfill, and track their orders.
• Refund requests: Sellers can manage disputes and handle returns through the refund request feature.
• Shipping integration: The platform integrates with third-party services for order delivery and provides tracking information.
• Transactions details: Sellers can view the history and status of customer payments.
• Payment options and management: The more convenient payment options you offer the higher are chances that people will spend some money within your platform. Allow sellers to have a few choices.

Here are some safety features to improve user experience within your platform:

• Trusted payment methods: Offer familiar and reliable payment options to build customer trust and confidence.
• User verification: Implement robust verification processes to ensure the authenticity of user accounts and protect against fraudulent activities.
• Review authenticity algorithms: Develop advanced algorithms to verify the credibility of user reviews, promoting genuine and trustworthy feedback.
• Secure transactions: Create a safe transaction environment through measures like escrow services and secure payment gateways.
• Fraud prevention: Stay proactive in detecting and preventing fraudulent activities through AI-based systems and continuous monitoring.

The following checklist should help you make your marketplace bullet-proof:

Admin panel

• User management: Easily manage user accounts, including manual addition, editing, blocking, or deletion of accounts.
• Fee management: Effortlessly modify commissions and other fees to adapt to changing business needs.
• CMS (Content Management System): Take control of website content by uploading and editing various types of content.
• Reports: Access comprehensive statistics and analytics on platform performance to gain valuable insights.
• Rating and reviews management: Moderate and oversee customer ratings and reviews to ensure quality and maintain trust.
• Emails and notifications: Create and customize emails and notifications for different scenarios, such as confirmation emails, discount alerts, congratulations messages, and abandoned cart emails.
• Advertisement management: Post and manage advertisements on the platform to promote products and services.
• Content management: Have full control over the website's content, including adding or editing product categories and other relevant information.
• Support desk: Serve as the central issue resolution center, allowing admins to address and resolve customer inquiries and concerns.

Extra features considering recent trends

In this section, we will discuss some of the key eCommerce trends to watch in 2023. These trends are shaping the way businesses interact with their customers, and marketplace founders need to be aware of them to stay ahead of the competition.

1. Video shopping: Video content has become a powerful tool for businesses to engage with a global audience. By incorporating video content into their eCommerce strategy, businesses can create a new trend in eCommerce – video shopping.
2. New payment options: Payment options are evolving with new technologies and consumer preferences. To provide customers with the payment options they want, merchants need to keep up with these changes.
3. Mobile shopping: Mobile shopping has been on the rise for years, and it's not slowing down anytime soon. Merchants need to optimize their mobile experience to keep up with this trend.
4. Social commerce: Social media platforms are becoming more integrated with eCommerce platforms, creating a new trend in eCommerce – social commerce.
5. AI: AI-powered chatbots can offer personalized support, while algorithms drive targeted recommendations and efficient inventory management. Fraud detection systems enhance security, optimizing operations and fostering growth in the digital marketplace.
6. Personalization: Personalization has been a trend in eCommerce for years, but it's becoming more important than ever. Customers expect personalized experiences when shopping online. You can add personalized recommendations or emails to impress your users.
7. AR, VR & the Metaverse: Augmented reality (AR), virtual reality (VR), and the metaverse are becoming more integrated with eCommerce platforms, creating new opportunities for businesses.

These eCommerce trends are important to watch for marketplace founders to stay ahead of the curve. By keeping up with these trends, marketplace founders can create a shopping experience that meets the needs and expectations of their customers. Incorporating these trends into their eCommerce strategy can help marketplace founders stay competitive in a rapidly changing market.

Step 6. Build an MVP

Before jumping into long-term, costly development, you can create a minimum viable product and test it in the market. You will be able to get feedback from users before building the final version of the software or application.

An MVP allows a startup to launch faster with minimal investment. It is enough to build core functionality that represents the main idea to the customers. This approach allows the startup to be flexible and to change the product early without the serious time and money loss.

What is even more important is that you can create an MVP without coding on your own. Use one of these methods to create an MVP.

Step 7. Launch, collect feedback, improve

Launching an online marketplace is an exciting venture but success doesn't come overnight. Once the marketplace is up and running, it's crucial to actively seek feedback from real users and continuously strive to improve the platform.

By collecting feedback from both buyers and sellers, we can identify areas of improvement and implement necessary changes to enhance the user experience. This iterative process ensures that the marketplace evolves in line with the needs and preferences of its users, leading to greater satisfaction and increased engagement.

So, whether it's streamlining the checkout process, optimizing search functionality, or enhancing mobile responsiveness, constant feedback and improvement are the keys to building a successful online marketplace.

How Much Does it Cost to Build a Marketplace Platform?

Each marketplace has its own peculiarities that influence development time and budget. Roughly speaking, you have two options - use off-the-shelf (white label) solutions or build it all from scratch.

White label solutions

Off-the shelf or white label solutions for building marketplaces, such as Shopify and WordPress, offer entrepreneurs a convenient and efficient way to establish their online marketplace. These platforms provide pre-designed templates, tools, and functionalities that can be customized to suit specific business needs. To create an online marketplace using these solutions, entrepreneurs typically need to choose a suitable platform, select a marketplace theme, set up product categories, configure payment gateways, and integrate essential features like product listings, user profiles, and search functionality.

Additionally, entrepreneurs may need to consider aspects such as marketing and SEO strategies, managing seller accounts, and implementing customer support systems. With the help of these ready-made solutions, entrepreneurs can quickly launch their marketplace, focusing on growth and scaling their business while benefiting from the platform's built-in features and ongoing technical support.

The prices for such solutions are pre-defined so you can calculate approximate expenses. Depending on the type of your marketplace and features complexity you will spend from $5,000 to $15,000. But, again, it can go way beyond or under it - all depends on your needs.

Custom marketplace development

Our team develops fully customized projects so there is no fixed price for all solutions.

The total cost of the project depends on many factors:

• The readiness of the software requirements specifications (SRS)
• Stage of the project (some projects were started before us and need remodeling or enhancing)
• The complexity of the functionality
• Uniqueness of features
• Integrations with other services
• The urgency of the project

Many features are more or less similar from project to project. Registration, user profile creation, search, payment integration, and reports are the core features of any marketplace. A marketplace with basic features can be estimated in around 600 – 900 hours and the costs start from $21,000.

Then, depending on the marketplace type and specifics, the features will differ. For example, to build a website like Etsy, you will also need such features as Seller verification, Listing pages, Shopping cart, Order management, Shipping integration, Refunds, and Reviews. You will probably need an additional 450 – 700 hours and $16,000 – $24,500 to launch the final version.

Besides basic and typical features, you’ll need to add a touch of uniqueness — with features that add value to your marketplace startup:

• A variety of payment and shipping options
• Recommendations
• Price comparison
• Dynamic price
• VR/AR

The price for these features is calculated individually. It is impossible to estimate the volumes of processed data and the complexity of connections with other parts of the system without having a full understanding of the project.

Marketplace development process at Greenice

If you hire us, here is how we’ll work:

1. Discovery
2. UX/UI Design
3. Development
4. QA
5. Deployment
6. Maintenance

Now let’s move on to the technical part and plan how to build an online marketplace.

1. DISCOVERY PHASE

During the discovery phase, you will identify business goals, and user roles, and collect all the requirements of the future software. Our Business Analyst, together with our Project Manager and Team Lead will analyze your project from different angles and create system requirements specifications (SRS). This document should describe the system functionality, its features, wireframes, measurable deliverables, timeline, and budget estimate. This will cut the development time, allow the team to get an overview of the scope of the tasks, and optimize the priorities. This phase may take from two weeks to a couple of months depending on the complexity of your project.

2. UX/UI DESIGN

Just as building a house is impossible without architectural drawings, software development must also start with web design. Programmers need to have a visual representation of the User Interface. There are many ways to get a design. You can buy a ready template; or you can order a custom design from a freelancer, from a web studio, or from our in-house designer. When the design is ready, we can start coding.

3. DEVELOPMENT

In the development phase, our developers breathe life into the online marketplace. They craft the foundation of the marketplace, weaving lines of code to create features like user registration, product listings, search functionality, shopping carts, and secure payment gateways. It's an essential process where the marketplace takes shape and becomes a dynamic entity.

4. QA

The quality assurance (QA) phase safeguards the marketplace from potential pitfalls before its grand debut. Through a series of comprehensive tests, it fortifies the platform, making it resilient, dependable, and user-friendly. By ironing out any bugs and glitches, the QA phase ensures users can immerse themselves in a glitch-free marketplace adventure. Testers polish the product, ensuring the marketplace is perfect for its users.

5. DEPLOYMENT

In the deployment phase, a functional product that fulfills its main purpose is ready to see the world.

We, as a web development company, ensure a seamless and successful launch of your online marketplace. Our team configures servers, databases, and conducts thorough testing to guarantee optimal performance and security. With our expertise, your marketplace will be ready to serve users efficiently. Trust us to handle the technical aspects and deliver a smooth deployment process for your innovative platform.

6. MAINTENANCE

Our goal is to create self-maintainable software projects that require minimal maintenance. We achieve this by leveraging Amazon Web Services (AWS) and Kubernetes. AWS ensures high uptime and handles all maintenance and updates, allowing you to focus on other tasks. Kubernetes provides scalability, fault-tolerance, and consistency throughout the development process. Additionally, we offer on-demand bug-fixing and upgrades, as well as a six-month code warranty to address any issues that may arise. Note that third-party integration-related bugs are not included in the warranty.

Our experience in building marketplaces

Being in custom web development since 2007, we have completed more than 200 successful projects. The first priority for us is the security of data and transactions; therefore, we use only the most innovative and reliable technologies and partnerships.

We are proud to be a development partner for such large players as Arcbazar and NoCowboys, marketplaces that successfully and profitably provide services in their respective niches. Here are just a few of our successful projects:

NoCowboys

NoCowboys, a leading review website in New Zealand since 2004, partnered with Greenice in 2016 to enhance their system. We refactored their complex codebase, upgraded the CRM, and improved website UX. These optimizations led to faster development, increased security, and better performance.

The new CRM simplified daily operations, while a revamped search engine and rating validation measures made the platform more attractive and user-friendly. Automation of data processing and subscription renewal saved time and reduced errors. Together, we transformed NoCowboys into a streamlined and efficient platform for finding reliable home service providers.

4TradesOnly

We are proud to say that we developed 4TradesOnly from scratch, a specialized marketplace connecting tradesmen with employers in the house building and repair industry. With features like personal profiles, job postings for employers, CV postings for employees, and an internal chat system, 4TradesOnly offers a convenient platform for tradesmen and their potential clients. Additionally, the website provides analytics dashboards to help employers and employees track their activities. This project demonstrates our expertise in creating tailored classifieds websites that cater to specific industries and streamline the hiring process.

BizSalebyOwner

BizSaleByOwner is an innovative marketplace that facilitates the sale of businesses, offering expert consultations throughout the process. When our client approached us with their initial concept, resembling platforms like Upwork, we advised them to start with an MVP. The initial platform allowed users to post ads for selling their small businesses. We then expanded the platform by introducing a valuable feature that enables users to connect with specialized counselors who can provide guidance and support for both buying and selling businesses.

Arcbazar

Arcbazar, an interior design contests marketplace, partnered with Greenice to enhance their online designer marketplace. We addressed challenges such as tangled code, lack of international scalability, and user difficulties in setting project awards. Our team refactored the code, improved platform efficiency, and added support for multiple languages and currencies. We also implemented an ML-powered award suggestion system, boosting user engagement and satisfaction. We also implemented a feature where contestants can tag decor and furniture shops directly on their design projects, simplifying the customer's search for project items.

Conclusion

In this guide, we answered the most essential questions on how to build a marketplace website. We’ve discussed types of marketplaces and their peculiarities, must-have features, steps of creating a marketplace and approximate prices. We will be glad to start working on your project. All that we need is to get acquainted with your idea and understand the business logic and features you want to have. We can also offer our help in creating specifications for your startup. Let’s start working together today!