How to Build an E-commerce Marketplace: 7 Steps
Do you know that the combined annual revenue for multi-vendor marketplaces in 2020 skyrocketed to $2.67 trillion?
So, are you ready to follow the likes of the marketplace giants like Amazon, eBay, and Flipkart, etc?
Another statistic that might raise your eyebrows in amazement is that these e-commerce marketplaces attributed to 62% of the global online sales in 2020.
Now that certainly explains the reason you should build an e-commerce marketplace for your business.
E-commerce is an ever-rising industry, and marketplace solutions are synonymous with e-commerce success.
Doesn’t that sound like an easy path to a successful business model?
Well, hold your ship, because the e-commerce industry is infested with huge business competition. And launching your marketplace application isn’t that simple, especially when there are already thousands of marketplaces dominating the global market.
- What is the right way to build an e-commerce marketplace solution?
- How to create value for your marketplace application?
- What is the cost of developing an e-commerce marketplace?
Here, with this blog, we bring answers to all these obvious and crucial questions. So, let us comprehend step by step:
7 Steps to Building an E-commerce Marketplace Application:
1. Define the Type of E-commerce Marketplace You Wish to Launch
The first step towards your research and planning is deciding the type of e-commerce marketplace you wish to make. These types include:
1. Horizontal E-commerce Marketplace
These marketplaces extend and expand to sell everything to a B2C audience. They have a well-established navigation panel with a long list of product categories. Consumers can easily search, sort, and filter through various product categories. And they can order products sold by different vendors and brands. So, these marketplaces also allow users to search through brand names.
These marketplaces generally follow a commission-based monetization model. And they have their commission percentage sorted for the various category of products.
These marketplaces do flourish but require a handsome initial investment and a bigger workforce.
Examples of this model:
- Amazon: It is the biggest horizontal e-commerce marketplace that serves across the globe. The annual revenue of Amazon at the end of 31st March 2021, was $419.130 Billion.
- Flipkart: This marketplace giant is massively popular in the Indian market and also sells in 200+ nations owing to an alliance with eBay. Flipkart sells over 150M products across 80+ product categories. And the annual revenue of Flipkart in 2020 was $346.1 Billion.
2. Niche-based (Vertical) E-commerce Marketplace
A vertical e-commerce marketplace sells several product categories in a specific niche. For example, a fashion niche marketplace might have multiple vendors listed for selling various product categories. These can include kids’ clothes, shoes, men’s fashion, women’s clothes, accessories, etc. These marketplaces maintain their niche and are considered as the trusted platforms to buy a product in a specific niche.
These marketplaces use a commission-based monetization model and can establish a good brand reputation in a particular niche.
Examples of this model:
- Myntra: Myntra is a fashion & lifestyle e-commerce marketplace that dominates the fashion niche in India. It sells everything related to fashion, accessories, lifestyle electronics, etc. The fashion e-commerce industry is rising exponentially and is estimated to transcend $992 Billion in revenue by 2024.
- Nykaa: Nykaa is another niche-based marketplace that sells beauty & cosmetics products. This marketplace lists over 1500+ beauty brands and is popular among Indian consumers.
3. Hybrid E-commerce Marketplace
A hybrid e-commerce marketplace is utilized to make both B2C and B2B sales. This expands the customer base for a marketplace considering the fact that a B2B consumer is also a B2C consumer and vice-versa.
The monetisation model used for a hybrid e-commerce marketplace can be either subscription-based or commission-based. The latter is more profitable, however, a business might opt for the former monetization model in the initial business development stage.
Example of this model:
- Amazon: One of the sites owned by Amazon has started using this model where it sells to both B2B buyers and individual consumers. The B2B buyers can register their business accounts and opt for the wholesale rate on bulk orders. Meanwhile, the consumers can use the site as a regular e-commerce marketplace.
4. Hyper-local E-commerce Marketplace
The hyper-local e-commerce model has witnessed a whopping growth owing to the social distancing norms in the COVID-phase. Be it curbside pickup or instant hyper-local deliveries, the model has earned great popularity and continues to rise even in the post-COVID situation.
The hyper-local marketplace model helps businesses sell products and offerings that required immediate fulfilment. These offerings include food, grocery, medicines, bakery products, fresh flowers, etc.
This model traditionally operated in an unorganized manner offline and through the phone. However, many types of hyper-local marketplaces are flourishing today.
These hyper-local marketplaces are mostly niche-based, to offer quality services within a specific geography and in the shortest possible time.
Store owners preferable use a commission-based monetization model for hyper-local marketplaces.
Example of this model:
- UberEats: The popular on-demand food-delivery app works on the hyper-local marketplace model. And it has thousands of restaurants and food chains listed on its platform.
- Medlife: It is a reliable hyper-local marketplace that delivers medicine at the doorstep of a consumer within 2 hours. The marketplace studies the prescription checks its authenticity, and once approved delivers your medicine to your doorstep. The marketplace enjoyed significant growth in its revenue in 2020.
So, these are the major 4 types of e-commerce marketplaces that are flourishing in the e-commerce industry. You must analyze your business model and scrutinize these marketplace models for their feasibility and viability. Moreover, you must check which marketplace model can offer you the best return on investment. There are some questions to ask:
- Who should be my major target audience?
- What is the budget I am planning to invest in the initial phase?
- Which model can offer me quick returns?
- Which model has stable growth in the future?
- What are the product categories I am planning to sell?
These questions will help you boil down to the choice of the right marketplace option for your business. Once you conclude this you need to move on to the next step on how to build an e-commerce marketplace.
2. Decide the Platforms for Your E-commerce Marketplace Application
Isn’t it pretty obvious that would choose the web platform for your marketplace solution?
Maybe it is obvious, or maybe you need to think a little deeper.
When you build an e-commerce marketplace, you have 5 platform-based choices that include –
A web-based marketplace application; a progressive web app; a mobile-compatible website; a mobile app (iOS, Android); omnichannel consistency.
Let’s understand the pros and cons of each of these platform-based choices.
- A Web-based Marketplace Application
Most businesses would prefer to start with a web-based marketplace application as it can be launched faster and has a lower cost of development. But, they must also make sure that their application must be fast enough to give users the shopping experience they require. Moreover, the website must be mobile-compatible.
- A Progressive Web App (PWA)
A better alternative to a simple web-based marketplace application is progressive web apps. These work faster than the traditional web applications and are naturally more interactive on the mobile platform as well. The right marketplace solution provider will always recommend you to grow your marketplace business through a PWA.
- A Mobile-compatible Website
Today, whether it is B2C or B2B e-commerce, the mobile platform accounts for over 50% of the total e-commerce sales. And a considerable part of these sales is through mobile-compatible websites.
The m-commerce industry is estimated to surpass the $3.56 trillion mark by the end of 2021.
So, if your website isn’t compatible with the mobile platform, you are likely to lose a substantial percentage of sales. Moreover, you must make sure that the shoppers enjoy a seamless shopping experience on the mobile device as well. And this will have a visible impact on your monthly e-commerce sales.
Many traditional marketplace solutions still offer limited compatibility for mobile platforms, and this off-puts your mobile-based shoppers.
Therefore, you must also make sure that the marketplace solution you choose offers seamless support for mobile-compatible websites.
- A Mobile App (iOS, Android)
Today, a majority of the marketplace solutions have their proprietary mobile app. And these app’s source a significant amount of monthly revenue for their business. Moreover, in some marketplaces like Amazon, the revenue through their app exceeds the monthly revenue through their web-based application.
Mobile apps offer 157% higher conversions than mobile-compatible websites. Moreover, other statistic says that mobile apps are more preferable. And 85% of consumers would preferably choose to shop through a mobile app instead of a mobile-compatible site.
The apps are much faster than web-based marketplaces and generally offer a better user experience. Moreover, many apps work well even at lower internet connectivity.
Mobile apps also offer better reach and you have a better chance of reinforcing your brand’s name in the user’s conscience if he has your app on his smartphone. Moreover, apps allow you to utilize mobile notifications, direct access links through text messages, etc.
However, you must also know that making a marketplace mobile app can be a huge investment. And you can put it in the later stages, once your web-based application and your brand have gained enough popularity.
To make sure you can easily scale with a marketplace app in the future you must choose an advanced marketplace solution that offers support for a mobile app.
- Omnichannel Consistency
In the post-pandemic world, consumers are definitely embracing omnichannel shopping. In fact, today, 73% of consumers prefer to purchase from multiple channels. So, they might explore the web through desktop or mobile, or they might require to buy through a mobile app. And businesses have good e-commerce sales through their official social media shopping pages. Therefore, you must optimize for omnichannel sales for your e-commerce marketplace.
Moreover, 75% of consumers who choose omnichannel shopping are particular about a consistent omnichannel shopping experience.
Therefore, omnichannel sales and shopping experience can help your marketplace draw a significant increase in sales and revenue. But, you must ensure that when you build an e-commerce marketplace platform you choose the right marketplace, solution provider.
3. Finalize the Primary Feature-list for Your E-commerce Marketplace Application
With your e-commerce marketplace idea, you are most probably determined to draw e-commerce business from every nook & cranny.
And, by now, you might have sorted the type of marketplace and the right platform for your business. The next step is to scrutinize and finalize the front-end features of your marketplace application.
Today, we are witnessing the rise of smart buyers and these shoppers would not settle down for bland shopping experiences. Instead, their shopping decisions are influenced by the shopping experience they receive.
And therefore, you must plan for the right e-commerce features for your marketplace, these include:
- Secure and seamless authorization and authentication
- Feature to save credentials for one-click log in
- Dynamic keyword-based search feature with several filters and sorting options
- Feature to check the estimated delivery time
- Functionality to accept or reject deals and use discount coupons
- One-click ordering functionality
- Secure payment with popular merchant payment gateways and mobile wallets
- Feature to add shipping instructions
- The real-time order tracking feature
- A prompt Help & Support feature
- Order Cancellation and Book a Return feature (with T&C)
- Feature to check past orders and one-click repeat ordering
- Transparent customer loyalty and referral program to boost repeat purchase
These are some of the must-have features to deliver an impressive experience through your marketplace. And you can place more features like buyer profile registration, setting up favourites, scheduling orders in B2B, etc. This will depend upon the marketplace you choose.
4. Think upon the Monetization Model for Your Application
So, how are you planning to earn from your e-commerce marketplace?
There are several monetization models that businesses use to draw revenue from their multi-vendor marketplaces. These include:
- The Commission-based Monetization Model
In this model, the stakeholders or the owner earns a commission on every sale made by a vendor through the marketplace. The commission is set based on the different product categories, shopping seasons, and legal regulations, etc.
This is the most popular and high-yielding monetization model for an e-commerce marketplace.
- The Subscription-based Monetization Model
Some marketplaces allow vendors to opt for monthly or yearly subscription models to sell on their platform. This works better for B2B-based e-commerce businesses. This model is fruitful for the vendors when they are confident about their monthly sales figures. Marketplace owners can earn a fixed monthly revenue through this monetization model.
- The In-app Advertising Model
This model is mostly used in harmony with the above two models. In this, the marketplace owner can offer promotional advertising space to the vendors. And the vendors pay for every deal or product they promote in this advertising space.
This advertising space can be in the home-page header, in the footer, on the checkout page, on the Thank You page, or the My Kart page, etc.
- Notification and Messaging Advertising
Some marketplaces also allow vendors to promote their products and deals through app notifications. And they charge the vendors for these promoted notifications or messages. However, these can give the vendors an exclusive reach and great return on investments.
5. Integrate the E-commerce Backend Technology for Efficient Management
A majority of marketplace owners believe that unless you plan for efficient marketplace management, you will lose significant returns from your e-commerce marketplace.
Moreover, the inefficiencies in marketplace management accentuate as you expand your marketplace. And to keep a tight grip on the ropes, you must plan for advanced marketplace management technology.
Therefore, you must ensure that the marketplace solution you choose offers the right e-commerce backend technology.
The right e-commerce management technology brings onboard features like:
- Intuitive vendor management and buyer profile management
- Seamless content management
- Buyer onboarding and KYC management feature (for B2B platforms)
- Real-time data tracking, dashboard, and reporting
- Automated inventory management feature
- Payment management and order records management features
- Delivery and shipment tracking and management features
- Real-time order tracking for several types of users
- Vendors contract management
- Supply and demand management
- Rewards and customer loyalty management
- Deals and offer management
These features will ensure that you have better control over your marketplace. And since most of the features are either automated or managed digitally, you can employ efficient marketplace management.
If your marketplace solution fails to offer integration with the backend technology, you would have to depend upon manual or paperwork processes. And this will decrease the efficiency of your marketplace management processes. As an outcome, it increases the cost of backend operations management and shipping cost. Thus, having a negative impetus on your marketplace ROI.
6. Plan the User Experience You Wish to Offer
As aforementioned, you cannot afford to dive into the e-commerce industry headfirst, unless you have planned to offer an outstanding shopping experience to the consumers.
So, how do you plan for the right shopping experience for your e-commerce marketplace?
The first step is to plan the right set of e-commerce features, and that we have already included in one of the above points.
Secondly, businesses must plan for a personalized shopping experience.
However, many e-commerce businesses miss out on personalizing or localising the shopping experience for the consumers.
Meanwhile, 86% of shoppers believe that their shopping decisions are significantly influenced by the personalized content.
And a significant amount of consumers abandon an e-commerce store if they do not find a personalized shopping experience.
Moreover, marketers and e-commerce experts have witnessed personalized deals perform significantly better than generic deals.
The right way to add personalization to your e-commerce marketplace is via AI-based personalization tools. However, your marketplace platform must be compatible with these personalization tools.
7. Brainstorm and Integrate the Value-creation Features for Your Application
So, you have chosen the best front-end features, planned the right backend management technology, and are ready to monetize your e-commerce marketplace. But, have you planned the value-creation model for your marketplace.
If you wish to attract oodles of vendors to see through your marketplace, you must help them draw the right value from your platform. And therefore, your marketplace solution must offer the right value-creation features for the vendors.
Some of these features include:
- Access to Upsell & Cross-sell Features
Your marketplace solution must be integrated with upselling & cross-selling tools. And the vendors must be able to promote upselling or cross-selling deals for their products. This will help them increase their sales and draw better returns by selling on your marketplace.
- Access to Notification based Promotions
When you build an e-commerce marketplace application, you must make sure that you can utilize web notification and text SMS features for promotions. These channels will help you with promoting and remarketing the products on your platform. This inevitably adds value for the vendors who sell through your marketplace platform.
- In-app Advertising
Many marketplace owners allow vendors to advertise on the marketplace platform for an advertising fee. These ads can be visible on the Home page, My Kart page, Checkout Page, Thank You page, etc. These give exclusive visibility to the vendors and increase their sales.
- Personalized Offers
Your e-commerce marketplace must be integrated with AI-based personalization tools. These tools help you display dynamic content to a consumer based on his interests and data. Moreover, the tool helps promote personalized offers to the consumers based on their search history, and cookie information. This increases the sales and average order value on the platform.
All the above features help the vendors draw better value from your platform. And therefore, you are able to enrol more vendors on your e-commerce marketplace.
What is the Cost of Building an E-commerce Marketplace?
We at Archysis, have built several types of custom e-commerce marketplace solutions for over 120+ clients. And based on the project scope and type of marketplace solution, custom development can cost you around $10,000 to $20,000.
However, we also promote an advanced SAAS based e-commerce marketplace solution. This offers you all the advanced features and integrations required to draw great ROIs from your marketplace. Additionally, you can opt for the customized features at a far lower cost than a custom marketplace development solution.
To know more about our SAAS-based marketplace solution, you can connect with us for a free consultation.