Over the past year, COAX has been building over a dozen online marketplaces for clients. We have also counseled over a hundred aspiring entrepreneurs, advising them on the best approaches for building the marketplace that best fits their needs. This blog post is a short summary of the most relevant challenges and questions raised by entrepreneurs and CTOs just like you.
Stage 0: Online marketplace business models 101.
You may be surprised, but for many entrepreneurs, the difficulties of launching a marketplace are often not related to technical difficulties at all. A beginner entrepreneur can’t always answer precisely how they are going to make money. Also, why should customers choose them? And what makes their offer so unique from their ten other competitors? Before getting interested in building a marketplace, it is crucial to validate your business model.
We strongly encourage you to check Why Custom eCommerce Websites Fail before reading any further. It may save you some time, money, and confusion.
Stage 1: Formulating your marketplace MVP idea
Let's skip the boring details and classifications right away. You don't have to know the difference between global, horizontal, or vertical marketplaces. Neither b2c and b2b nor p2p variety will do any good. The only essential thing you have to know is how to launch your marketplace MVP ASAP.
The concept of MVP refers to the minimal viable product. Here's how Eric Ries defines MVP in his book The Lean Startup:
There's no other credible way to validate your idea when you start a marketplace other than by launching its MVP. You have to see honest user reactions and test the conversion rate.
You don't have to worry about how good-looking your starting product is. A marketplace MVP should be capable of delighting customers with the solution they were unconsciously looking for but couldn't find. Early adopters won't pay any attention to the overall design and minor bugs in the user experience if you solve their real-life problems.
Stage 2: Defining the feature set for your marketplace’s initial launch
Before you settle on the tools and technology you will use to build your marketplace from scratch, let's check the list of must-have MVP features.
- User and seller profiles with social media sign-on. These are the basics that grant access to your platform by key players and make registration a breeze.
- Product and service cards. Think about it as a short landing page that represents the product or service you are selling. It would not be superfluous to think about SEO optimization since each product page should be quickly found in search engines.
- Seller and buyer chats. Having a simple way to communicate between sellers and buyers inside your marketplace is definitely a must.
- Review functionality. Buyers should be able to rate the products and services they buy and their overall experience with a seller and platform.
- Email distribution system. Reminders for 'abandoned carts' and promo notifications would make a huge difference even in the early stages of the marketplace’s launch. Transactional emails cannot be ignored either.
- Payment processing systems. Your marketplace has to be integrated with multiple payment systems like Stripe or PayPal right from the start. In fact, this will make up the heart of the e-commerce side of the business.
- Advanced search. Search with custom filters is a key feature of any marketplace. With its help, your customers will be able to sort products and get exactly what suits them best.
People are constantly discussing whether it is better to outsource the MVP development or to build everything yourself. It all depends on your technical and financial capabilities. You can, of course, run a landing page on your own, where emails will be the primary communication and transaction tool. But if your MVP is a little more complex, you cannot do without the help of qualified web developers.
Stage 3: Choose a marketplace platform wisely
In most cases, building a marketplace yourself boils down to the question of what CMS (content management system) you should use as a foundation. Most popular self-serve marketplace CMSs like Sharetribe or Magento can do well if you power them up with multiple plugins and themes. You may well try to launch the first version of the site yourself. But as the site develops, you will notice that, firstly, the administration of such a platform is not easy. Secondly, you will need more and more knowledge to integrate additional functionality. Ultimately, you will inevitably turn to third-party developers or be forced to hire someone.
If you have doubts about choosing custom website development or self-serve marketplace builders, review this checklist.
Note that custom builds can be based on either the same CMSs or custom-written from scratch. Many businesses choose to develop custom extensions on top of self-served platforms like Magento or Sharetribe. In this case, pricing can vary depending on your needs.
In general, the rule is simple: for any well-to-do long-term business idea, build a website yourself. It will come out cheaper and save you a lot of effort in the long run. For a business idea that you are just about to test, it is best to start with out-of-the-box solutions. If you are somewhere in between, then feel free to take a ready-made CMS system and create the missing components with the help of an outsource developer team.
Although eCommerce websites can vary greatly from marketplace platforms, we recommend reading How much does it cost to build a Custom eCommerce website in 2021 to get a sense of the market. If you want an in-depth consultation regarding your particular case, drop us a line and we’ll get back to you soon. Talk is cheap, and in our case, consultation is absolutely free.
Stage 4: Measuring MVP success
Here comes the fun part - the KPIs. Ideally, these should be defined right before you launch your marketplace platform. Here are three questions you should answer to properly define your KPIs:
- What market hypothesis am I trying to test with this launch?
- What data am I collecting on my marketplace?
- What metrics will determine the overall success of the launch?
Ideally, all the metrics should be tied to user behavior, which should be reduced to particular features, pages, and offerings. That is how you can boil things down to KPIs that are actionable. If numbers go low, you will know which part of the product or offering should be changed.
Stage 5: Is there life after the MVP?
Start interacting with both the sellers and buyers immediately after you launch your MVP. Reach out for customer interviews as many times as you can. This will become the primary source of product improvements.
Connecting to your marketplace tools like Hotjar or FullStory will allow you to gather critical information on the actual user’s journey and behavior on your website. This is something that users themselves often struggle to formulate.
Be attentive to unit economics, ensuring that customer acquisition never goes higher than customer lifetime value on the platform. Check Google Analytics for valuable traffic sources and spikes in customer interests towards different products on your marketplace.
As soon as you see the possibility of improving the user experience and influencing the conversion rate, invest in product improvements immediately. Beyond the MVP, there is almost no possibility for shipping features on your own. This is because most of them would be custom-tailored to your unique user experience and analytics insights. Choose your development partners wisely.
And yeah, we at COAX are always ready to help, no matter the stage of development your marketplace is at. Shoot us a message and we’ll be glad to help.