How to build a successful online marketplace in 2021
What’s the first thing that crosses your mind while thinking about starting your online marketplace? Profit? Well, we can’t blame you. The leading marketplace websites such as Amazon, eBay, Etsy and Flipkart amongst many more have certainly set excellent precedents for the online marketplace industry.
In fact, digital prowess has encouraged many entrepreneurs across varied industries to take the plunge in recent years. But, what exactly does it take to raise a successful online marketplace platform? Is it only about having millions of dollars in your war chest? Certainly not. The marketplace building process is a lot more comprehensive than one might think.
This extensive guide will take you through every step that one needs to take to gain a competitive edge in the marketplace industry. Remember, every successful platform you see today has had a robust business model that most of us fail to notice. So let’s dig deeper into some of the lesser-known insights that the online marketplace industry treasures.
How will you find out if your marketplace idea differs from the ones already floating in the markets? How important is it to validate your marketplace idea before you start building anything?
First, a checklist helps you understand the market requirements to strengthen the platform building process while ensuring that the services reach the right audience. In order to raise a successful platform that appeals to both merchants and customers, it is essential to assess the project’s flaws and optimise accordingly. Plus, understanding the real requirements will eventually help you attract new users, which is the sole purpose of building a marketplace. The five steps to validate your marketplace idea are as follows:
- Market Research
Knowing your competitors and their business strategies is the key to your business success. While conducting thorough market research, you will find out more about your current market conditions and your target audience. Most importantly, it’s imperative to know how your marketplace idea fares better than the competition.
- The Marketplace Canvas
The marketplace canvas answers the most important questions for your likes, your value proposition for both customers and providers, and the efficiency of your distribution channel for the two parties. It also determines the feasibility of the cost structure.
- Talk to potential customers and providers
Communication is the best approach to learn more about the evolving customer and merchant requirements. In order to start building anything, you must first understand the expectations of both potential customers and providers, and the existing challenges which you can resolve by creating a reliable and sustainable platform.
- Build an MVP (Minimum Viable Product)
Building a prototype before a complete website or app enables you to understand user and vendor expectations, and helps you choose the right business model.
- Detailed SWOT analysis
A detailed SWOT (Strengths, Weaknesses, Opportunities and Threats) analysis is the last step to validate your online marketplace idea. Here, you also determine how aware you are of the business environment and what can be done to deliver the desired MVP results.
Before you start building your marketplace platform, you must be prepared with a comprehensive marketplace guide to beat the tough market competition. There will be many obstacles, such as unexpected drops in conversions, getting merchants and customers onboard, and low financial reserves, which should also be taken into account before drafting your marketplace guide. Here’s the ultimate guide to building your online marketplace:
- Conduct a thorough market research
- Decide your marketplace niche
- Establish a budget to start your marketplace
- Choose the right business model
- Plan your marketplace operations
- Outline the essential marketplace features
- Create an MVP (Minimum Value Product)
- Choose a viable marketplace building platform
Most startups fail due to financial impediments, therefore estimating the cost of building and raising the online marketplace platform is of prime importance. While some cost deviations are manageable, major cost estimation errors could sometimes lead to the rejection of the marketplace idea. The cost-structure is broadly divided into two parts; the cost of building the platform and getting the word out (Promotional strategies).
- Building your online marketplace
There are two ways of building an online marketplace website. You can either build it from scratch, code it yourself, and hire a website developer to build it for you, or you can create a website using a SaaS platform.
Since the former option is quite expensive and time-consuming, entrepreneurs today are going for off-the-shelf marketplace building software. Efficient marketplace building platforms like Yelo helps you create your website in less than a day, that too without writing lengthy codes. What could possibly beat that?
- Getting the word out
Here comes the most important part. Once you’ve established the platform, how do you get customers and merchants to use your platform? Marketing plays a vital role in attracting your target audience, and the right marketing strategy is the one that resonates well with your business goals and target audience.
Some of the most preferred promotional strategies are content marketing and advertising. To be able to market your platform correctly, you must choose an efficient marketplace building platform. For instance, Yelo enables its users to add and manage promotions and referrals using the admin dashboard.
Undoubtedly, the pricing model of any platform determines its success rate. After all, everyone is in the race for turning good profits. Also, a well-laid strategy is what keeps the operations running and wins over both customers and merchants. The different pricing models for your platform are as follows:
Remember, the right revenue model is the one that keeps changing with new trends and evolving business requirements. For instance, going for a subscription-based model instead of setting a high commission fee on each product in the first few months might not be an ideal approach, but it can be administered once the business starts scaling.
However, there are some key influencers that must be factored in when selecting the right pricing strategy for your platform. The marketplace owner must consider factors like the marketplace type (horizontal/vertical), marginal cost, market competition, network effect, and merchant expectations before fixing a revenue model. Sustainability matters the most, and it comes with the right pricing decisions for both customers and providers.
Here’s the 5 step guide to setting up a pricing strategy
- Write down your business goals
- Conduct a market pricing analysis
- Analyse your customers, understand their requirements
- Profile the competitive pricing strategy
- Find a marketplace building software that fits your pricing model requirements
Comparing dozens of service providers to choose the best online marketplace software could get quite challenging, however, the process can be eased with a well-laid business plan. If you understand your business requirements well, you will know which platform will best qualify for services that your platform intends to offer. So before you take your pick, here are a few questions that you must ask.
Ques 1. Does the online marketplace software support your business goals?
The key is to choose a platform that aligns well with your business objectives and user expectations. By choosing a marketplace software solution that supports your business goals and future expansion plans, you can make your platform much more reliable, efficient, faster and profitable.
Ques 2. Is the platform flexible enough to adapt to evolving business requirements?
The market requirements will gradually change, and so will the expectations of customers and merchants from your platform. The competition will be more intense once you’ve entered the marketplace. To keep up with such changes and increasingly tough competition, you need to up your game by integrating the right features at the right time.
Ques 3. How efficient is the company’s business model?
Hiring a marketplace software is just like entering a partnership wherein all three parties- customers, vendors and marketplace owners should be equally benefited. And this can only be achieved with a suitable business model. Therefore, one should hire marketplace software like Yelo that offers a robust business model and gives you the flexibility to choose from different pricing models or combinations.
Ques 4. What unique services does the marketplace software offer?
Every software offers custom features, but you need a platform that fulfils your business criteria and offers exceptional services for customers and vendors. Yelo offers a free trial period which gives marketplace owners a chance to test and decide. Besides this, it has a sound 24*7 customer support system and a unique pricing structure that varies based on the scale of business (hobby, startup, standard or growing).
Ques 5. How good is the platform at relationship building?
To build and sustain long term relationships for higher customer retention, you need to cultivate a special bond of trust with the users and providers. This can only be strengthened with a transparent and efficient marketplace building software that supports real-time communication and a robust customer support system.
Now that you’ve established your website, it’s time to see how it’s performing. Building a marketplace is easy, but making it a success is a completely different ball game. Remember, nothing happens over weeks or a few months; it takes consistency, constant evolution and upgrades to raise a good platform. The key performance indicators (KPIs) give you valuable insights about your marketplace and help you improve as you scale while also helping you make good profits. Some of the key metrics for measuring the performance of your platform are:
- Usage Metrics
As the term suggests, usage metrics track real-time user activity on your website. The data analytics tools provide real-time insights into the following:
- Active users and total transactions
- New Users to measure customer acquisition
- Time spent by users to assess the level of interaction and quality of services
- Bounce rate to improve services and run a retargeting campaign
- Marketplace Business Metrics
Once you start gaining traction, it’s time to look into the growth parameters. Business metrics are used to justify your ROI from the marketplace. The three key business metrics used by online platforms are:
- Gross Merchandise Value:
Gross Merchandise Value (GMV) measures the value of goods and services sold on your platform. This is calculated by multiplying the total number of transactions with the average order value (AOV). To make it more accurate, it must be done after all cancellations and returns.
- Customer Acquisition Cost: CAC is the cost of acquiring each customer on the website. It determines the viability of your platform. This is calculated by dividing the total amount spent on marketing a specific campaign by the number of new customers acquired from the same channel/campaign.
- Customer Satisfaction Metrics
No matter how big the platform is, if you can’t impress your customers or keep a note of their preferences, it will gradually lose its significance. Customer satisfaction is a key determinant of your platform’s success. Every marketplace needs customers who are happy to recommend your brand.
Net Promoter Score (NSP) is a metric that helps you assess the likelihood of your customer base recommending your business to their network. If that score varies between 0 and 10, your chances of reaching the network are decent. However, if the score is as low as 1, you clearly need to work on your platform.
After evaluating the key performance metrics, it’s time to find the right marketing strategies to promote your marketplace. These cost-effective strategies will help you utilise your organisational resources efficiently, build brand credibility, and help enlarge your customer base while also strengthening existing user relationships first. The key is to promote sustainable scaling, and that comes with the right marketing models. The facts below will help you enrich your marketing experience.
- Viral Marketing
It is the most effective way to attract new users through existing users. In order to encourage existing users to invite new users, you need to create incentives. The most common approach used by marketplaces to create a “viral loop” is monetary compensations or discounts coupons for referrals. Some of the leading marketplaces such as Myntra, Airbnb, Udemy leverage from viral marketing.
- Search Engine Optimisation
Search Engine Optimisation (SEO) determines your website’s position on Google search results. Amidst the cut-throat competition, you will want your platform to rank higher for users who are looking for the products and services on your marketplace. To organically show up, you need to disseminate the best SEO practices to your sellers. Here’s how you can implement SEO for your platform:
- User-friendly website for better navigation
- Use keywords that both buyers and sellers would use on your website
- Create a comprehensive SEO guide for your sellers on how to get found
- Content Marketing
If you have a limited budget and a wider audience to cater to, content marketing is a good way to start building your network of a loyal customer base. It also improves your search engine ranking and will also amplify your social media reach. Engaging content gains organic traction and will also help providers improve their offering.
- Email Marketing Strategy
Statistics have proven that the cost of attracting new customers exceeds the cost of keeping existing customers and marketplaces invest way too much in acquiring the new customer base instead of activating existing ones. Email marketing is one of the most efficient ways to reach existing users. You should send constant updates like lists of interesting new products or services, articles links etc. Etsy does a remarkable job at keeping their first-time buyers active on the site.
Ready to launch your next BIG venture?
Do you know what the leading global marketplaces like Amazon, Etsy, Flipkart, Airbnb have in common? Their consistency and perseverance. Remember, no platform flourishes in a week; it could take months or even years to turn your first profit. However, their consistency with the business process has been remarkable, and that’s exactly how they became billion-dollar companies. So if you’re ready to launch your next BIG venture in 2021, this guide has everything that you need to know!