Creating an Online Marketplace: How to Create an Online Marketplace in 7 Steps

1. What is an online marketplace?
2. What is the difference between an online marketplace and an online store?
3. Examples of successful online marketplaces
4. Why could it make sense to create an online marketplace?
5. What is needed to create an online marketplace?
6. How can you create an online marketplace?
7. Online Marketplace Software
8. Why it's worth creating an online marketplace

At no time has it been easier than now to create an online marketplace. And it has never been more lucrative, because: the e-commerce market has been growing for years - no end in sight. Do you want to get started too? No problem! In this article, we explain what an online marketplace is, why it makes sense to create a sales platform and how you can create an online marketplace yourself.

What is an online marketplace?

An online marketplace is a virtual place for the trade of goods or services. Online marketplaces are platforms where multiple merchants offer products. However, as the operator of the marketplace, you don't necessarily own products yourself. You are responsible for providing the sales platform for merchants so that they can present their products and sell them without complications.

There are four main types of online marketplaces:

1. Vertical Marketplace:

Different vendors sell goods, services, or solutions from a specific product category, such as jewelry. These marketplaces can be compared to specialty stores in the offline world.

2. Horizontal Marketplace:

The offer is based on certain product classes, not industries. The online marketplaces thus offer a diverse range of products, which can be compared with department stores. For example, a product range in the B2B sector can be office equipment or computer software.

3. Global Marketplace:

In this form of marketplace, the product range is not limited. The selection is diverse and covers a wide range of customer interests. Examples of global marketplaces include eBay.

4. Hybrid Marketplace:

If the online marketplace is a mix of vertical and horizontal marketplace, it is a hybrid marketplace form. Often it is a mixture of the offer of the operators of the marketplace and other traders.

Further distinguishing criteria:

• Registration method: direct self-registration or exclusive access
• Offer type: advertisement, classified ad, auction, etc.
• Client and merchant type: B2B, B2C, C2C

What is the difference between an online marketplace and an online store?

Let's start with a commonality: Products are offered for sale on an online marketplace and in an online shop. As the operator, you are responsible for the development and maintenance of the shop or online trading platform, customer acquisition, marketing and more in both cases.

Here we compare the online marketplace and online shop to make clear the differences for operators

Online Marketplace vs. Online Shop

Examples of successful online marketplaces

Etsy

Etsy Homepage

Etsy is a global online marketplace for creative and unique items. The marketplace was originally designed to sell handmade products created by the merchants themselves. Today, Etsy also provides space for items that are not self-made, not rare or particularly personal.

Many professional merchants are now active on the online marketplace. An account on the sales platform is free. However, sellers can upgrade their profile for a fee. Also, a fee is due for each posted item, regardless of whether the product is sold or not. If a sale is made, a commission is paid to Etsy.

eBay

eBay Homepage

eBay launched in 1995 as an online auction house in the C2C area and is today one of the largest global online trading platforms. Old or new items can still be sold to the highest bidder. However, an auction is no longer a must, a direct sale with a fixed price is also possible. This is particularly interesting for professional merchants. The online marketplace has therefore also conquered the B2C area.

Sellers can choose between four different eBay shop variants. The monthly costs for this start at 39.97 euros for the Basic package. Additionally, there is a sales commission that depends on the type of product.

Amazon

Amazon Homepage

Amazon is one of the largest and probably best-known online marketplaces worldwide. The beginnings of the online marketplace began in 1994 with online book sales. Meanwhile, the product selection is huge and there are hardly any products that you can't find on Amazon. This wide range of products is possible because numerous merchants from all over the world offer their products on the online marketplace. Amazon itself also now offers its own products, making it a hybrid online marketplace.

As a merchant on Amazon, you pay a sales commission, like almost everywhere. The amount varies depending on the product category. From a certain sales limit, it is worth setting up a Professional Account. For this, a fixed fee is paid monthly. In addition, merchants can use the Fulfillment program Amazon FBA. Amazon then takes care of shipping, storage, and return management. Additional fees apply for this.

Why could it make sense to create an online marketplace?

Online commerce is still booming - hence the attractiveness of entering the world of e-commerce. Especially owning your own online marketplace is very attractive for operators. Let's take a look at why it makes sense to create an online marketplace.

1. Building a passive income

The main source of income for most online marketplaces is the sales commission that is charged for each sale. The sales process and therefore also the payment of the commission can be automated with a suitable payment provider. Once properly set up, you earn money automatically as the operator of the online marketplace. But this is by far not the only possibility: listing fees, subscriptions, advertising opportunities, and other services expand your sources of income.

2. Low financial risk with high chances

As a marketplace operator, you do not need your own products, no storage, no shipping system. If your plan does not work out and the online marketplace simply does not start, your financial loss is manageable. If your concept works, the challenge is to keep supply and demand in balance. As the demand grows, more merchants are needed. But the same applies: As the customer base grows, you attract more merchants to your online marketplace.

3. Developing bestsellers

As a marketplace operator, you have all the data from customers and products. If you analyze the data, you can find out which products are most popular and who the customers are. This data is the perfect basis for your own market research. With the findings, you can develop your own products and offer them on your online marketplace.

What is needed to create an online marketplace?

Actually, you only need four things to create a sales platform: a good plan, the right software, patience, and money. Before you create the online marketplace, there are many decisions to be made and there is a lot to do:

• Create a Business Plan
• Choose the right business model
• Implementation itself using a project plan
• Possibly team-building

Once the online marketplace has been created, the work continues: launch, marketing, growth, etc.

Creating the online marketplace is the easiest task with the right software. The preparations and the work afterward are the most complex. In the next section, we will take a look at the individual steps from preparation to the creation of the online marketplace.

How can you create an online marketplace?

Creating an online marketplace involves a lot of work. At first, this can seem pretty overwhelming. Therefore, we have divided the process into 7 steps - from the idea to the creation of the online marketplace. Let's get started!

⁠Create an online marketplace in 7 steps

Step 1: Market Research

Your idea may be fantastic, but if there is no market need, you will fail anyway. To build a successful online marketplace, you must know the market and the target group well.

Take a very close look at the target market and filter out the most attractive niches. It is easier to start with a niche. As you know, Amazon did not offer everything from the beginning, but initially was an online bookstore.

Analyze the competition. What marketing strategy do your competitors have? What business model do they use? This way you can find out what already works and what you can do better.

Identify your customers. Since you want to create an online marketplace, you have two target groups: sellers and buyers. Both groups have their own goals and challenges. Therefore, create buyer personas for both groups to understand their needs and find solutions.

Step 2: Determine the business model

It is not enough to have an attractive offer. It must also be profitable. To ensure this, you must specify how you want to generate income on your online marketplace. We go here into the usual types of monetization.

1. Registration fees

Charge a flat fee to be allowed to sell products on your online marketplace. Think of it like a booth fee at a flea market. The advantage is that you already have income at the beginning, even if the online marketplace is not yet well known. The disadvantage is, your vision must really be convincing, because: Why should sellers pay you if you don't have a flourishing online marketplace yet? In addition, the registration fee alone will not be enough to build a profitable business.

2. Subscriptions

Sellers pay you a constant amount to keep their "stand" on your online marketplace. This guarantees you a regular income. But the amount must not be so high that it seems unprofitable for the vendors to pay it.  The fee must be in a reasonable relation to the profits of the sellers. Offering different packages is a good idea. For a higher fee, sellers receive more features, for example.

3. Listing fees

For each product that sellers list on your online marketplace, they pay a fee. The fee can be fixed or variable, depending on the product category or product price. Again, the fee must not be so high that it becomes unattractive for sellers. To make the fee even more attractive, you can collect it with the first product sale.

4. Sales Fees

A fee is charged for each sale. The more sales, the higher your income. These won't be so high at the beginning, of course. It is important that you choose a payment tool that can automatically calculate the fee. This saves you time and nerves.

Step 3: Plan marketplace processes

Many different processes take place on a marketplace. As the operator of the online marketplace, you must plan these and ensure smooth operation. Let's take a look at the basic processes:

1. Seller Management

Without sellers, no marketplace. You must acquire merchants, accompany them at the start and continuously serve as a contact person in order to ensure satisfaction and success. But before you contact sellers, you must provide information about how the marketplace works and list the advantages. Once you have convinced them, you must have an simple registration process. At this point, you should decide whether everyone is allowed to register or whether you check registrations and accept them individually.

In order to be able to collect the fees, the payment handling must also be clarified at this point. Either you use a tool that automates payment handling or you process the payment manually.

Once you have clarified the registration process and payment processing, the next question is about the rights of the vendors. To what extent can they design their appearance? Do they have evaluation options? A personal dashboard? Can they advertise their products on the sales platform?

2. Product Management

Products should be as easy as possible to list as well as searchable and findable in the product catalog. You have two options to organize your product catalog. Every product either belongs to one seller or a product can be offered by several vendors. The latter is the case on Amazon, for example. Depending on how you decide, this has implications for the software, the marketplace layout and the publication of the products.

Additionally, you must decide whether it is possible to import existing products from the vendors on other online trading platforms or whether you want to offer a service that takes over the listing.

3. Payment processing

Payment processing on an online marketplace is complex. Customers should be able to shop from different vendors and receive one invoice. But the payments must be split up and received by the vendors. Plus there are different payments, e.g., the payments to you. Tax and invoice issuance is also a factor you need to consider here. The selected payment solution should ideally support all these processes.

4. Management of logistics and shipping

If you distribute physical goods on the online marketplace, the question arises whether these are shipped directly or you offer this as a service. Offering a shipping service increases the complexity, as you need a storage area and must organize the entire transport. Whichever way you decide, your software needs to be able to reproduce this process or allow for corresponding integrations.

5. Order Management

To ensure the customers' order is processed as quickly as possible, the salespeople should be notified about orders immediately. The order management should be designed as conveniently as possible. If customers buy from multiple vendors, it must be made clear how to ship. On Amazon, for example, you as a customer can see which products are delivered together and approximately when they arrive. The shipping information should be able to be edited by your vendors to, for example, insert tracking numbers. If there are difficulties or delays, you also need to have a plan on how to deal with them. It is usually best to establish direct communication between both parties.

6. Marketing and Content Management

To promote your online marketplace and attract customers and sellers in the long term, you need a Marketing Plan. Search engine optimization plays an important role because it brings you a large part of the users. Your Software should therefore be as search engine friendly as possible, i.e. shops, product lists and other marketplace pages are optimized for search engines. Most of the content is created by your users. To ensure the quality of the content, you should set up a process for this.

Especially at the beginning, not much content is present on your marketplace. Therefore, it makes sense to place advertisements and make your marketplace more well-known this way.

7. Relationship management for sellers and customers

A good relationship with users is a critical success factor. Only those who feel comfortable will stay. You are the central contact person for all sorts of inquiries.

To prevent these from getting out of hand, you should definitely enable direct exchange between sellers and customers. This way, you only intervene if there are difficulties or discussions.

You yourself should be able to communicate with all vendors and customers via mass messages. This is important if there are innovations or actions that affect the entire sales platform.

Step 4: List the most important functions of the marketplace

From the processes that have already been presented, it is possible to derive the functions - at least the most important ones. You should start with these. Over time, and with the growth of the online marketplace, you will then see whether additional functions are useful or not.

Let's consider, as an example, the functions for sellers:

• Registration on the platform
• Import and manage product catalog
• Set up products
• Receive and process orders
• Notifications about orders
• Receive payments
• Create and manage discount codes
• Private messaging system

Step 5: Choose a payment provider

You already know that the different types of payment and processing are very different and varied. Customers buy products, sellers pay fees to you, sellers receive payments. In addition, there may be third parties involved. How are all these payments processed? There are three possibilities here:.

1. Direct payments between buyers and sellers

You as the trading platform are not involved in the transaction, which seems easiest at first. But: This makes it more difficult for you to collect transaction fees if you want to calculate them. Your customers also cannot shop at different vendors at the same time. Each purchase transaction must be done individually.

2. Consolidated payment for buyers

Buyers make one payment for all products. You have to split the amount afterwards and pay out to the suppliers. This is more convenient for customers, but more difficult for you.

3. Simultaneous, separate payment to sellers

Here, the payment of the customers is split at the cash register and transferred directly to the payment service providers by the sellers. This is the easiest solution for you.

So when choosing your payment service provider, pay very close attention to which functions are supported. Popular providers are e.g. Stripe Payments and PayPal.

Step 6:  Choose marketplace software

As you've likely already noticed, online marketplaces are quite complex in their structure. You can define everything yourself, note it in a specification and have it implemented by an agency. Or you choose the simpler and cheaper way and opt for online marketplace software. Especially for small and medium-sized companies, it is financially out of question to have the online marketplace created from scratch.

You have defined the fundamentals for your online marketplace in previous steps. To implement the online marketplace with the right software, you have to keep in mind the required functions and processes. The software solution must support these. Check if your chosen payment service provider can be integrated as well. Be sure to use trial versions before you decide on marketplace software.

Cloud solutions are usually quite easy to use and you barely need any technical know-how. The disadvantage is that customization options are limited. Because with cloud solutions you do not have access to the code. If you find that you need more flexibility, you should look at stand-alone software. You host this yourself, so you have full control over the source code and can in principle change everything. But without technical know-how or a service provider, this is not an option. Also, you will have to maintain and update the software yourself.

There is a third option that should not go unmentioned but is not recommended: You already have an online store and want to convert it into an online marketplace by using extensions. Why is it not recommended? By now you know that an online marketplace works differently than an online store - namely in two directions. This often leads to problems with extensions because the online store's architecture is simply not designed for these functions. Without qualified technical support, this variant will definitely drive you crazy.

Step 7: Create an online marketplace

Up to here, you have had to make many decisions. The last one led you to your software. Now you can really get started! It's time to create the project plan for implementing the online marketplace. Whether you implement the project in a classic or agile way, in a team or alone - the project plan helps to keep track of tasks, time, and money. How long the implementation takes depends on many factors: software, budget, personnel, range of functions and more. Plan for enough time to test the most important functions and processes.

The final step is done, the online marketplace is created. And now? Time for the launch!

Of course, you should not plan this only when the online marketplace is finished. But that is another topic and would go beyond the scope of the article.

Online Marketplace Software

As you know, there are cloud solutions and standalone software with which you can create your online marketplace. We have picked out four popular online marketplace software solutions from both areas for you.

Cloud solutions:

• Sharetribe

• Marketplacer

• Arcadier

• Yelo

Standalone software:

• MultiMerch

• CS-Cart

• yo!kart

• OroMarketplace

On OMR Reviews, you can find more rated marketplace software solutions for SMEs and Enterprise.

Why it's worth creating an online marketplace

Creating an online marketplace takes time and is not the next get-rich-quick method. But: It is an exciting entry into the e-commerce business with potential for long-term success and high profits. Thanks to software, creating an online marketplace is also possible for small businesses with limited resources.

If you still prefer to stay on the seller side for now and get to know marketplaces, read here to find out how you boost your online sales with marketplace software.