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Start a marketplace website business by following these 9 steps:
You have found the perfect business idea, and now you are ready to take the next step. There is more to starting a business than just registering it with the state. We have put together this simple guide to starting your marketplace website business. These steps will ensure that your new business is well planned out, registered properly and legally compliant.
STEP 1: Plan your Business
A clear plan is essential for success as an entrepreneur. It will help you map out the specifics of your business and discover some unknowns. A few important topics to consider are:
- What are the startup and ongoing costs?
- Who is your target market?
- How long it will take you to break even?
- What will you name your business?
Luckily we have done a lot of this research for you.
What are the costs involved in opening a marketplace website business?
The costs involved in opening a marketplace website vary dramatically depending on how the site is built.
Coding a full-featured website from scratch can cost $100,000 and up, although it may be possible to keep total costs slightly lower by outsourcing work to countries where labor is cheaper and skipping certain features.
A more affordable option is to build a site using a template that’s provided by a marketplace platform service. These services charge a monthly subscription fee in exchange for providing a pre-built template that a site can be designed on.
Near-Me, Sharetribe and Arcadier are three such services. They charge between $34 and $2,000 per month, depending on how many users a site has and what features it needs. Most rates are several hundred dollars a month.
What are the ongoing expenses for a marketplace website business?
If a marketplace website is coded from scratch, the ongoing expenses include labor costs associated with running and maintaining the site, and hosting fees.
When a site is set up through a platform service, the ongoing expenses consist of the monthly subscription fee.
Who is the target market?
The target market for a marketplace website consists of both vendors and customers who are interested in the site’s niche. Some vendors will sell only a little, while others will sell full-time.
How does a marketplace website business make money?
Marketplace websites primarily make money by earning a commission on each transaction that takes place on the site. Some sites also make money from subscriptions (for frequent users) or upselling extra perks (e.g. rush delivery).
How much can you charge customers?
The amount charged by marketplace websites ranges. For example, Etsy charges a nominal listing fee and 3.5 percent of the sale price when items sell. WriterAccess takes about 30 percent, which is common for writing-focused marketplace platforms.
How much profit can a marketplace website business make?
A marketplace website’s profit potential depends on how much money exchanges hands over the site. The most successful sites, such as EBay, bring in billions of dollars annually (if not quarterly). A site doesn’t need to be this large to earn a significant profit, though. Flippa, a marketplace site for domains and websites, has monthly revenues in the millions.
How can you make your business more profitable?
Some marketplace websites increase their revenues by offering personal assistance to customers who have high-volume orders. Customers receive help navigating the site and finding vendors, in exchange for making large deposits or paying a fee. WriterAccess employs such a tactic for additional revenue.
What will you name your business?
Choosing the right name is very important. Read our detailed guide on how to name your business. We recommend checking if the business name you choose is available as a web domain and securing it early so no one else can take it.
After registering a domain name, consider setting up a professional email account (@yourcompany.com). Google's G Suite offers a business email service that comes with other useful tools, including word processing, spreadsheets, and more. Try it for free
STEP 2: Form a legal entity
Establishing a legal business entity such as an LLC prevents you from being personally liable if your marketplace website business is sued. There are many business structures to choose from including: Corporations, LLC's, and DBA's.
Form Your LLC
Read our Guide to Form Your Own LLC
Check out the Top Business Formation Services from our friends at StartupSavant.
You should also consider using a registered agent service to help protect your privacy and stay compliant.
STEP 3: Register for taxes
You will need to register for a variety of state and federal taxes before you can open for business.
In order to register for taxes you will need to apply for an EIN. It's really easy and free!
You can acquire your EIN for free through the IRS website, via fax, or by mail. If you would like to learn more about EINs and how they can benefit your LLC, read our article, What is an EIN?.
STEP 4: Open a business bank account & credit card
Using dedicated business banking and credit accounts is essential for personal asset protection.
When your personal and business accounts are mixed, your personal assets (your home, car, and other valuables) are at risk in the event your business is sued. In business law, this is referred to as piercing your corporate veil.
Open a business bank account
- This separates your personal assets from your company's assets, which is necessary for personal asset protection.
- It also makes accounting and tax filing easier.
Recommended: Find the right bank for you, read our review of the Top 5 Banks for Your Small Business
Get a business credit card
- This helps you separate personal and business expenses by putting your business' expenses all in one place.
- It also builds your company's credit history, which can be useful to raise money and investment later on.
STEP 5: Set up business accounting
Recording your various expenses and sources of income is critical to understanding the financial performance of your business. Keeping accurate and detailed accounts also greatly simplifies your annual tax filing.
STEP 6: Obtain necessary permits and licenses
Failure to acquire necessary permits and licenses can result in hefty fines, or even cause your business to be shut down.
State & Local Business Licensing Requirements
Certain state permits and licenses may be needed to operate a marketplace website business. Learn more about licensing requirements in your state by visiting SBA’s reference to state licenses and permits.
Most businesses are required to collect sales tax on the goods or services they provide. To learn more about how sales tax will affect your business, read our article, Sales Tax for Small Businesses.
For information about local licenses and permits:
- Check with your town, city or county clerk’s office
- Get assistance from one of the local associations listed in US Small Business Associations directory of local business resources.
Marketplace website businesses should consider requiring clients to sign a services agreement before starting a new project. This agreement should clarify client expectations and minimize risk of legal disputes by setting out payment terms and conditions, service level expectations, and so on.
STEP 7: Get Business Insurance
Just as with licenses and permits, your business needs insurance in order to operate safely and lawfully. Business Insurance protects your company’s financial wellbeing in the event of a covered loss.
There are several types of insurance policies created for different types of businesses with different risks. If you’re unsure of the types of risks that your business may face, begin with General Liability Insurance. This is the most common coverage that small businesses need, so it’s a great place to start for your business.
Learn more about General Liability Insurance.
Another notable insurance policy that many businesses need is Workers’ Compensation Insurance. If your business will have employees, it’s a good chance that your state will require you to carry Workers' Compensation Coverage.
STEP 8: Define your brand
Your brand is what your company stands for, as well as how your business is perceived by the public. A strong brand will help your business stand out from competitors.
How to promote & market a marketplace website business
A marketplace website can reach its target market by running search engine optimization campaigns and pay-per-click ads related to its niche. Site owners can also recruit users through blogs, forums, and social media.
How to keep customers coming back
The more users a marketplace website has, the more valuable it becomes to all of its users. In order to attract as many users as possible, a site should offer a free way for both vendors and users to check out the platform. Customers should either be able to browse listings without an account or get a free account. Vendors should have an option to pay only after a listing is sold.
STEP 9: Establish your Web Presence
A business website allows customers to learn more about your company and the products or services you offer. You can also use social media to attract new clients or customers.
Start A Marketplace Website Business In Your State
Select your state below for an in-depth guide on completing each of these steps in your home state.
Is this Business Right For You?
Anyone who is passionate about a particular interest may enjoy running a marketplace website. These sites are frequently focused on specific niches, connecting vendors and customers interested in that niche.
What happens during a typical day at a marketplace website business?
Most of the work done at a marketplace website is online. On any given day, site owners may:
- investigate and fix bugs in the site
- monitor site activity and implement updates
- respond to vendor and customer inquiries
- review and adjust marketing campaigns
- send vendors payments
In general, business owners need to make sure their site is running smoothly and all users know how to access the features they want. Any issues in the user experience may cause vendors or customers to leave the platform.
What are some skills and experiences that will help you build a successful marketplace website business?
Running a successful marketplace website doesn’t require any coding knowledge (see below), but having a basic grasp of HTML and CSS is helpful. Knowing how to perform basic edits to a site’s HTML and CSS lets site owners customize their sites beyond what drag-and-drop templates allow.
Site owners who have no HTML or CSS knowledge will find a plethora of online courses, ebooks and other resources. Codecademy and W3Schools offer good, free courses. Two helpful books are HTML and CSS, and Learning Web Design.
Additionally, site owners must be familiar with the products and/or services that will be sold on their marketplace platform. Even though site owners don’t actively sell, knowing what vendors and customers want will help owners design a more useful platform. To learn more about the particular niche their site will serve, owners can read books on the niche, join local clubs, and network with other enthusiasts.
What is the growth potential for a marketplace website business?
A marketplace website may be a small site that caters to a narrow niche, or it can grow to be a large platform. Kayakable (kayaks and canoes) and Trendlistr are two examples of smaller sites. Some larger, well-known platforms are Airbnb, Uber and Lyft. Amazon, EBay and Craigslist are some of the largest platforms.
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Take the Next Step
Find a business mentor
One of the greatest resources an entrepreneur can have is quality mentorship. As you start planning your business, connect with a free business resource near you to get the help you need.
Having a support network in place to turn to during tough times is a major factor of success for new business owners.
Resources to Help Women in Business
There are many resources out there specifically for women entrepreneurs. We’ve gathered necessary and useful information to help you succeed both professionally and personally:
If you’re a woman looking for some guidance in entrepreneurship, check out this great new series Women in Business created by the women of our partner Startup Savant.
What are some insider tips for jump starting a marketplace website business?
Even site owners who have coding knowledge may want to start with a platform service. Not only do these services cost much less than building a site from scratch, they also take care of all coding issues. The service addresses bugs and provides updates as needed, so site owners can focus on growing their site rather than technical issues.
Using a platform service does, however, make a site dependent on the service. The site’s features will be determined by what the service offers, and the site will be updated as the service rolls out updates. For this reason, it’s important to sign on with a service that has a strong track record of quickly rolling out updates and responding to client’s requests for features.
How and when to build a team
Many marketplace websites start out with only the site owner running the site. Owners typically bring on employees as the workload requires and revenue allows.