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More and more people are looking for gig-style work online, which is giving rise to a new type of website. Marketplace websites connect vendors and customers looking to conduct business together, and the websites collect a commission for doing so. One-quarter of Americans participated in this type of work in 2015, and that number is only trending upwards. Thus, there’s plenty of opportunity for new marketplace websites.
These websites may be service- or product-based. What differentiates marketplace websites from ecommerce sites isn’t what is being sold, but who is doing the selling. Whereas ecommerce sites sell directly to customers, marketplaces connect vendors, who are selling goods or services, with customers.
Who is this business right for?
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 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).
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.
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 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 steps to start a marketplace website business?
Once you're ready to start your marketplace website business, follow these steps to ensure that your business is legally compliant and avoid wasting time and money as your business grows:
- Plan your business. A clear plan is essential for success as an entrepreneur. A few important topics to consider are your initial costs, your target market, and how long it will take you to break even.
- Form a legal entity. Establishing a legal business entity prevents you from being personally liable if your marketplace website business is sued.
- Register for taxes. You will need to register for a variety of state and federal taxes before you can open for business.
- Open a business bank account. A dedicated checking account for your marketplace website business keeps your finances organized and makes your business appear more professional to your customers.
- 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.
- 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.
- Get business insurance. Insurance is highly recommended for all business owners. If you hire employees, workers compensation insurance may be a legal requirement in your state.
- 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.
- Establish a 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.
Select your state below for an in-depth guide on completing each of these steps in your home state.
Where can I 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.
Recommended: Fizzle.co offers video courses and a supportive online community of like-minded entrepreneurs. Try one month membership for for free.
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 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.
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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.
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.
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, check out our informative guide, 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.
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.
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.
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.