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Marketplace Infrastructure
June 8, 2023

How to Create a Marketplace Vendor Onboarding Process (Plus a Checklist)

Nicole Kahansky
Nicole Kahansky

Offering the best possible shopping experience is essential for any successful ecommerce operation, but there are additional demands facing marketplaces and their operators.

Unlike a single-vendor online store, marketplaces serve not only buyers but sellers as well. That means that on top of focusing on the customer, these businesses also require a smooth vendor onboarding experience.

So what is vendor onboarding? Put simply, vendor onboarding is the process of getting third-party vendors or suppliers set up so they can sell goods on your marketplace.

This article reviews:

Why Is Vendor Onboarding So Important on Your Marketplace?

Marketplaces thrive in part by channelling the flywheel effect. The flywheel effect describes a process of self-perpetuating growth whereby a growing customer base attracts more vendors who in turn bring even more customers — and so on. In short, vendors contribute to your marketplace’s growth as much as customers do.

Given the significant role that your vendors play in this equation, a painless vendor onboarding process is directly linked to your future revenue. You’ll want to spend time reducing the friction not only to buy but also to sell. Here are three important things to consider when thinking about the vendor onboarding process:

  1. Keep it simple. An overly complex, arduous vendor onboarding process will scare away potential vendors. If you’re wondering how to attract vendors to your marketplace, simplicity is a great place to start.
  2. Be thorough. While you want frictionless vendor onboarding procedures for your sellers, you also need to make sure you’re thoroughly vetting them. Failing to do so could lead to considerable problems with long-lasting impacts: 
  3. Security risks: A marketplace gives third-party sellers access to its operator’s network. Make sure your data and other assets are secure. 
  4. Legal issues: Marketplaces can be sued as sellers. For example, a seller may not be allowed to do business in your jurisdiction or could be offering illegal goods or services. 
  5. Taxes: Marketplace operators need to ensure that all vendors are compliant with tax laws in the appropriate jurisdiction.  
  6. Poor customer experience: If new vendor catalogs aren’t carefully monitored, you may end up with duplicate items, bad-quality photos or product descriptions, or outdated info. Any of these hiccups will disappoint shoppers.
  7. Dedicate resources. Put in serious effort early on to create a positive vendor onboarding experience before any problems arise. That way, you can save time, effort, and money later on.

The Best Practices for Marketplace Vendor Onboarding  

The vendor onboarding process is without a doubt one of the most important marketplace features. A negative vendor onboarding experience can kneecap growth, as it will discourage vendors from continuing to participate in a multi-vendor marketplace — not unlike a dissatisfied online customer abandoning their cart.

To make sure you’re getting vendor onboarding down pat, follow these tried-and-tested best practices. 

Focus on Clear Communication

Communication during vendor onboarding is key.

Here are five tips for marketplace operators to communicate with vendors clearly and effectively:

  1. Set a positive tone from the beginning, as this will inspire confidence among vendors.
  2. Outline what the vendor should expect for every step of the vendor onboarding journey.
  3. Lay out all standards and technical requirements, such as for catalog images (size and file and naming formats, for example). Ideally, they don’t need to search for the information they need.
  4. Provide vendors with reasonable timelines for each of the onboarding stages, continuing to set realistic expectations. 
  5. Make sure your team members are well-versed in the vendor onboarding process, as they are your main point of contact with the vendor. 

Automate, but Be Flexible Where Needed

Automation can produce efficiencies in the vendor onboarding process. Where possible, automate low-return and time-consuming manual tasks.

By doing so, marketplace team members can concentrate on higher-level items that contribute more to your bottom line. Your suppliers will also appreciate some level of automation since it typically means they can tap into a suite of self-service tools for convenience — and start selling faster.

A few examples of vendor onboarding tasks that are ripe for automation:

  • Select know your vendor (KYV) tasks, such as tracking lists of sanctioned companies for compliance
  • Vendor approvals based on specific criteria
  • Uploading supplier data to the marketplace

While automation can trim a marketplace’s hard and soft costs, operators should remain flexible. They can’t afford to lose sight of the fact that human intervention is sometimes required. For instance, team members may need direct involvement with suppliers during any vendor onboarding friction points that arise.   

Make Sure You’ve Done Your Due Diligence

One of the primary mistakes marketplace operators make is not doing their due diligence during vendor onboarding. This poses a huge reputational risk, as it could mean anything from low-quality items flooding the market to unscrupulous vendors operating under your company’s umbrella. 

A business’s reputation is directly tied to the reputations of its sellers. When a customer receives a faulty product or inadequate service, they’re inclined to blame the operator rather than the third-party seller.

On the flip side, a good reputation helps a marketplace build trust. And building trust on your multi-vendor marketplace is a cornerstone for success in this fast-growing segment of ecommerce. When buyers and sellers trust a marketplace, the flywheel effect can take off.

Provide the Right Tools and Training

Although vendor onboarding should be straightforward and intuitive, you’ll still need to offer all new third-party sellers some degree of training so they can navigate your marketplace. 

Keep in mind that this training doesn’t end once a vendor is approved. Training is ongoing throughout a vendor’s lifecycle. It shouldn’t just be limited to getting started on your marketplace. Marketplaces should instruct their vendors on things like expanding their presence or increasing revenue over time.  

You’ll also want a multi-vendor marketplace platform that offers seamless integration for vendors. And while the vendor onboarding process ends before the first sale — that’s when a vendor enters the vendor management phase — they’ll still want to know what kind of tools are available to them when they’re in operation.

Features like a clean and advanced dashboard and automated inventory management, which spare vendors from having to manually track the availability of certain products, can compel vendors to complete the onboarding process.

5-Step Process For Onboarding Sellers to Your Marketplace

The vendor onboarding workflow includes five stages: registration, verification, agreement, approval, and instruction. Here’s what each entails:

1. Registration

There are two common approaches to registration during vendor onboarding. Either vendors sign up themselves, or the marketplace operator initiates the process with the vendor, often manually adding them to the system. Self-signup generally becomes the default the larger a marketplace becomes.

2. Verification 

Collect verification documents. These vary depending on the marketplace and can include fundamentals like business name and contact information right down to specifics such as estimated sales volume, proposed return policy, and more.

(Tip: store these documents where they’re easily accessible for future reference.)

Also, be sure to confirm each vendor’s tax identification number.

3. Agreement

Set a marketplace agreement that includes the appropriate commission rate.

The marketplace agreement needs to be clearly defined and feature detailed terms and conditions to address a variety of possible scenarios. Here’s where you can outline prohibited products, set rules about external URLs (many marketplaces bar these from product descriptions), establish seller payment terms, and more.

4. Approval

Only once the vendor accepts the marketplace agreement should the operator grant approval to sell on the marketplace.

The approval process should be set out ahead of time. Make sure you have clear criteria set around which sellers you approve and which you don’t to help establish fairness and efficiency. 

Once a seller is approved, ensure they receive communication notifying them of their approval and next steps. 

5. Instruction

Continue to guide new vendors with easy-to-understand instructions via the seller’s dashboard.

What do the next steps look like? Here’s a high-level overview of an onboarding checklist for vendors, once they've been approved. 

Seller onboarding checklist example

  • Activate account: What’s required for a seller to activate their account could entail many things, depending on your business. But at the very least it should entail the point of contact signing onto their account once it’s been approved by the operator. 
  • Create a payout account: This is the most important step for ensuring timely payments. Remind sellers to connect the store to their bank account as soon as they join the platform, so they can recognize revenue quicker and you, as an operator, know where payouts go.
  • Set up inventory and fulfillment: If vendors are holding their own inventory, it’s essential they add their relevant warehouse to the system, associate them with appropriate shipping zones, and assign inventory. That way when customers are shopping, they’ll have access to accurate shipping details and inventory availability. 
  • Create a product listing: The quicker sellers experience that “aha” moment, the quicker they’ll see the value of the marketplace. For that experience, they need to start selling products. As part of their onboarding checklist, prompt them to create their first listing. 
Seller onboarding checklist example
Vendor onboarding checklist

Streamline Your Vendor Onboarding Process

Streamline your vendor onboarding and remove friction to sell with the above tips and best practices. Remember that both the process itself and the technology you use to onboard sellers contribute to a marketplace’s ability to quickly scale. Knowing how to find a vendor is only one part of the battle.

Even once you crack the vendor onboarding code, you’ll need to continually invest resources to keep up with the demand that comes with growth. Automation becomes increasingly important as a marketplace grows, so make sure you have a multi-vendor marketplace platform with the right tools for the job.

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