How *Not* to Build an Online Marketplace

To build an online marketplace is to create an experience for sellers, buyers, and, of course, yourself as an administrator.

You probably don’t want that experience to feel like this:

A buyer clicks into your online marketplace. They find the exact item they’ve been scouring the web for. They add it to their cart. But as soon as they try to add another item from a different seller, their shopping cart disappears. Frustrated, they decide to check out without any more perusing. They’re asked to create a profile. (They hate creating profiles.) They enter their shipping address, but for some reason, their zip code isn’t accepted. The entire form erases. They fill out the form five more times before they realize there’s an extra space at the end of your zip. They sigh. Finally, after much form-filling, they reach the confirmation page. 

Success! Or so they think.

One of your sellers sees the sale come in. Your seller realizes they haven’t communicated the most recent inventory to you, the marketplace administrator. The item the buyer has purchased is out of stock. You send an email to the buyer apologizing. It will take an additional five to seven business days for you to process the buyer’s refund. Your buyer decides to shop elsewhere in the future. 

Running an online marketplace is all about operational efficiency

Poor operational efficiency results in a poor experience for sellers and buyers alike. How can you make sure things run smooth as silk? It’s your systems that enable you.

And yet, two common approaches to building an online marketplace could set you up for inefficiency, frustration, and even failure.

In this post, we’ll outline two prominent but deficient approaches to online marketplace development, explore their pros and cons, and provide you with a better approach.

The first flawed approach to building an online marketplace is to do it all yourself

No purpose-built marketplace software. Little automation. Just you, spreadsheets, and your cell phone. 

When marketplace owners do the heavy lifting, they’re often under the impression they’re saving money. So, they take on the labor of adding products to catalogs, soliciting inventory updates from sellers, calculating commissions by hand, and distributing those funds via check.   

But, like death from a thousand paper cuts, these marketplace owners are soon faced with so many phone calls, follow-ups, logistics issues, and inventory errors that they have to hire staff to keep up. From here, the cycle perpetuates and quickly becomes unsustainable. With growth comes new staff requirements — and the payroll and human error that go along with it.  

The net effect? The cost-effective approach originally envisioned has exponentially increased the marketplace’s total cost of ownership — all while eliminating any sort of efficiency. 

The pros and cons of building your marketplace using a DIY approach: 

Pros:

• It’s a cheap way to kickoff a marketplace when budgets are slim, sellers are few, and you’ve got nothing but time
  

Cons:

• Scaling a business with headcount increases HR costs and reduces profitability
• Manual operations are time-consuming and expose operations to error
• Once you’ve started down this path, it becomes harder to fix the tech debt and implement automation later

🔵 Read more about the buy vs. build dilemma. 🔵

The second flawed approach to building an online marketplace is to do a custom build on top of an ecommerce platform

Think coding, customization, and long-term IT commitment.

ecommerce platforms do a few things really well: they manage the buyer experience, facilitate customer service, catalog products, and track inventory. But ecommerce platforms aren’t built for multiple sellers. They’re intended for a single seller with multiple buyers. 

As a result, transforming your ecommerce platform into a marketplace is kind of like building a high rise on top of a single family home. 

Your IT team will need to construct:

• A seller experience that includes a seller log in, profile, and user permissions
• Custom integrations with order management systems, product information management systems, shipping providers, and communication systems 
• Payouts for seller commissions
• Transaction and return workflow between buyer and seller
  

And that’s just to name a few! (We dive into each of these in more detail in Why You Should Build on a Marketplace Platform.)

Of course, with customization comes costs — and endless headaches. Custom coding isn’t free, and the code underlying customizations requires constant maintenance to stay functional.  

The pros and cons of custom building your marketplace on an ecommerce platform:

Pros:

• You have an ecommerce platform already
  

Cons:

• ecommerce platforms are meant for a single seller and multiple buyers and thus, they require considerable custom-built functionality to become a working marketplace
• ecommerce customization requires a substantial financial investment, IT time and attention, ongoing code maintenance, and endless costs
  

Either of these two approaches might get you by in the short term, but you’ll continually experience issues with growth, costs, scalability, and user experience in the long term. 

Instead, we propose a third option:

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A pre-built, configurable multi-vendor marketplace platform

Marketplace nirvana exists, and it looks like a pre-built multi-vendor marketplace platform. You might be thinking that a marketplace platform would never work for you because your marketplace needs are so unique. But the technology you use is simply a vehicle to sell your products or services.

We ask you this: Why focus on building custom pipes for the plumbing in your house when it’s the structure and design that really matters? 

Marketplace platforms come with a tech foundation built to accommodate the multi-seller experience, complex commerce requirements, operational logistics, and the purchase/return process. Using a marketplace platform approach, you no longer have to re-imagine technology, create integrations for seller systems, build custom coding, or manage seller profiles. They come with everything you need right out of the box.

In other words, you don’t have to lay the foundation or build the walls. You just have to decorate the virtual building with your unique marketplace concept.

The benefit to you? These platforms are pre-packaged, instantly deployed, and ready for you to configure. 

And they’re built to make your life easier. 

With efficiency top of mind, marketplace platforms automate tasks you would otherwise have to manually manage: Integrations automatically update products from existing vendor catalogs. Sellers have the tools to manage their products. Commission is automatically calculated and distributed. 

As a marketplace owner, your job shouldn't be hounding down information or managing custom coding. Your job should be to aggregate demand and grow the marketplace. And that’s precisely what a multi-vendor marketplace platform gives you the bandwidth to do.     

By building your marketplace on a multi-vendor marketplace platform:

• Your have pre-built commerce, fintech, and logistics automation to support multiple sellers, buyers, and administrators
• You are free to focus on growth and aggregating marketplace demand
• You reduce headcount and long-term technology costs
• You can deploy your marketplace technology near instantly, enabling you to focus on configuring your shop
  

Closing thoughts

Your marketplace doesn’t have to fall prey to coding glitches, tech bankruptcy, or painful user experiences. With a multi-vendor marketplace platform that empowers sellers, simplifies buying, and frees you from administrative burdens, you have the power to create an online marketplace experience that feels a little more like this:

Your buyer clicks into your online marketplace. They find the exact item they’ve been scouring the web for. They add it to their cart. They add several more items from multiple vendors to their haul. When they’re done, they go to check out. They use their Facebook login to create a profile in seconds. Their shipping address auto-populates as they type in their unit and street number. They reach the confirmation page. Each seller’s stock is automatically updated. They receive their order in five-to-seven business days.

The buyer is happy. The sellers made sales. Administration was simple.