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Marketplace Best Practices

Marketplace Vendor Management: 7 Best Practices

headshot of Nautical Commerce team member Nicole Kahansky
Two people high-fiving

Key points:

  • There are four stages to vendor management: acquisition, activation, retention, and maintenance.
  • Best practices for vendor management include: creating an acquisition strategy, setting up a comprehensive onboarding process, centralizing vendor agreements, giving vendors access to dashboards, monitoring performance on an ongoing basis, being proactive, and acting as a resource for vendors.
  • A vendor management system (VMS) is a helpful tool to centralize the many moving parts of vendor management — ensure your VMS enables you to implement best practices.

A healthy roster of high-quality vendors is integral for any successful multi-vendor marketplace.

This is true no matter what industry a marketplace operates within. After all, buyers often flock to multi-vendor marketplaces because of the choice they provide. Marketplaces that have a solid array of suppliers all in one place have a strong competitive edge.

However, building and maintaining a roster of vendors requires careful management. Failure to dedicate the necessary resources to vendor management can lead to unpleasant complications — and potential revenue losses. Over three years, 87% of organizations had a “disruptive incident” with a third-party vendor, according to one survey. In more extreme cases, marketplaces have been sued as sellers even though the alleged issue stemmed from the third-party vendor that fulfilled the order.

Effective vendor management reduces the risks of these incidents and is therefore one of the most important marketplace features. In this article, we’ll explain what vendor management is and share seven vendor management best practices. 

What Is Vendor Management?

Vendor or supplier management is a term that describes the process of how a marketplace manages its relationships with third-party sellers. The vendor management process has four main stages:

  • Acquisition: The vendor acquisition stage is all about finding the best vendors for your marketplace. Before reaching out to potential vendors, you should have a clear vision for your marketplace. Is it a niche marketplace that offers a curated experience (vertical), or a one-stop-shop crossing many categories (horizontal)? This will inform your product strategy and, in turn, the vendors you reach out to.
  • Activation: This is where you onboard vendors who have decided to join your marketplace. Onboarding is arguably the most important step of vendor management. It’s the first impression and can make or break whether a vendor moves forward with selling on your platform. 
  • Retention: Once your vendors are onboarded, how will you keep them happy?  A good vendor management strategy is laser-focused on keeping vendor churn low. There are a number of factors that contribute to a positive vendor experience, including: 
  • Seamless payouts (payout vendors according to terms — without delays)
  • Helpful integrations (your marketplace platform should feature a host of popular integrations)
  • Catalog management (updating listings, adding new products, and more should be easy)
  • Maintenance: Vendor retention isn’t a one-way street. Just as you need to take the appropriate steps to appeal to vendors, they also need to deliver quality results to positively contribute to your business. That’s where maintenance comes in. First, set parameters for acceptable performance, then continue with ongoing quality control achieved through stringent monitoring of vendor performance. ‎

7 Vendor Management Best Practices

Knowing the four stages of vendor management isn’t enough to ensure your marketplace’s success. You’ll also want to follow these vendor management best practices.

1. Create an acquisition strategy

First, decide which kinds of products or services you want to offer on your marketplace. Next, hone your pitch for vendors who can provide the desired catalogs.

An effective pitch is one of the main ways to attract vendors to your marketplace. Scope out the competition. You’ll want to develop a value proposition that lays out what separates your marketplace from others. Think about:

  • Who you’re pitching
  • What their pain points are currently
  • How you can address them

Your marketplace’s reputation depends on the legitimacy of your vendors. Make sure vendors are high-quality and legally allowed to operate within your marketplace.

2. Set up a comprehensive onboarding process

 Vendor onboarding encompasses all of the procedures involved with getting a third-party vendor ready to sell on your marketplace. Marketplace operators should ensure the onboarding process is thorough enough to avert potential legal issues and security risks but not so complicated it scares away potential vendors.

Consider the following vendor management best practices for vendor onboarding:

  • Use clear language and a positive tone to lay out what vendors can expect — and what is expected of vendors — for each onboarding step.
  • Automate low-return, time-consuming tasks such as uploading supplier data or approving vendors based on specific criteria. 
  • Provide ongoing training. Training should help during onboarding but continue for as long as a vendor is active on your marketplace.

To help vendors onboard smoothly, below is a sample onboarding checklist.

4-step seller onboarding checklist
Nautical's Onboarding Checklist Example

3. Centralize vendor agreements

 A vendor agreement is a business contract between the marketplace operator and the vendor that outlines each party’s obligations. 

As such, these documents lay the foundation for effective vendor management. Store these documents in an easily accessible, centralized location. This is one of the top vendor management best practices for multiple reasons:

  • You won’t be missing any crucial metadata.
  • Doing so is more efficient than maintaining spreadsheets in a variety of places at once or outside of your marketplace platform.
  • You’ll avoid duplicate contracts, which can provide conflicting information and often occurs when you store vendor agreements in multiple places.

4. Give vendors access to their own dashboards

 A vendor dashboard gives an overview of a vendor’s store and its performance on your marketplace platform. These dashboards should be customizable, as different vendors may want access to different metrics on the fly. Here’s why vendors need access to flexible dashboards:

  • Data is power: As a marketplace operator, when your vendors succeed, you succeed. Empowering your vendors with unique insights allows them to respond to evolving buying patterns and shifting demand.
  • Make sales easier: Marketplaces need to remove the friction to sell, and granting dashboard access puts your vendors in the driver’s seat to make informed decisions about their own catalogs. 

5. Monitor vendor analytics to understand performance 

Frictionless selling doesn’t mean no oversight. Keep close tabs on your vendors and establish performance standards. To make sure standards are met, consistently track key marketplace metrics for vendor performance, for example:

  • Time to fulfill: About 90% of consumers expect two- or three-day deliveries — but what’s a reasonable expectation for your industry, and how quickly are your vendors fulfilling orders? If vendors are consistently taking longer than expected or agreed upon, it might be time to take action. 
  • Return percentage: A high share of returns can be a red flag that indicates possible issues such as quality-control problems or inaccurate catalog listings, so keep an eye on return percentages.
  • Contract compliance: Track how regularly your vendors are meeting your terms and conditions to identify potential compliance issues.

6. Take a proactive approach to mitigate risk 

Don’t wait for problems to arise. By then, your marketplace may already have suffered reputational damage or faced legal consequences. Last year, for instance, a marketplace app was sued for negligence related to the alleged criminal activity taking place on its platform. One way to get ahead of compliance issues is to clearly outline what happens if vendors don’t meet contractual commitments: 

  • Use service-level agreements (SLA) to contractually define your specific service expectations for vendors who are operating on your marketplace.
  • Check in regularly to see whether vendors are meeting your SLAs. Those who aren’t may be issued warnings or removed from your marketplace after repeat offences to protect its reputation.    

7. Be a resource for your vendors

In terms of vendor management best practices, remember to take every opportunity you can to educate and assist your vendors. Reliable support encourages vendors to stick with your marketplace. Resources can also help solve potential problems before they arise. Some examples of resources to provide to vendors:

  • Pointers on best practices for listing products, such as defining the optimal photo quality or explaining SEO techniques
  • Help to troubleshoot, whether it’s a question of how to access certain features or an inquiry about an ad campaign or promotion
  • Templates for uploading catalog items
  • Advice on how to manage customer relationships

Their success is your success. Think of them less like customers and more as partners. 

What Is a Vendor Management System?

A vendor management system (VMS) is a platform that centralizes the many moving parts of vendor management. It can help you automate many workflows necessary for vendor management and make it easier to implement some of the vendor management best practices outlined in this article.

When shopping around for the right VMS for your marketplace, look for ones that include:

  • The ability to monitor vendor performance
  • Onboarding support
  • Vendor dashboard
  • Vendor agreement management

Many businesses don't realize how important seamless vendor management is until after they launch their marketplace.

According to a recent study Nautical commissioned with Forrester Consulting, 59% of respondents found the ability to integrate with seller's systems was more important than initially anticipated. The same was true of many functions related to managing sellers, like the ability to collaborate, customize their experiences and manage product information and data.


To set yourself up for success, ensure you're thinking about vendor management from the start.

​​Moving Forward With Vendor Management

Vendor management is critical to the ongoing success of a marketplace. 

From acquisition to maintenance, there are essential considerations to support marketplace suppliers and operators. Following the best practices outlined in this article will help ensure continued success when it comes to managing your business relationship with vendors. A vendor management system is also a crucial piece of the puzzle, supporting the ability to streamline and automate these best practices so nothing falls through the cracks.

🔵 Learn more about Nautical’s vendor management capabilities.🔵

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