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.
Start a marketplace website business by following these 10 steps:
- Plan your Marketplace Website Business
- Form your Marketplace Website Business into a Legal Entity
- Register your Marketplace Website Business for Taxes
- Open a Business Bank Account & Credit Card
- Set up Accounting for your Marketplace Website Business
- Get the Necessary Permits & Licenses for your Marketplace Website Business
- Get Marketplace Website Business Insurance
- Define your Marketplace Website Business Brand
- Create your Marketplace Website Business Website
- Set up your Business Phone System
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 much can you charge customers?
What will you name your business?
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 important and challenging. If you don’t already have a name in mind, visit our How to Name a Business guide or get help brainstorming a name with our Marketplace Website Business Name Generator
If you operate a sole proprietorship, you might want to operate under a business name other than your own name. Visit our DBA guide to learn more.
When registering a business name, we recommend researching your business name by checking:
Your state’s business records
Federal and state trademark records
Social media platforms
Web domain availability.
It’s very important to secure your domain name before someone else does.
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.
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.
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.
Create your business website
After defining your brand and creating your logo the next step is to create a website for your business.
While creating a website is an essential step, some may fear that it’s out of their reach because they don’t have any website-building experience. While this may have been a reasonable fear back in 2015, web technology has seen huge advancements in the past few years that makes the lives of small business owners much simpler.
Here are the main reasons why you shouldn’t delay building your website:
All legitimate businesses have websites – full stop. The size or industry of your business does not matter when it comes to getting your business online.
Social media accounts like Facebook pages or LinkedIn business profiles are not a replacement for a business website that you own.
Website builder tools like the GoDaddy Website Builder have made creating a basic website extremely simple. You don’t need to hire a web developer or designer to create a website that you can be proud of.
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.
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.
Learn from other business owners
Want to learn more about starting a business from entrepreneurs themselves? Visit Startup Savant’s startup founder series to gain entrepreneurial insights, lessons, and advice from founders themselves.
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:
Funding
Events
Guides
Support
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.