How to Start a Multi-vendor Marketplace Business from Scratch

The Multi-vendor marketplace model has risen as the most revenue-generating model in the modern-day eCommerce industry. Most of the businesses have either shifted or preparing themselves to make their way to it. The new approach has given an array of opportunities to the entrepreneurs, where they do not need to invest in stocking or managing the product inventories. It is a new way to earn without investing much and undoubtedly a futuristic model that is attracting more entrepreneurs towards it.

Multi-vendor marketplace

If you own an eCommerce store and thinking about adopting this new model, or want to launch a multi-vendor site from the scratch, you have come to the right place. In this article, we have given an overview of how to start an online marketplace business and what are the pre-requisites you need to possess.

What is a multi-vendor marketplace?

A multi-vendor marketplace is simply an eCommerce site that sells not just the site owner’s products, but also the products from other vendors who have signed up on the site. To start a multi-vendor marketplace, you do not need to keep an inventory of the products you want to sell. You can simply allow third-party sellers to sell on your site. In return, you will earn from the commissions paid by these sellers to you.

Diagram - how online multi-vendor marketplace works

It is exactly like a shopping mall with various showrooms in it, where the showroom owners pay rent to the mall owner for letting them open their shops in the mall.

What is the benefit of it?

The marketplace owners will-

  • Not have to spend in buying the stocks.
  • Not necessarily have to posess any product of their own.
  • Not have to manage the warehouses to keep the stock.
  • Not have to invest in additional staff to manage the inventory.

The marketplace seller/vendor will-

  • Not have to develop his or her own eCommerce website.
  • Be released from the complexities of managing an eCommerce website.
  • Not have to invest in SEO for the newly launched site to get customers.
  • Get an established platform to sell, which is already popular among buyers.
  • sell on multiple sites to get additional channels for selling.
  • Gain trust from the buyers just by selling on an established platform.

Online marketplace design plan

Getting started with your own marketplace business

Step 1: Select your niche

Every popular marketplace in the industry has gone through this step. Considering any successful marketplace site, they all started with a small niche and then developed themselves into giants of all the spheres. Hold your temptation for selling everything, and start with selling something that no one else can better offer.

Etsy started with selling crafts and related supplies. Today, it has grown up into a huge entity in the eCommerce industry. Due to its immense popularity in the niche, if someday even it starts selling something far than just craft, people will buy, because they already know about it and trust the company.

Amazon, for instance, started as a book-selling website. Now, everyone knows what Amazon is and what its share is in the global eCommerce market. To be exact, it has 49% market share in the US alone & expected to do a business of USD 258.22 billion by the end of 2018.

So, narrow your focus and target a niche that you are good at. Categorize your market, audience segments, business opportunities, and go completely micro with your personalization tactics. Finally, a day will come when you will take your marketplace to new heights and expand the niche with more ease and established customer base.

Step 2: Do competition research in the niche

Once you finalize your niche, it’s time to know your competitors. Look for the ways using which you can better your rivals. Look for the ways to prove how your marketplace is better than theirs. You can better your rivals on the grounds like:

  • Unique products
  • Cheaper rates
  • Faster delivery
  • Value-added services

Also, remember that your competition is two-way. At this stage, you are not just competing to get buyers for the marketplace, but also sellers who can join you. Hence, you need developing a marketing plan that will not just attract the buyers but also the sellers.

Software development team working on a project

Step 3: Develop your marketplace site

The next step would be to start working on your marketplace website development. Here, you would need to apply everything that you have learnt in the first two steps. Depending on your niche and the level of competition in the market, go for a website that has the following features:

A. Admin Management

Admin of the marketplace site should be able to-

  • Allow or block sellers from joining the site anytime.
  • See, Edit, Approve or Disapprove the products listed by the sellers.
  • Add, Edit, and Remove commission percentages to be taken by the sellers.
  • Apply different monetization models: Subscription model, commission-per-sale model etc.
  • Add product listings from admin panel as well.
  • See the stock status of the products from all sellers.
  • Provide discounts using coupon codes and vouchers.

B. Seller management

  • Sellers can sign up to join your marketplace
  • Separate dashboard for sellers where they can-
    • Update their seller profile
    • Add and edit their product listing
    • Receive order notifications
    • Change order status- Processing, Delivery collaborates assigned, In-transit, delivered, Refunded, Replaced etc.
    • Track seller earnings made
    • Track commissions paid to the marketplace

C. Transaction and Payment management

Depending on the revenue model, a modern-day marketplace site carries the transactions by two modes:

From buyers to sellers or marketplace admin:

  • Buyers should get multiple methods of payment: Cash on Delivery, Credit Card, Debit Card, Net Banking, and UPI.
  • Buyers should also get multiple payment gateways: PayPal, 2Checkout and SecurePay, Fastcharge etc.
  • Marketplace admin or seller should be able to revert the payments in the event of a return request for a purchased product.

From sellers to Marketplace admin or vice versa:

  • Marketplace admin should be able to pay to the sellers using multiple payment options and vice-versa.

D. Primary Revenue management

A modern-day marketplace runs on two primary revenue models: Commission model and Subscription model. Hence, an efficient marketplace site will possess all the abilities to manage these two models:

Subscription model:

  • The marketplace admin should be able to add different and multiple subscription plans for the sellers and buyers.
  • The marketplace admin should be able to add, update or remove subscription charges from plans.
  • The sellers and buyers should be able to subscribe to the corresponding plans.
  • The sellers and buyers should be able to track the validity of their subscription plans.

Commission Management:

Commission management is the lifeline of any marketplace website. Depending on your policies, your marketplace website must fulfill the following commission management abilities:

The marketplace admin should be able to put-

  • Global commission rate for all sellers.
  • Different commission rates for different sellers.
  • Global commission rate for all products.
  • Different commission rate for individual products.
  • Different commission rate for different product categories.

The marketplace admin should also be able to track-

  • Commission earned from all sellers
  • Commission earned from individual sellers
  • Commission earned from all products
  • Commission earned from individual products
  • Commission earned during a particular period

E. Orders Fulfillment and Management

Order fulfillment is one of the trickiest implementations in a marketplace touchpoint. Different businesses follow different modes of order fulfillment. However, there are some basic requirements that every website must fulfill.

For marketplace fulfilled shipments-

  • Marketplace admin can add multiple shipping methods for the sellers.
  • The sellers can assign only admin-added shipping methods to their products.
  • The sellers & admin can update shipping status: Processing, Shipped, Delivered.

If the sellers handle their shipping-

  • The sellers can add new shipping methods in addition to the ones provided by the marketplace.
  • The sellers can assign one or multiple shipping methods to a product.
  • The sellers can update shipping status: Processing, Shipped, Delivered.

F. Ratings and Reviews Management

Today, no shopper buys a product without checking its reviews. Offering genuine product reviews from your previous buyers will always get you an upper hand against your rivals’ sites. So, if you are in the development phase of your website, make sure to include the facilities for ratings and reviews on your platform:

  • Buyers must be able to write reviews of the products they bought from you.
  • Admin must be allowed to approve or disapprove the reviews.
  • The reviews must be visible to all visitors after the admin approves them.

Online shopping trends

Summing up

Starting a marketplace business is not a single step process. You will have to go through a strict series of business and website development events. Hopefully, this comprehensive walkthrough was able to communicate the fundamentals and give you an understanding of how you should proceed for business development after your multi-vendor website is ready.