How to Build a Marketplace With Shopify
Last updated on May 8th, 2023 at 05:39 pm
In 2022, US ecommerce spendings are predicted to reach $1 trillion.
Yes, you read that right—$ 1 trillion. Ecommerce is booming, so business owners across the globe are considering building a marketplace to reap the benefits. Which is great for sellers, considering marketplaces are excellent for all parties involved. Marketplace owners connect customers with retailers who can solve a specific pain point. There’s no need to hire hundreds of employees or purchase a vast amount of warehouse space.
Sounds pretty great, right? Keep reading as we define the steps to creating a marketplace and why you should build a marketplace with Shopify to create a flourishing business.
Why Build a Marketplace?
Online marketplaces are attractive to buyers, as many find these platforms convenient and secure. They’re also excited to find many of their favorite and desired products in one place.
Retailers are drawn to participating in marketplaces by a wide range of potential buyers. They’re also attracted to the idea of immediate exposure to their target audience.
But what’s in it for business owners? Why should they invest time and money in creating a multi-vendor marketplace?
Marketplaces are known for quick expansion. If you plan ahead and are meticulous in planning from the beginning, your site’s traffic has the potential to grow quickly. Soon, you’ll be looking for additional retailers to meet the demand.
The most crucial factor here is finding the right balance between supply and demand. You will attract the most customers with reliable, high-quality vendors. In tandem, an expanding customer base will entice more dependable retailers with quality products to join your platform.
Greater Chances of Increased Revenue
It’s essential to begin tracking the sales process as soon as you develop a marketplace website. Accurate data presented on intuitive dashboards can become your silver bullet if done correctly. Armed with accurate information about the most popular sellers and the most desirable products, you can promote the products that offer actual value to your customers. Then, you’re increasing your chances of higher revenue.
If you want to build a thriving marketplace, consider integrating with a third-party platform that provides in-depth reports on essential information, such as data related to profitability.
Diverse Monetization Options
Another benefit of running an online marketplace is that they over many ways to earn income—depending on your business model—such as freemium, featured listings, and commission. You can run with a single business model or combine multiple options. However, if this is your first marketplace venture, begin with a single revenue model that makes you the most comfortable.
Reduced Financial Risks Related to Inventory Management
If you’ve been in the retail or ecommerce space for a while, you know the challenges of accurately managing inventory. The good news about creating an ecommerce marketplace is that you don’t have any inventory to track personally. You’re free from the logistical nightmare and expenses associated with inventory management.
And there’s more—you don’t have to worry about logistics, warehousing, or delivery. These are all burdens that lie with your vendors.
As a marketplace owner, however, you do have other responsibilities. You must provide a platform that brings together buyers and sellers effectively.
Both you and your vendors want to gain as many new customers as possible, so your business goals largely overlap.
For this reason, it’s essential to set your vendors up for success. Provide them with all of the necessary tools they need to execute their business on your marketplace platforms. This could be creating an onboarding manual or providing an order management system. Whatever you do, supporting your vendors can allow you to reduce your marketing expenses significantly.
How to Build a Competitive Marketplace
If you’re hoping to build a marketplace that will stand out among Amazon or eBay, you must do your research. First, you’ll need to define your target market clearly. Also important is knowing the types of marketplaces to choose from so you know which is right for your business.
There are several ways to classify online marketplaces. Typically, we categorize marketplaces by different perspectives—participants, focus, and offerings.
When classifying marketplaces by participants, they’re either B2C, B2B, C2C, C2B, or a combination of these.
Business-to-consumer is the most popular marketplace model. In this scenario, marketplace sellers are other companies or brands who sell to regular end-users.
Next up is the simple business-to-business model, where businesses sell their products to other companies. A popular example of a B2B marketplace is Alibaba.
In a customer-to-customer model, both parties are regular users. Examples of this type of marketplace include Etsy and eBay.
Consumer-to-Business (or C2B)
On consumer-to-business marketplaces, individuals offer businesses their products or services. This typically involves freelancers and links employers to individual contractors. Upwork is an example of a C2B marketplace.
You can have either a horizontal or vertical marketplace when classifying by focus.
Horizontal marketplaces offer an extensive range of products to a broad audience. You can buy items such as books, toys, electronics, and clothes from a horizontal marketplace.
A vertical marketplace caters to an industry or niche market. Retailers provide products and services specific to a single category or market sector with a particular target audience.
For example, automotive parts manufacturers typically sell to car manufacturers. Here are a few popular examples of vertical marketplaces that you’ve likely heard of before:
- Etsy: A C2C vertical marketplace that focuses on selling arts and crafts. It’s now one of the leading marketplaces for vintage and handcrafted items
- Airbnb: A vertical marketplace that connects people looking for accommodations to people who want to rent their homes in that location.
- UNI Diamonds: A vertical marketplace specializes specifically in diamond trading
- Instacart: A vertical marketplace that deals in grocery and essential products.
Product marketplaces sell physical products that you can touch and feel, including beauty care products, toys, clothes, books, etc.
Service marketplaces exist to help consumers find skillful professionals for various activities. Whether you need to launch a Google ad campaign or design a new logo for your business, you can find a specialist at a service marketplace.
Kickstarter is an example of a popular project marketplace that allows entrepreneurs to raise money for startup products using crowdfunding methods.
Validate Your Business Idea
Before jumping right into building a marketplace, you must ensure there is demand for your platform. It’s essential to validate your business idea before getting started. Here are the five steps to take to determine whether building your dream marketplace is worth the cost:
Conduct Market Research
Define the latest trusts in your industry by looking at the industry overview. Research the most prominent players in your market segment and how big of a sector it is. What features and solutions do your competitors have? Which revenue model(s) do they use? With this information, you can learn how build a marketplace that will stand out from all the rest.
Identify a Target Audience
Define everything you can about your potential customers, including age, interests, location, income, and occupation. You’ll need this information to market your marketplace.
Choose a New Niche
It’s essential to choose an unoccupied niche, as dozens of online marketplaces are already available to consumers. You need to find an unexplored area. If you can’t, work on creating a solution to a common problem that your target market faces.
Define a Unique Value Proposition
Don’t try to build another Amazon—you will lose. Focus on creating something new with unique functionality. Today, customers demand quite a bit from online retailers, so try to show extra creativity to satisfy your customers.
Flxpoint customer, United by Blue, has built a marketplace around a value proposition that reflects its mission of prioritizing sustainable materials and ethical manufacturing to generate less waste.
Build a Prototype
Now, it’s time to build a “rough draft” of your future platform. You can present this to potential investors when explaining your marketplace project.
Choose Your Revenue Model
As mentioned earlier, you can adopt several revenue models for an online marketplace. Let’s take a look at each one.
- Commission: The commission business model is popular because it’s the most transparent. You can charge sellers, buyers, or both a certain percentage of each transaction that takes place on your marketplace platform. For example, TaskRabbit takes 15% of the price paid for each job once it has been carried out.
- Freemium: With a freemium model, you offer your users basic marketplace functionality for free. However, advanced features cost them extra.
- Membership: A membership revenue model requires users to pay a monthly or annual fee to access your marketplace platform.
- Listing Fee: You can charge retailers a specific fee for each product they post on your marketplace. Etsy is a popular platform that uses this revenue model.
- Advertisement: An advertisement model allows third-party companies to promote their offerings on your platform for a fee. Zillow generates revenue by charging real estate agents a fee for advertising their listing on their platform.
How to Build a Marketplace With Shopify
Finally, on to the good stuff. There are many interesting marketplace platforms to choose from. Why should you use Shopify?
For many aspiring ecommerce entrepreneurs, starting a marketplace on Shopify is a great way to launch. Shopify is easy to use, so its functionality makes it easy to manage your store, even if you don’t have any website building or coding experience. It’s perfect for new business owners—or existing business owners expanding to marketplace selling—who want to open a marketplace quickly with minimal investment. Plus, Shopify provides easy access to various widgets and themes that can automate many processes and increase KPIs.
Shopify also provides access to apps that help you manage and address key pain points. It’s also easy to integrate with a Shopify partner such as Flxpoint that has developed solutions to help you manage a Shopify marketplace effectively.
While Shopify can be an effective tool for starting a marketplace, it doesn’t have multi-vendor functionality by default. If you wish to create a marketplace using multiple vendors, you must choose a higher subscription plan or work with a development partner to create something that works on your Shopify website.
However, doing so will lead to managing your store manually, which will become more difficult as you scale.
The Challenges of Managing a Multi-Vendor Store Manually
Creating a Shopify marketplace and managing it manually will lead to unnecessary stress, which isn’t conducive to running a successful business—especially when it doesn’t NEED to be that way.
Manual processes are simply too slow to keep up with the constant demands of an online marketplace. In the end, your business will suffer from delays, the tension between vendors and customers, and ultimately, failure. Employing third-party technology to supplement your marketplace’s expansion is the best way to go.
There are specific apps available to help you manage your Shopify store, but many of them only focus on one area. So your shipping headaches are taken care of, but you still have to spend hours manually onboarding your vendors and accessing their inventory? This is less than ideal.
You need a solution that lets you fully automate your ecommerce marketplace operations to focus on scaling your business.
Integrating Vendors as Your Marketplace Grows
For an ecommerce marketplace to remain successful, you need the ability to seamlessly integrate product, stock, and inventory data from your vendors into your ecommerce store. You must do this in a way that encourages an amicable relationship by reducing friction. Doing all of this manually is just impractical, especially as your marketplace grows.
Any thriving ecommerce marketplace must maintain an up-to-date product catalog. As your vendors update their quantities on their own websites, you must keep track of these inventory changes. If your vendor has an entire product line listed on their website, but you only list one on your Shopify store, you’re at a disadvantage. If your customers can get a superior product on another website, guess where they will decide to shop?
What if a product’s name or specifications change? An item no longer weighs 5lbs but 8lbs. These are essential inconsistencies to note, which means you must regularly keep an eye on your vendor catalogs.
Inventory Levels and Pricing
You must have correct pricing of your vendor’s stock, and monitoring their pricing manually is an incredibly time-consuming effort. If an item’s price significantly increases or decreases, you end up severely undercharging or overcharging your customers. You’ll need to consider how this affects your competitiveness as well as how it affects your profit margin.
Another critical aspect to consider is payment. If your vendors must jump through various hoops to receive compensation, they won’t want to continue working with you. If you’ve introduced commission rates, things can quickly become complicated. Making sure the right commission is paid to the right vendor can quickly absorb much of your valuable time and attention.
Automating the vendor payment process is essential, as doing it manually can cause payment delays and damage your business relationships.
Expanding your product catalog is excellent, but having to keep track of and fulfill orders manually is a daunting task—and drastically time-consuming. As is managing inventory that you don’t own.
Consider this: a customer orders a product from your website, but you find it is unavailable when you place the order with your vendor. You have to inform your customer that you cannot fulfill their order or provide them with accurate tracking information. This is a sure way to ensure a customer never returns to buy anything from your marketplace again.
While these are all issues that can interfere with your business expansion plans, thankfully, these processes can all be automated with Flxpoint.
How to Build a Marketplace With Shopify and Automate Your Business With Flxpoint
Flxpoint allows you to seamlessly work with as few or as many vendors as you’d like, allowing you to expand your marketplace quickly. Integrate with your vendors via CSV, API, EDI, Shopify and onboard them faster with vendor-specific functionality and resources such as:
- Easily integrate, automate and map in files via FTP, HTTP, or email
- Leverage our API and EDI support, specs documentation, and expertise
- Provide pre-built connectors to integrate less tech-enabled vendors
- Provide a Vendor Portal so you can better integrate and communicate.
- Leverage Flxpoint team members as vendor onboarding specialists
With a clear look into your vendors’ inventory and automatic fulfillment updates that are pushed directly to your Shopify store, you can manage your business more effectively. Thanks to robust inventory management functionality, you can publish new products and pricing from your vendors directly to your store, meaning fewer stockouts and happier customers.
You’ll also receive the benefit of stress-free order routing. As a customer places an order, Flxpoint can automatically route that order to the correct vendor. Once the order is fulfilled, Flxpoint can pull accurate tracking information back into your order dashboard.
Start Building Your Multi-Vendor Marketplace Today
The decision to build a marketplace on Shopify is the ideal business model for anyone looking to start an ecommerce business with minimal upfront investment. Shopify makes this easy, as it’s the most accessible platform available that you can use to set up your marketplace. With Flxpoint, you can fully automate your new Shopify marketplace and expand your product offering more quickly. Our Shopify integration allows you to manage your business seamlessly and efficiently scale your marketplace.
Our team is ready to support your Shopify marketplace project, so talk with an expert today!
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