11 Mistakes When Launching a Multi-vendor Marketplace

Multi-Vendor Marketplace Mistakes

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Over the last 5 years, we have seen thousands of multi-vendor marketplaces come and go. In that time we have seen some successes and a lot of failures. Starting a business is not easy, it takes a lot of time and a lot of planning. The following article will focus on 11 common mistakes we see with not just multi-vendor marketplaces but eCommerce stores in general. There are three main areas that we will focus on

  • Business Operations
  • Platform
  • Operations

Business Operations

Let’s face it, if you’re wanting to start a multi-vendor marketplace, this is a business. It’s not something you can just throw up in a day and it’ll make money. That’s not how business works and just because the business is online, doesn’t mean you should be skipping this step. There are various aspects that need to be considered. This includes having your plans in place, choosing the right revenue models and ensuring all your legal aspects are covered.

Mistake One: Business Plan

Multi-Vendor Marketplace Plan

Before you even begin to think about what technology to build your marketplace with, you need to have a business plan. This is what you will follow to ensure that you’re on the right track and that you have metrics to measure. We have seen so many people skip straight to selecting a platform without even thinking about what or how they will build their business resulting in failure. Without a road map, you will get lost!

What is a business plan?

To put it simply a business plan is a document that outlines the various aspects of your business. This should include the following:

  • Clearly define your mission
  • How it will be funded
  • How the marketplace will be maintained (technically)
  • 18-24 months of financial projections, including required funding, profit and loss projections
  • Clearly define who target users are (customers/vendors)
  • Define your commission rates
  • Marketing and advertising plans
  • Analysis of your competitors including price ranges, commission structures, affiliate systems and more
  • Onboarding systems for vendors & customers

Your business plan will help you focus when times are tough and also learn where things may or may not be working. There are a lot of online resources to help you with building a business plan. Your plan is something that should evolve with your business as you find what works and what doesn’t.

Here are 3 resources to help you with writing a business plan

Mistake Two: Revenue models

There are hundreds of multi-vendor marketplace revenue models out there. You will also need to research your competition and see what their rates are and what will work for you. Two of the most popular models are

  • Commission-based
  • Membership-based

When developing your revenue model you need to take the following into account.

  • Payment gateways fees. These are usually around 3% of the sale.
  • How much work it takes to manage and maintain your marketplace
  • Your ongoing support costs
  • Customer acquisition costs
  • Vendor acquisition costs
  • Marketing costs

Commission-based Model

Commission rates can make or break your multi-vendor marketplace. If you haven’t got your business plan completed and have a clear understanding of your revenue model then chances are you’re going to have some problems. Some of the things to consider:

  • Set realistic commission rates
  • Depending on the industry/products/services 30-60% should be your take
  • Reward top sellers with better commission rates

Far too often we see marketplaces starting charging as little as 5% commission or no commission at all with no other revenue models planned. Low commission rates are not sustainable when you first start a business so you will need to find what the average rates are. Do not try and compete against the largest marketplaces as these are general marketplaces with saturation levels that allow it to be sustainable. The advantage you have is a focused group of vendors and customers.

The commission rates can vary widely depending on the industry. For example, WooCommerce charges 40% for their marketplace while Getty Images charges a whopping 80% leaving vendors with just 20% of any sale.

Popular marketplaces that work on a commission rate model include:

Membership-based model

The other most popular model is to charge a monthly fee to your sellers. This will provide various features depending on the membership level they are subscribed to. This can be a great way to start your marketplace and ensure you are getting ongoing revenue from day one. You could also use this in partnership with a commission model and charge different commission rates depending on the membership level. Our plugin WC Vendors Membership can extend your multi-vendor marketplace to a membership-based model.

When choosing your membership levels make sure that your options are clear and concise and that there aren’t too many levels otherwise potential vendors

Popular marketplaces that work on a membership model include

Mistake Three: Legal Requirements

Part of doing business includes setting up your legal structures, documents and agreements. This is no different when starting your multi-vendor marketplace. These are just general tips and you should consult a lawyer and accountant regarding these different legal aspects.

  • Do you require a business license?
  • Do you require insurance?
  • Policies
    • Privacy policy
    • User agreement
    • Vendor agreement
    • Refund policies
    • Support policies
  • Copyright notices
  • DMCA requirements
  • Jurisdiction requirements

Taxes

Handling marketplaces taxes and your business taxes can get complex when dealing with your taxes. If you are based in the United states new Marketplace Facilitator laws will need to be taken into account when you create your marketplace.

Platform

The platform aspects of your multi-vendor marketplace are defined as the technology that powers your business. After the business plan, this is the most critical aspect of your daily operations. The following aspects of your platform are where we see the most common mistakes.

  • Features
  • Market expectations
  • Payment solutions
  • Payout solutions

Choosing your platform is very important and should be researched in detail. Will you use a hosted solution or will you build your own marketplace powered by WordPress and WooCommerce?

Mistake Four: Features

When choosing a platform you need to consider the features you need vs the features you want. Just because one of the big marketplaces has that feature doesn’t mean you need this feature. A common mistake we see when people launch their WC Vendors marketplace is that they try and add every feature possible. This results in too many plugins and maintenance issues.

Consider the features you need vs the features you want

Work out what the minimum viable feature set is and launch with that. It’ll ensure your site runs quickly and launches early. Find the niche that works best for you and stick to it. Only introduce new features to your marketplace when your sellers and customers demand it. Ask for feedback on a regular basis and test the results. The only way you can tell if something is working is to collect data and test!

Mistake Five: Market expectations

During your initial business plan, you would have done your competitor and market research to find what features and systems your competitors are using. Don’t try and compete against the largest players in the markets.

  • Don’t try and compete with the larger marketplaces
  • Find a good niche and saturate it
  • Your strength is that lack of noise for both your customers and your vendors

Mistake Six: Payment processing

A common mistake we see is that people will start building their marketplaces and then only consider their payment processing as an afterthought, a week before they launch. Most payment processors take time to set up the accounts and you need to test the payments you are receiving from your customers.

Choosing a payment gateway requires research. You need to consider various aspects of the gateways including

  • Fees & charges
  • Payout schedules
  • Chargeback fees
  • Refund processes

WC Vendors Marketplace supports any payment gateway developed for WooCommerce to process payments from customers. This is completely separate from paying vendors their commission dues.

Mistake Seven: Vendor Payouts

Determining how you pay your vendors and when you pay your vendors is a critical step that many multi-vendor marketplaces leave to the last minute. This can be a complex process depending on where you are launching your marketplace which might include fees, legal and tax implications.

How will you pay your vendors and on what schedule?

  • Automatic
  • Scheduled
  • Manual

If you choose the first two options for paying your vendors, you have limited options on most marketplace solutions. We do not recommend an automatic schedule as this can make processing refunds difficult if not impossible. Some popular vendor capable payment gateways include

Operations

Multi-vendor marketplace operations are your ongoing systems and processes that need to be planed and refined over time. You can set up your standard operating procedures but you need to also test and revise them as your business grows. Some of the ongoing operations that fall into the common mistakes include

  • Platform maintenance
  • Refund management
  • Customer support
  • Vendor support

Mistake Eight: Platform maintenance

Keeping your systems running smoothly is critical to your multi-vendor marketplaces success. Not having a maintenance plan can cause your business to grind to a halt. Losing customers and vendors alike. Far too often we see the following aspects either poorly managed or completely forgotten

Staging server

In our staging server article, we outline why it’s important to have one in your business. Without a staging server, you cannot test your themes and plugin updates safely. It is difficult to introduce and test new features without one. Having a staging site will make it easy for you to have a planned update and maintenance schedule.

Ask for feedback

Before you invest time and money in a few features, request feedback from your vendors and customers. There is no point adding a feature if you cannot justify it. Only add the feature when it is absolutely necessary. We will often log in to a marketplace to perform support and observer 70, 80 or even 90 plugins activated. This is a disaster waiting to happen so please, don’t do this.

Mistake Nine: Refund Management

Refunds are an inevitable part of doing business and even more so online. There are customer and vendor expectations that you need to consider when developing your refund policies and ongoing management. Who will cover the refund? Will it be the vendor or the platform? How you process refunds can really depend on the payment processor you choose.

Popular payment gateways for WooCommerce support refund management within WordPress making this easier. If you do not have a solid refund policy and refund process this can cause your customers to get angry or loose vendors. Make sure that your payment processor has good fraud detection systems and refund processing or you will soon find yourself with a bottleneck in your operations.

Mistake Ten: Customer support

Customer support is vital to every business and ensuring prompt, effectively support is a must in 2020. If you dont have a good support system and help centre you will find yourself drowning in support. The number one mistake we have seen in customer support is to provide support only via a simple contact form and email.

Customer support should be handled via a ticket-based system. This will allow you to scale your team and provide timely support. The worst that could happen is a customer emails you, it goes to junk and you never respond.

Avoid sending customer support to your inbox, eventually, you’ll run out of time to manage and it becomes a mess quickly. There are a lot of ticket-based solutions available and some of the most popular include

Mistake Eleven: Vendor Support

Along with not having an effective customer support system in place, another aspect we see frequently forgotten is vendor support. You cannot assume that your vendors will just work it out. After you have built your platform. You should create user guides on the various features you have for your vendors. Providing a self-help support system will reduce your vendors’ frustrations and increase the likelihood of onboarding more.

You should also utilise the support systems mentioned in the previous section related to customer support. This way you can effectively manage any queries your vendors may have. We suggest that you might want to set up a seller forum so that vendors can interact with each other and help one another. This will reduce your overall support load and increase the sense of community.

Conclusion

Although we have focused on 11 mistakes made when launching a multi-vendor marketplace, most of these can also be applied to your standard online store. Every business and every marketplace is and will be different. Even for those competing in the same space. You can never have too much planning when it comes to launching and maintaining a successful multi-vendor marketplace based business.

WC Vendors Pro provides a lot of tools to make running your multi-vendor marketplace with ease. We provide plenty of documentation and complex commission systems, memberships and more. This will help you to better plan your marketplace before you start and launch quickly and effectively from day one.

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