5 Necessary Elements of a Great Online Marketplace Business Plan

Marketplace Business Plan

The online marketplace industry is expanding rapidly. Forrester found that a third of all business in the United States flows through e-commerce.

63% of those transactions happen on online marketplaces.

Because of this growth, many online sellers have considered adapting to this business model. Some have grown their online stores already. They know the basics: how to attract customers, navigate an e-commerce platform, identify a target market, and manage their inventory.

Others have less experience. They see the potential of an online marketplace, but they have no idea how to get started.

Regardless of which end of the spectrum you fall, every successful marketplace starts with a thorough business plan. We’ll outline five of the most necessary elements you need to include below.

Why do I need an online marketplace business plan?

Various apps and plugins have made it relatively easy to build a site, bring in vendors, and sell products online. But that’s just the infrastructure behind the marketplace business model. The real challenge comes from knowing what you will do with that infrastructure.

That’s where a business plan comes in.

In addition to establishing your mission statement, your online marketplace business plan describes the strategy you will use to launch, sustain, and grow your business. Developing a thorough business plan will prepare you to:

Present your business to investors
Outline your financial projections for the next 18-24 months
Focus on the right tasks and next steps
Make good decisions along the way
Have a map to return to when things get difficult
Identify potential weaknesses before you experience them.

Having these insights will make it easier to label and achieve your goals as you launch your online marketplace.

1. Know What Sets Your Online Marketplace Apart (and Who It Is Targeted Towards)

There are a number of different online marketplace business models in the industry. Giant companies like Amazon, eBay, or Walmart stand out as the most obvious.

Marketplace operators start salivating when they hear the numbers these large companies bring in. Amazon brought in over 21 billion in 2020. Many are tempted to create an online marketplace that offers the same scope of products. They want to sell everything or be everything for all people because that’s where the money seems to be.

This failure to understand the market is one of the biggest mistakes companies make early on.

We’re not here to crush anyone’s dreams or anything, but it’s going to be very hard for any marketplace to compete with these multi-billion dollar organisations. Very few customers are looking for a different Amazon or another eBay.

The best way for your marketplace business to survive is by focusing on a specific audience and product that will make you stand out.

What’s the difference between vertical and horizontal marketplaces?

As you establish your unique marketplace business model, you’ll want to consider whether you want to position yourself as a vertical or horizontal marketplace.

A horizontal marketplace is more of that “one-stop-shop” kind of feel you get with the big players. Vertical marketplaces, on the other hand, tend to focus on related items or a specific niche.

The Value of Niche Marketplaces

Niche marketplaces thrive when there’s a strong community around a product. People come together because of shared interests in a specific industry, and then they begin to trust the brand to give them a competitive advantage they can’t find in more established marketplaces.

Success from niche marketplaces will come when you know your audience well. You have to be a master of your target market, knowing what kind of things they want and helping them easily get it.

2. Identify an Appropriate Revenue Model

One of the advantages offered by an online marketplace is its potential for revenue. There are a few different ways you can make money, though, depending on your scope.

Before we even get into the different options, we need to address a big problem with star

There’s not really a single best business model, so we’ll cover five of the most common below.

Commission Model

This is the classic revenue model for marketplaces. The marketplace takes a percentage of every successful transaction from one of its vendors. Big brands like Amazon, Airbnb, Etsy, and eBay use this business model.

Subscription Model

These marketplaces charge customers and/or sellers a monthly subscription fee to join. This concept really only works when either party gets access to special or unique perks. Users pay for access to special discounts or experiences, and they can attract sellers with a dedicated customer base that they needn’t build themselves.

Freemium Model

Freemium models are popular for marketplaces with layered offerings or services. They give away a light version of their product for free, but charge for premium services. Some stock photo sites do this by offering by giving away certain photos for free, but offering users access to a larger collection if they’re willing to pay.

Listing Model

Businesses that use this model charge sellers a listing fee to post items on their online marketplace platform. This often happens with higher-priced items like cars or houses, especially when the marketplace itself doesn’t get involved with the sale. Check out the site Autotrader for a great example of this business model.

Marketplace Business Plan

Featured Ads

Ads or featured products can be a great way to bring in additional or sustaining income. Sellers pay to have their products listed among the first searches. For many online marketplaces, this serves as one among other revenue streams rather than the sole income source.

All the products below are “sponsored,” which means the brands paid Amazon to show up higher on the listings.

Marketplace Business Plan

3. Develop a Plan to Bring Sellers Into Your Online Marketplace

It’s not easy to convince sellers to join a new marketplace. There has to be something that draws them in.

Most people in the industry recognise this as the marketplace’s chicken and egg problem. The marketplace business model really only works if and when you have attracted buyers and sellers. But which one comes first?

You can’t really acquire customers if you have no vendors, but vendors don’t want to join an online marketplace platform if they’re unsure about their ability to sell products on it.

That doesn’t mean new online marketplaces can’t succeed, though. They just have to find other ways to incentivise vendors.

Include Dedicated Seller Programs

Some marketplaces have seller programs that help vendors succeed on their marketplace. Usually, this includes some sort of online training and/or an account manager who monitors their store and gives them ideas on how to improve their business strategy on the platform.

Make Things Easy

Having a simple onboarding process for an online marketplace can go a long way for vendors. They don’t want to spend their days trying to navigate a complex system. They want to sell their products and make money. The more you eliminate the roadblocks that get in their way, the more likely they’ll join your marketplace.

4. Make Marketing Part of Your Online Marketplace Business Plan

Marketplace Business Plan

Marketing is essential for survival in the digital world. No one will visit your marketplace if they never hear of it.

Still, establishing a marketing plan is an oft-forgotten piece of building an online marketplace business. Some marketplace operators think something like this will come together on its own, and they’re hesitant to invest the time, money, and effort needed to do marketing well.

The more you make your marketing a part of your overall business plan, the more likely you will bring in customers.

Utilising Various Marketing Channels

The key for marketing in the online marketplace industry is diversifying your channels. Always stay focused on your ideal customers, but maximise your reach by meeting them wherever they may be.

Consider incorporating some of the following marketing strategies into your plan:

PPC Campaigns
Email Marketing
Content Marketing
Social Media
Influencer Marketing

5. Use the Right Metrics to Measure Success

Marketplace Business Plan

You’ll only know how successful your online marketplace business model is if you know the right things to measure.

There are a ton of metrics out there, some more meaningful than others. Here’s a list of some of the most essential with a formula for how to calculate them.

Net Revenue: Multiply your gross merchandise value (GMV) by your take rate to get a sense of the actual revenue you’re taking in.

Repeat Purchase Rate: Divide the number of customers who have shopped in your marketplace more than once by your total number of customers.

Customer Acquisition Cost: Add up the total costs used to acquire new customers and then divide that number by the number of new customers gained from those channels.

Average Order Value: Divide total transaction value by the total number of sales.

Net Promoter Score: Send a customer satisfaction survey to your audience that asks on a scale of 1-10 how likely they would be to recommend your online marketplace to a friend. Split results into promoters (9s and 10s only) and detractors (anything under 7) and passives (8s or 7s). Subtract the percentage of detractors from the percentage of promoters to get your NPS.

Get Started on Your Online Marketplace Business Plan

Now that you’ve got the necessary information, all you need to do is apply it. Create your plan, build your marketplace, and start bringing in revenue.

At WC Vendors, we make it easy to get you up and running. Check out a demo of our product to see how we can help you launch your online marketplace in just a few minutes.

Jamie is the founder and lead developer of WC Vendors. He has been working in the WordPress, WooCommerce and Marketplace space for more than 15 years, 9 of those dedicated to multivendor marketplaces.