How to Build a Marketplace Website: Step by Step Guide

Has the idea of creating the next Amazon been long nagging you? Or maybe you were more interested in creating something like Upwork, where customers and businesses could connect with each other for purposes such as job search or selling services? Whatever the case, now is the right time to jump on the bandwagon and get a piece of that lucrative pie!

Despite the many horrible things that the outbreak of the COVID-19 brought on us, it created positive changes as well. One good we can point out is the boost in the development of marketplaces, allowing consumers to shop online without having to travel to brick-and-mortar stores and stand there in lines. 

According to Statista, since 2020, 40% of people have made more purchases online, and over 62% of overall sales were made on world-famed marketplaces such as Amazon, eBay, and Airbnb. If we look at the numbers in more detail, the expected spending on these marketplaces is projected to exceed $7 trillion by the end of 2024, making 90% of all online purchases. 

These statistics shouldn’t discourage you though. Even if you build a marketplace website that isn’t as big as Amazon or eBay, there’s enough room in this niche for everyone. That being said, whether you succeed or your web application fails in the face of stiff competition largely depends on the effort your development team puts into building your market.

Wondering what it takes to build a successful marketplace? Don’t look further. In this guide, we’ll walk you through the process of online marketplace development, focusing on all the key aspects, including what types of marketplaces exist, what features should be included, what challenges may come along the way, and how much it costs to build an online marketplace from scratch. Let’s start digging.  

What Is a Marketplace?

While you may have a very good idea of what marketplaces are, it’s worth delving a little deeper to better understand the platform’s unique peculiarities and approach your marketplace idea with clarity and insight. 

Essentially, a marketplace is a digital space on the web, providing customers and vendors with a platform for selling goods and services. In other words, it’s the baby of the shared economy that fulfills a variety of customer needs, whether they are searching for a shared accommodation, a mediator offering a comprehensive suite of legal services, or something as simple as a piece of furniture.

Also called person-to-person (P2P) platforms, online marketplaces facilitate communication between users by providing them with a trustable environment for carrying out financial transactions. What’s more, they usually come with a variety of different features and functionalities such as secure payment gateways, user ratings and reviews, dispute resolution mechanisms, and customer support services that ensure smooth interactions and transactions. 

At its core, the concept of marketplace is rather straightforward and yet incredibly versatile, capable of accommodating a wide range of business models. Therefore, one of the first things to do before diving into the nitty-gritty of marketplace website development is to decide what type of marketplace exactly you want to create. 

Different types of marketplace platforms

Depending on participants, digital marketplaces can be classified into the following categories:

  • Business to Business (B2B) – a marketplace business model where companies sell their goods or services to consumers. Examples of B2B marketplaces are eBay, Amazon, and Alibaba.
  • Consumer to Business (C2B) –  a model, in which individuals offer their services to businesses. Upwork, Fiverr, and Freelance are prime examples of C2B marketplaces.
  • Business to Customer (B2C) – in B2C marketplaces, businesses sell their services and goods directly to consumers. Think Uber, Airbnb, and Etsy marketplaces.
  • Customer to Customer (C2C) – C2C platforms facilitate transactions between individual consumers, allowing them to buy and sell products or services directly to one another. The best examples of C2C include Craigslist and Facebook Marketplace, among many others.

Besides participants, marketplaces are divided into vertical and horizontal groups. 

The former focuses on the specific industry or niche. For example, a vendor makes a decision to sell only home renovation goods like Wayfair or vintage products like Etsy. These marketplaces feature a tailored selection of products to meet the interests and preferences of their end users. 

The latter, on the other hand, offers a wide range of products or services across multiple categories or industries. If you thought of Amazon, you got it right. Platforms like Amazon, Walmart, and eBay are designed to cater to a broad audience, offering everything – from electronics and clothing to groceries and home goods. 

The attractive thing about horizontal marketplaces is that they provide consumers with a comprehensive shopping experience while offering sellers access to a large and diverse customer base.  

Additionally, marketplaces can be further segmented according to their offerings. In general, there are three groups: 

  • Service marketplaces – as the name implies, this group embraces marketplaces where businesses can find skilled professionals for any required activity, be it software development, QA, design services, translation, and so on.
  • Product marketplaces – this group unites digital stores selling physical goods like groceries, clothes, appliances, etc.
  • Project marketplaces – this is a specific group of marketplaces that are primarily used by startups looking for investors to raise funds to start a business.

As you can see, despite the seemingly simple nature of marketplaces, there’s a whole range of different marketplace types. So, before you start looking for a development team to build a marketplace platform, make sure you know exactly what products or services you’re going to offer and what your target audience is. 

Benefits of Building a Marketplace Website

The popularity of marketplaces continually grows, offering customers immense opportunities for selling and trading products. Take any category – fashion, IT, food, home improvement, the list goes on – there seems to be no niche that hasn’t gone online. And we can clearly see why this is the case. Online marketplaces offer tons of benefits for business owners, making them an attractive niche for both seasoned vendors and newcomers who are only getting started with eCommerce. 

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Exposure to a wide customer base

One of the other important benefits of online marketplaces is that they naturally attract a larger audience of consumers. People love marketplaces for their diverse range of products and tend to go there instead of searching independent websites. This means that as a marketplace owner, you automatically tap into this existing pool of potential customers and don’t need to spend nearly as much on marketing and advertising efforts as you’d have to with web stores. 

Additionally, with the rise of social media and other online platforms, it’s easier than ever for customers to share their favorite marketplace finds with friends and family, further increasing your marketplace’s visibility and attracting even more users. 

Scalability and flexibility

Another significant advantage of building a marketplace website is its scalability and flexibility. Unlike traditional brick-and-mortar stores that are limited by physical space and location, online marketplaces have virtually unlimited potential for growth. You can scale and optimize your platform by adding to it new functionality and features so it can accommodate increased traffic and fit the needs of your consumers. 

Diverse income streams

Creating your website marketplace also protects you from economic downturns and market fluctuations as you get more options for revenue streams. For example, in addition to earning commission, you can offer premium memberships with exclusive benefits or features for a monthly or annual fee. Or you can look into affiliate partnerships. Or, if you’ve created specific products or services that are unique in the market, you can license or white label them, creating a new revenue stream. Besides, there’s always an opportunity to make money by letting other vendors place banner ads, sponsored content, or native advertising on your site.

Streamlined development

As with any software product, there is always an option to build a marketplace from the ground up. However, a steadily popular trend in marketplace app development is to use at least some ready-made solutions like APIs. This speeds up the development process and requires significantly less time and manpower compared to traditional development, allowing businesses to bridge the gap between expenses and profitability quicker.

Fewer risks

When launching an eCommerce website on your own, there is always the possibility of the venture not taking off and losing you money, not to mention the amount of time that goes into creating an online presence for a business. This is not the case with marketplaces. An online marketplace involves multiple sellers with their own inventories and customer bases. They are also the ones managing their online stores, conducting sales, and interacting with the customers. You, in turn, are responsible for the functionality, accessibility, improvements, and availability of the marketplace, so the risks are mostly minor and technical in nature.

How to Create an Online Marketplace: 8 Essential Steps

Now that we’ve covered all the essentials, including the reasons why business owners want to create a marketplace website, let’s get into the details. Further down, we’ll look more closely at the development process of a marketplace platform as well as the features that this platform must have so you can successfully launch and grow your online marketplace.

Step 1. Gauge the demand

Conducting research with the goal of evaluating the demand is one of the most important steps in marketplace website development. You need to know your domain well enough to understand what customers need and build a marketplace tailored to meet their demands. A good idea is to speak to potential users directly. If not possible, take a sneak peek at how your competitors are doing business. By analyzing your competition, you can identify their strengths and weaknesses and leverage that information to set your brand apart with a unique value proposition.

Ideally, market research is best done in-house by key business figures but if you don’t have relevant experience, you can also hire specialists from the outside to make a marketing analysis for you. Of course, the key goal here is to find a niche that is yet unoccupied, and this is where independent online forums and sites like Reddit, where users freely share their ideas, can come in handy.

Step 2. Define your target audience

The unique thing about developing and running a marketplace compared to other eCommerce websites is that there are actually two target audiences to consider: the sellers who will use the platform to promote their goods and the buyers who will shop from individual sellers. This is why there is twice as much work to do when it comes to identifying the target audience of the product, although that’s nothing an experienced business analyst cannot do.

There are several ways to find out exactly who your target audience is and who your marketing efforts should be directed at:

  • Competitor analysis. Looking at the audience of popular marketplaces operating in the same niche as you can tell you a lot about your prospective users and what they are looking for in a marketplace platform.
  • Content analysis. Tools like Google Analytics and Ahrefs, where you can find out which search queries bring visitors to the competing marketplaces, will give you plenty of insight about the topics that interest your potential users and what can bring them over to your platform.
  • Social media. An established social media presence is a great way not only to identify your target audience and its requirements and expectations, but also to test the waters by offering surveys and other methods to gauge interest in your future product.

Step 3. Find your value proposition

With the marketplace market being highly saturated already, the idea of just building a clone of a popular marketplace service is unlikely to pay off. Users are going to need a good enough reason to switch from the competitor’s brand to your marketplace, and a strong value proposition is the best way to achieve that. This, along with a unique selling point, will help you divert the attention of your prospective customers from your competitors to your own service. There are several directions you can take to find your one-of-a-kind value proposition:

  • Product selection. Users are always going to be drawn to an eCommerce site with the widest range of goods, which is why working on increasing the product variety is an effective way to grow and promote your marketplace.
  • Convenience. Revolutionizing the buying process and making it even easier and more accessible for customers compared to other marketplaces is a great way to add your brand’s name to every top list.
  • Prices. The price aspect of the value proposition is perhaps the trickiest one, as simply offering the lowest rates to sellers and encouraging them to set lower product prices may keep your marketplace from becoming profitable. Still, prices are a key factor users take into account when making the choice, so the question of prices is at least worth considering.

Step 4. Identify your revenue model

The ultimate goal of a commercial marketplace is to make money, which is why designing a comprehensive monetization strategy is among the first things to do once you conceptualize the idea. There are several types of monetization available for marketplaces, and you can choose one or a combination of several of them:

  • Paid listings. This model works similarly to websites like Etsy and Zillow, where sellers have to pay a small fee for each product they list on their storefront.
  • Freemium. Under this model, sellers can get basic functionality for free but have to pay if they want to use some of the more advanced marketplace features or boost their products in the search results.
  • Membership. Paid membership, which often comes with a free trial version, provides all subscribers with the same amount of functionality. Alternatively, membership can come in levels, depending on the functionality provided.
  • Commission. When sellers use the marketplace on a commission basis, they can list their products and manage their stores for free, only paying a fee when they make a sale. Typically, the fee ranges from 10% to 20% on one transaction.
  • Advertising. Regardless of the model you eventually go for, sellers will want to make their products more visible to buyers using advertising services, which can be an additional source of revenue for a marketplace platform.

Step 5. Choose the functionality to include

The functionality of the marketplace will have as big of an impact on the adoption and popularity of the solution as its usability and pricing policy. You can get a pretty good idea of what your prospective users are looking for at the previous stages of developing your marketplace, especially while performing competitor analysis and making an effort to better understand your target audience. A little later in this article, we are also going to discuss the most coveted marketplace features both buyers and sellers want to see.

Step 6. Hire the development team

Unless you already have a number of software products in your portfolio and a reliable team who can make any idea come to life, the next step is assembling the team for the project. A typical team for building an online marketplace typically includes:

  • A business analyst
  • A UI/UX designer
  • A project manager
  • Front-end developers
  • Back-end developers
  • Software testers

Additionally, the project may require the services of a DevOps engineer or software developers with niche expertise — for example, engineers with the knowledge of specific programming languages, or full-stack programmers.

There are several options for building a team for your marketplace project: you can hire the complete team in-house, work with freelancers, use the services of nearshore programmers, or outsource the entire project to an offshore vendor. A little later in this article, we will look at the most popular options and how they factor into the cost of developing a marketplace.

Since this is likely going to be a long-term cooperation that goes on for months, if not years, it is crucial to pay attention not just to the technical skills of the team members, but also to whether their work culture and communication style are a good fit for the rest of the team. This is why an extensive selection process with interviews and trial periods is what you need to assemble a dream team of specialists.

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Step 7. Launch and monitor the development process

Once you have the right candidate for each role and the team members understand the goals and objectives of the project, it is time to move straight to development. Developing a marketplace typically follows a clearly defined procedure, starting with business analysis and UI/UX design, all the way through development, and ending with quality assurance.

Moreover, the development process is usually designed according to one of the project methodologies available today, the most popular one being Agile. Under Agile, the scope of work is broken into manageable increments called sprints. Accurate planning and transparent communication give every team member all the information they need to be good at their job while providing the product owners with a comprehensive idea of where the project currently stands and whether intervention is needed to correct the course.

As for quality assurance, the exact timeline also largely depends on the model chosen for the project. Under the Waterfall model, testing and QA take place at the very end of the development process, which can significantly delay the release of the software, as the development team will need additional time to fix the issues. With Agile, testing and QA can begin nearly simultaneously with the development process, ensuring swift issue resolution and higher quality of the software overall.

Step 8. Deploy, improve, and grow your marketplace

After the software is fully developed and tested, you can finally plan the release, which is usually preceded by marketing activities and shipping the product to early adopters, whose feedback can be invaluable for further perfecting the product. After the deployment, you can scale your team down to include a couple of developers and a couple of testers for ongoing maintenance and support.

Finally, all good software is a work in progress, and users are not going to remain loyal to a product that stagnates in its development. Marketplace growth, both in popularity and revenue, directly correlates with the rate at which the software is updated and improved. New functionality, design updates, improved usability, availability on new platforms — all these software aspects need additional development activities, but they result in increased customer satisfaction and user loyalty.

Essential Marketplace Features to Include in Your Product

One of the most vital steps in the process of marketplace development is visualizing what it will look like and what kind of functionality it will carry. Obviously, you want to stand out from the crowd with a few killer features, but at the same time, users are also going to look for the functionality they expect to see in a marketplace. When you plan to create a marketplace website, these are the features to consider including in your software development process:

  • Registration that allows buyers and sellers to manage their accounts from the get-go.
  • Seller profile, where the seller can share all the information they want users to know about the store.
  • Buyer profile, where the person can safely store their name, shipping and banking information, order history, and more.
  • Product page that gives buyers the most complete idea of the product, its properties, and shopping conditions.
  • Inventory management that is securely linked to the storefront to make sure that all products are available for buyers to see.
  • Search and filters, which allow buyers to conveniently navigate the store and find exactly what they are looking for.
  • Voice and image search, the features that take the process of finding the right product to the next level of convenience and precision.
  • Product recommendations, an AI-based feature that allows stores to increase their sales and successfully upsell, increasing the profitability of the marketplace.
  • Wishlist and favorites, the pages where buyers can store the products they’re interested in and come back to check the price or make the purchase.
  • Shopping cart, where users can collect their desired products, change the number of items, and make other adjustments.
  • Checkout, which is designed to make the process of buying as easy and fast as possible for the buyer.
  • Guest checkout — a neat little feature that allows unregistered users to complete a purchase with just one or two clicks.
  • Payment gateway, a feature typically carried out with the help of an API, providing a secure and fast way to pay.
  • Shipping and delivery, a feature that can also be often carried out through APIs provided by various carriers.
  • Order tracking, where users can find out the stage their order is at and also monitor the delivery process once the order leaves the warehouse.
  • Notifications, which can range from a reminder that there are products left in the user’s shopping cart to a notification that the order arrived at the post office.
  • Returns and refunds — a set of policies and resolution mechanisms for handling post-purchase user requests with maximum care.
  • Customer support, which can include an AI-based chatbot and real human beings providing assistance to sellers and buyers.
  • Seller analytics, where the seller can review their store’s metrics and see how their decisions and actions affect sales.

How Much Does It Cost to Build a Marketplace Website From Scratch?

Online marketplace development is not something you can put a definitive price tag on, as the cost of an online marketplace website depends on a variety of conditions. Here are the factors affecting the cost of creating a marketplace:

  • Product functionality
  • Software architecture
  • Integration of third-party services
  • Intended scalability
  • Number of product versions for different platforms
  • Project size and duration
  • Development team size and seniority levels
  • Additional services (Business analysis, design, project management, testing)
  • Team location

The last factor is one of the most crucial ones, whether you are assembling an in-house team for continuous cooperation or you are engaging an outsourced development team for a one-off project. The difference in the rates that developers charge around the world can be stark. Let’s take a look at the average hourly rates for a Middle Software Developer:

LocationAverage hourly rate
The US and Canada$100-$120
Western Europe$70-$90
Eastern Europe$30-$60
Latin America$20-$50

The choice of your future team’s location is one of the most important ones you’ll have to make in the process of gathering the personnel for the development project, as it’s not just about the price, but also about the quality.

North American and Western European developers are known for the high quality of their work, but they are also the most expensive ones of the bunch, so it doesn’t always make financial sense to go for this option. Asian and Latin American specialists are the most affordable ones, but the difference in time zones, language, and work culture can lead to unexpected complications. All things considered, Eastern European developers are understandably a popular choice right now: they have impeccable work ethic and technical skills while charging twice as little as North American developers. A development team from Ukraine, Poland, or Hungary is always a safe bet in every regard.

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Another key factor in deciding how much the project will cost is the functionality the product needs to include. A no-frills marketplace solution with only basic functionality can cost around $40,000, while an advanced website using numerous third-party integrations and sporting a wide range of coveted features can cost $100,000 or more to develop.

Challenges of Building an Online Marketplace Website

Most products that eventually achieve recognition and profitability are a journey of trial and error for their owners. This is also true for online marketplaces, which often face some obstacles before they find their footing. And while dodging those challenges altogether is not really feasible, knowing about them in advance can help you come prepared and minimize their damage. Here are the challenges that the process of developing an online marketplace typically brings.

Combining the needs of two audiences

Building the right marketplace for the modern market is about attracting the audience and building user loyalty both among sellers and buyers. This means that both sides need to know exactly what they’ll be getting from your marketplace that will convince them to stick with it. And while users are usually drawn to the variety of products or services available on the platform, attracting sellers may prove slightly more challenging at first. Offering incentives, such as free trial versions, bonuses and perks, or having a say in further efforts to improve the marketplace, can help attract the right audience.