Starting A Multi Vendor Marketplace (What you need to know!)

what's up guys i'm paul and welcome to my channel so recently i've had a few comments and emails from people asking me about starting a multi-vendor marketplace and as these are some of the most difficult types of e-commerce businesses to not only build but also make successful i thought it'd be a good subject for one of my videos and in this video i am going to explain the reasons why they are so difficult to build and make successful and later in the video i'll also give some ways where you could potentially create a successful multi-vendor marketplace now when it comes to multi-vendor marketplaces i do have some first-hand experience because i do have a failed multi-vendor project on my resume i also know all the people who have started them only for them to fail and also people who are actively running multi-vendor marketplaces currently with varying degrees of success so i do have some insight into the multivendor world so with the introduction out of the way let's get started so the first reason why these businesses are so difficult to make successful is because you basically find yourself in a catch-22 situation because as the owner and operator of a multi-vendor marketplace your job is to try and connect sellers with buyers but if you don't have one it's very difficult to attract the other one now out of these two parties it is arguably easier to attract sellers this is because people want to put their products in as many places as possible and if you're just launching you may be able to create some hype around your marketplace and get sellers to invest in your vision effectively so that you can get them to sign up list some products on your site and see what happens but the problem is if you're not attracting buyers it's going to be very difficult to keep these sellers on your platform because they want to have a return on their investment and they're more likely to invest time in other platforms or maybe their own website where there's an increased chance of getting a return on their investment and there can be a detrimental factor further down the line of attracting new sellers because there's lots of groups forums where people in same kind of industries basically interact with each other and i see a lot on groups especially in the dual trade where they ask about all the marketplaces that are coming around and if people have tried these marketplace and i've had no success with them they will spread that message on and it can result in you struggling to get new sellers further down the line because previous sellers haven't had any success with your platform but on the flip side of that if you've got very few sellers or even if you've got no sellers on your site you're going to have little to no inventory that you can market and promote and what this is going to mean is you're going to struggle to bring trafficking and you're definitely going to struggle to bring buyers in and this is the part that most multi-vendor marketplaces struggle with is actually getting the traffic and buyers onto their site and as anybody who's ever run any kind of website will know getting traffic to your site is incredibly difficult whether it's a blog or it's an e-commerce website traffic is usually the hardest thing to try and get on your site and with multi-vendor marketplaces this can almost be exacerbated because your sellers are putting the pressure on you to bring all of these people in so they stay on their site and they actually continue to work with you to hopefully build this marketplace out so it's this catch-22 situation that is the reason why most marketplaces fail because it's a very difficult balancing act with keeping your sellers happy and also bringing in enough traffic to make it a viable proposition so the second reason is the costs that are associated with not only building a multi-vendor marketplace but also the ongoing costs of running it and generally this falls into two categories the first one is the cost of your actual site and when it comes to multi-vendor marketplaces there are some kind of cheaper options out there and a lot of people will be looking at kind of like multi-vendor marketplace plug-ins for things like woocommerce and while these are a good kind of proof of concept option if you are serious about building it and scaling it you're gonna have to go with specific specialized multi-vendor marketplace software because a lot of these plugins for woocommerce are kind of shoehorning this into woocommerce and basically it's not particularly scalable and it is quite limited on features this is where you're going to have to go with specialist software and this stuff doesn't come cheap the reason is there's not a mass market for it like there is with traditional kind of e-commerce software and you could end up paying a lot for this either a one-off payment for the software and then you're going to have monthly running costs things like hosting because a lot of the software is self-hosted so you're going to have to pay for good quality hosting enabled to support all of the software and also the potential traffic that's going to be coming to your site and another thing when it comes to the software is there's not many kind of easy off-the-shelf solutions available not like with traditional e-commerce where you've got things like shopify and bigcommerce that are super easy to get set up and use there's not these kind of options out there available for multi-vendor marketplaces because it is quite a niche business and everyone wants to be very unique so you are probably going to have some development costs as well because you want it customized to fit your multi-vendor businesses brand so this is something you do also need to factor in is how much that it could cost to actually build the site and also what your monthly running costs are going to be for things like hosting so the second cost is the cost of marketing which you as the owner and operator of the site are going to have to front to start with because you're going to be the one who's going to have to push the website out there it's not down to your sellers to promote the website it's down to you and you're going to have to be paying these marketing fees to try and get traffic to your site and to start with you're probably going to be investing way more in marketing than you're going to be getting back in terms of revenue through your site and this is something you do need to bear in mind and you also need to have quite a robust marketing strategy as well in order to generate any type of traffic because as i just mentioned it's the main killer of multi-vendor marketplaces is the lack of traffic on the buyer's side so you're going to have to have a very good marketing strategy and you're also going to have to have a budget in place to implement that strategy so the third reason is these are quite difficult businesses to make profitable because you have quite limited revenue streams available to you and the ones that most people are going to think of are subscription fees which are what you charge your sellers on a monthly basis and also your transaction fees or commission fee whatever you want to call them which is the fee you take off every sale now you could also have things like running ads on your site which could be another potential option for making money but this is going to depend on the software you're using this whether you can actually run ads on your site but we're just going to look at the main two options i've just talked about so the first one of these is the subscription fee and when you're just launching a multi-vendor marketplace this is something you shouldn't even be considering because you're probably going to have a tough time convincing sellers to invest their time into setting up a store on your site let alone trying to charge them for the privilege as well this is something you should only really consider implementing on your multi-vendor marketplace when you're actually getting sales you're getting traffic and you've got success stories on your site so you can actually convince sellers that it's worthwhile investing money every single month because there's an increased chance of them getting a return on their investment because if you're trying to get them to pay for this to start with they're probably not going to be interested they're going to be much more likely to invest that money either in their own website or go within an established marketplace where there's a higher chance of them actually getting sales and a return on their investment so this is something you shouldn't be thinking about to start with this is more of a revenue stream that you should look to implement later on down the line when your site is actually successful and starting to make money for your sellers and then you have your commission fees and that's what i'm going to call them for the purposes of this video because that's basically what they are it's your commission for generating a sale for your seller but there's a mistake that a lot of brand new multi-vendor marketplaces make when it comes to setting their commission fee and that is they go in way too low and i kind of understand why they do this because they try and make it as an attractive proposition to get sellers on their site because they can say things like it's cheaper to sell for us than it is through ebay or etsy but they could be making a really big mistake with this because there's certain fees and costs that you're going to have to cover with these commission fees things like payment gateway fees because a lot of your sellers aren't going to want to pay these on top of your commission fees they're going to want this included the cost of actually generating that sale so say you're running ads or things like that that's going to have to be covered by the commission fee the commission fee is also going to have to go towards running your site as well because you're going to have the ongoing fees that i mentioned earlier in this video and this commission fee needs to cover all of this now when you're just getting started this commission fee probably isn't going to cover the running cost of your site that's something you're going to have to accept but as you start to grow and you start to get more commission fees this should be covering the cost of running your site but there can also be additional costs that you incur when you start to scale your business you may need better quality hosting if you're getting lots of traffic to your site also being able to maintain and just run the site may be too much for you to do on your own you may need to bring somebody in to run the technical side of your site you may need to bring people in to deal with customer service deal with sellers deal with buyers it may be too much for you to deal with on your own so as you start to scale your business there's more costs that you may incur and these commission fees and potentially your subscription fees are gonna have to cover these and this is one of the reasons why they are so difficult to make profitable and successful over the long term and very few people have actually created successful profitable multi-vendor marketplaces so those are all kind of negative things but things you do need to think about when you're setting up a multi-vendor marketplace as i said at the start of this video there are some ways you could actually make successful multi-vendor marketplaces and i'm going to go through those now so the first one is to build off an existing successful e-commerce website this is because they've already solved the problem of getting traffic to their site and it's basically just another revenue stream that they can add and there's one company that in my opinion has done this nearly better than anybody else and that is asos because they created an incredibly successful online clothing retailer then further down the line added a marketplace that vendors could come on and sell their products using asos and this is just a win-win for asos because they're either getting sales directly through them or they're making commissions by sales they're generated through their marketplace so this is one way you could do is to build off an existing successful e-commerce website so the second one is quite similar to the first one in the fact that you're building off an existing website but this would be if you had something like a directory website that's getting lots of traffic the reason why this could be a really good option to turn into a multi-vendor marketplace is because you've already solved the problem of traffic you're getting people in looking for these businesses and then all you need to do is actually set up the multi-vendor kind of functionality on your site and then convince your sellers to actually sign up and set up a store on your site which shouldn't be too much of a hard sell because you can already prove to them that you're getting traffic to your site people are already looking for their businesses and they could increase sales and they could increase revenue if they created a store on your site so this could be quite an interesting option in my opinion is converting a directory into a multi-vendor marketplace because as i say you've already solved the problem of getting the traffic to your site and the third one is if you're involved in any kind of online community you may see that there's people who want to sell things and there's people who want to buy things but actually facilitating these sales might not be the easiest thing to do and that's where you could fill the gap by creating a marketplace so you could bring the sellers and the buyers together and the best thing about this is you already have access to this community you're not going to have to go out and try and get cold traffic because you basically just got to connect these people together and if you do a good job you could be the go-to person in that community for selling things and also for buying things as well so that could work really really well the only downside i have with this one is it may not be particularly scalable this depends on the size of the community and the amount of people who are looking to buy and sell and it could be quite easy to underestimate the amount of people who will actually use your marketplace and it may not end up being profitable in the long run but it is something you may consider if the niche or the community is big enough so those are some of the ways that i think you can build successful multi-vendor marketplaces and it's definitely easier to build off an existing business that's successful because it's already solved some of the problems mainly getting traffic to a website which is the main killer of multi-vendor marketplaces but i hope you found this video helpful and it's how to give you a bit of an insight into what you need to think about when you're thinking about setting up a multi-vendor marketplace so thank you so much for watching guys if you've enjoyed this video and you found it helpful please smash the like button for the almighty youtube algorithm also if you'd like to support the channel you can do by buying me a coffee using the link in the description and that is very much appreciated for anybody who's interested i'll leave another video here and for everybody else thank you so much for watching i really do appreciate it stay awesome and i'll see you in the next one

Channel: The MoneySmith

Views: 263

Keywords: starting a multi vendor marketplace, multi vendor marketplace, ecommerce website, ecommerce advice

Id: XZS2pWBbD3g

Length: 13min 4sec (784 seconds)

Published: Sun Nov 14 2021