So you have decided to set up a marketplace. Congratulations! Building a marketplace business is an incredible adventure and a journey full of learning, no matter the outcome.
For the purpose of this article, we assume you have already familiarized yourself with what you need to know before starting a marketplace business, you have a great marketplace idea, and you have validated that idea. If not, please have a look at these articles and check out the guide to building an online marketplace.
Picking the right software with which to build your marketplace is one of the most important decisions to make at this point, and also one of the hardest. If you make the wrong choice, it could end being very costly and delay your project by months.
But before you dive into the jungle of all the different software solutions available, you first need to determine how you are going to build your marketplace. Finding the right approach to building a marketplace dramatically decreases the number of solutions you will have to choose from.
There are essentially five different ways to build an online marketplace:
- Method #1 – Code it from scratch
- Method #2 – Pay someone else to code it from scratch
- Method #3 – Build it yourself on top of existing marketplace software (self-hosted)
- Method #4 – Pay someone else to build it on top of existing marketplace software (self-hosted)
- Method #5 – Build it yourself using a hosted software solution (SaaS)
Each of these approaches has its own pros and cons. Let’s go over them.
Method #1 – Code it from scratch
Description: This option covers developing your marketplace from scratch using modern programming languages and frameworks.
Biggest benefit: You can make it work and look exactly as you wish.
Biggest drawback: Takes a lot of time and resources.
Developing your marketplace from scratch allows you to build exactly the marketplace that you have in mind, with all your desired features, bells and whistles. If you are an accomplished developer, the do-it-yourself option is often tempting. A number of other benefits come to mind: you have access to all the source code, you’re not dependant on other people’s software, there are no licensing issues and no subscription costs.
As tempting as this option may sound, there are considerable drawbacks. First of all, no matter how accomplished a developer you are, building a marketplace from scratch will take time—a lot of it. A multi-sided platform with monetary transactions is a very complex project. And although this option might be cheaper than paying someone else to develop your platform, time is money.
Another downside is that in order to try out a feature on your users, you will need to spend considerable resources developing the feature before you can validate the feature’s usefulness or viability.
Finally, it is not only about getting the site built—you also need to maintain it, which is a lot of work. Existing software with regular updates will take care of the majority of this work.
Method #2 – Pay someone else to code it from scratch
Description: This method is identical to the first one except you do zero development work yourself.
Biggest benefit: You can make it look exactly as you want.
Biggest drawback: Takes a lot of time and money.
Developing everything from scratch allows you to build exactly the marketplace that you have in mind. If you have a big budget, this approach might look tempting. You’re not limited by restrictions in other people’s software and you don’t have to pay subscription or licensing costs.
In addition, with someone else taking care of the technical work, you can focus your attention on the business side of the marketplace, which is no small benefit.
This is likely the costliest option. Pricing and quality varies a lot between different freelance coders and professional software development agencies, but even with the most cost-efficient choice, you will very likely need to spend more than $50,000 USD. And that is just to get your first version launched. Once the site is launched, you will need to continue development work to improve your platform based on feedback and pay monthly hosting bills.
Secondly, your time to launch will be rather long—at least 3 months. As a result, just as with building it by yourself, you won’t really know how well your idea and first version work until you’ve spent the money to develop it. Features that were expensive to develop might be deemed useless by your first users.
Finally, simply finding developers that you are comfortable working with and who deliver high quality software can be an enormous challenge.
Method #3 – Build it yourself on top of existing marketplace software (self-hosted)
Description: In this option we consider marketplace software solutions that can be downloaded for a one-time fee, modified, and hosted on your own server. For the purpose of this article, we separate these from the so-called SaaS solutions (see method #5). In a later article, we will go deeper into the differences between these two methods.
Biggest benefit: Cheaper and faster than building it from scratch.
Biggest drawback: Requires an upfront investment.
This option is faster than building your marketplace from scratch. Every marketplace, no matter the type or the business idea behind it, has some basic functionality requirements, such as creating a listing, communication between users and handling bookings or transactions. Existing marketplace software will already have most, if not all of these included.
If you have the skills for it, you can build additional features on top of the existing feature set. Or at the very least, customize the look and feel of the marketplace to exactly fit your needs.
From a financial perspective, if the software of your choice is not open source, it will only require a one-time fee, which probably is a lot more affordable than paying someone to develop it from scratch.
Setting up and maintaining the marketplace still requires significant technical knowledge. Even though the software has a one-time fee for the license, hosting incurs monthly costs.
If the software is not open source, the license might need to be renewed regularly or you may risk losing access to support and technical help.
Method #4 – Pay someone else to build it for you on top of existing marketplace software (self-hosted)
Description: This method includes all approaches where you pay a third party to build the marketplace on top of existing marketplace software.
Biggest benefit: No technical skills needed.
Biggest drawback: Requires a bigger budget and upfront investment.
The main benefit of this approach is that no technical skills are required. If you are able to find a good programmer or agency, they can take care of all the technical work. The marketplace can likely be customized to match your needs. If you can pay for multiple developers, the platform will be ready to launch a lot sooner than if you would be doing it yourself. In any case, it will be likely less expensive than outsourcing the development of the marketplace from scratch.
Although not as expensive as building something from scratch, this method will still set you back a serious amount of money—probably some tens of thousands of dollars. If you are unwilling to pay the developers a retainer fee, you will still need some technical knowledge for maintenance and hosting.
Just as with building a platform from scratch, the time to launch—and thus to learning—is still considerable, most likely at least three months. And again, comparing and deciding on a reliable agency to work with can be very time-consuming.
Method #5 – Build it using a hosted SaaS software solution
Description: With this method you build a marketplace platform using an online marketplace platform service.
Biggest benefit: Fastest to launch and learn.
Biggest drawback: Limitations in customizability.
This method is the fastest way to launch your marketplace, which in turn lets you validate how your marketplace idea works in reality and which features are important for your targeted users.
Secondly, this method will be a lot more affordable than the other methods, particularly in the early stages. It might not be as cheap as coding it yourself, but the costs will be very well below $1000 USD.
Additionally, SaaS software is usually battle-tested. The companies behind them continuously test, improve and update their product. This is included in the subscription cost.
A final benefit is the required technical knowledge. Although the needed level depends on the exact marketplace software, in most cases, basic internet savviness is enough. You will rarely need to read or write code.
As these marketplace platforms attempt to serve as many customers and cases as possible, they will have certain limitations. You might not be able to launch with all the features that you had in mind. However, it is more important to launch your marketplace as early as possible than it is to make it perfect. There are so many unknowns when you start out, which means that testing out your idea on real users at the earliest possible stage will help you move in the right direction and prevent you from making costly mistakes.
Over a longer time period, this option might not be the most cost-efficient strategy as subscriptions costs may exceed the costs of an initial one-time fee.
What is the right approach for you?
We cannot emphasize strongly enough the importance of building your Minimum Viable Platform as quickly as possible. From that perspective, using an existing marketplace SaaS platform is almost always the best method to start with as it is the fastest way to start learning.
But if we leave this assumption aside for a moment, the right method for you depends heavily on your answer to these three questions:
- How big is your budget?
- What are your technical skills?
- How quickly do you want to launch your marketplace?
How big is your budget?
Less than $5K
With this budget, paying someone else to build a marketplace platform from scratch is pretty much out of the question. Your best option is to start using a SaaS solution or existing marketplace software, or code the platform from scratch.
You might be able to find a freelancer through platforms like Upwork who can build a basic marketplace on top of existing software. However, you will still incur monthly costs for hosting and maintenance. Additionally, you will likely receive feedback from users after launching your first version, and you’ll want to save an additional budget to implement these feedback ideas.
If you are somewhat tech-savvy, this is a perfect budget for building the platform yourself on top of a turnkey marketplace solution and modify it to fit your needs. You can use the money you save on development costs for much-needed things such as marketing and promotion.
$50K and higher
With a budget of this size, you should be able to find companies that can build a high-quality custom marketplace, either from scratch or based on existing software. Various options exist. The right choice depends mostly on the type of marketplace needed, your exact customization requests, and how quickly you would like to launch.
How technical are you?
Not at all
Coding from scratch is obviously not an option, unless you first want to invest a year or so learning how to code. Your best choice is to either launch using a SaaS solution that is aimed at less technical users or hire someone to build the platform for you.
You might at one point have used a WordPress blog, or maybe even edited some HTML or CSS. With this technical proficiency most marketplace SaaS platforms are a perfect fit. If you feel adventurous, or want to expand your coding skills, you could try building a marketplace on top of (open source) software.
As a developer, building the platform from scratch is always an option. However, using one of the many existing marketplace software packages out there—both open-source and proprietary—will give you a head start, letting you focus on developing the features that are specific to your marketplace. If you have a bit of a budget, you could also buy one of the more expensive solutions or work together with an agency to speed up development.
How quickly do you want to launch it?
Within 1 month
Having only a month seriously limits the amount of work you can do. The only real option is to use a SaaS solution that has all of the essentials (hosting, transactions, reviews, etc.) and only needs visual customizations. Even the most expensive developers/agencies will unlikely be able to deliver a platform in less than a month.
Within 1-3 months
With this timeframe, being able to build a marketplace platform from scratch is very unlikely unless you have a team of multiple skilled developers. You might be able to find an agency to build it for you.
The SaaS option is still a great option, as is customizing existing marketplace software, either by yourself or using a third party. Three months should give you enough time to set up hosting, a development environment, and modify the code to your needs.
In more than 3 months
With this schedule, all options are on the table. What you end up choosing will be mostly determined by your budget and your technical skills.
The graph below provides a very rudimentary summary of what we discussed above.
Making the decision
We have now discussed
- the different methods to getting a marketplace up and running and their benefits/drawbacks
- the questions you should ask yourself
- the possible answers and how they relate to the methods.
This information should give you a good idea of what approach best fits your situation.
In the upcoming articles, we will talk more about the differences between SaaS solutions and self-hosted solutions, open source software versus proprietary software, and building from scratch versus using existing marketplace software stacks.