How to create a multi-vendor marketplace
Multi-vendor marketplaces have exploded in popularity in recent years, and this growth shows no signs of slowing. Here’s why multi-vendor marketplaces are a great business – and how you can build your own.
Table of Contents
- What is a multi-vendor marketplace – and why it’s a great opportunity
- What kind of multi-vendor marketplace are you building?
- Comparison of the best multi-vendor marketplace builders
- How to build a multi-vendor marketplace – fast
- Start building your multi-vendor marketplace today
What is a multi-vendor marketplace – and why it’s a great opportunity
Multi-vendor marketplaces are platforms where people can exchange goods and services. They connect buyers with many individual sellers. The most popular multi-vendor marketplaces include Airbnb, Etsy, and Fiverr.
Multi-vendor marketplaces have been around for centuries, starting with bustling city markets hundreds of years ago. These days, multi-vendor marketplaces look a little different: transactions are completed online, between people all over the world, for almost every type of product or service you can think of.
Multi-vendor marketplaces are very different from regular eCommerce websites.
Regular eCommerce founders are their own standalone vendor – marketplaces can have thousands of vendors who all contribute to the supply. Entrepreneurs in the eCommerce space are responsible for sourcing products, setting pricing, fulfilling orders, and much more. On multi-vendor marketplaces, these tasks are performed by the individual sellers. An eCommerce operator focuses on building a large customer base, while the marketplace entrepreneur looks at building and balancing supply and demand. And so on.
The fundamental difference between online stores and online marketplaces means that multi-vendor platforms require entirely different features from traditional eCommerce sites. Personal profiles, reviews, online payments systems, admin panels, and much, much more. Marketplaces run on a completely different business model too. Most of the revenue goes directly to sellers, with the marketplace owner usually taking a commission on sales. (We'll get into multi-vendor marketplace features and business models later in the article).
The marketplace business model is becoming increasingly popular among start-up founders and traditional eCommerce sites looking to stay relevant in the post-pandemic world. And with good reason.
Multi-vendor marketplaces are scalable and straightforward to build with marketplace software like Sharetribe's. They require no initial inventory to get started. They have the potential to unlock unrealized value in markets and to benefit from strong network effects. Let's look at the benefits of the multi-vendor model in more detail.
Benefits of the multi-vendor marketplace model
Multi-vendor marketplaces connect suppliers (sellers) with demand (buyers). The marketplace acts as a trusted platform for the transaction to take place, and usually charges some form of commission on every successful transaction.
This model offers considerable benefits for all parties involved: buyers, sellers, and marketplace entrepreneurs.
Benefits for buyers
Marketplaces remove a lot of the friction from the buying process, making it easier, faster, and cheaper for buyers to get what they want. With well-established marketplaces, buyers also benefit from increased choice, and can be confident in their purchases due to features like ratings, reviews, and profiles.
Let’s look at a real-life example, our customer WheelPrice.
WheelPrice is a marketplace for buying and selling automotive parts. Before Kyle Mayers and Wally Namane founded WheelPrice, there was no centralized location for hobbyists, so people used lots of different platforms to buy and sell parts to their rare vintage cars.
For buyers, this was time-consuming and ineffective. Having to browse through hundreds of generic tyres on dozens of buy-and-sell platforms is frustrating when you’re looking for a specific wheel size, brand, and model. Automotive hobbyists also tend to be very discerning and meticulous about quality, so finding vendors they could trust was challenging.
WheelPrice succeeded in solving these problems for the buyers. The multi-vendor platform quickly became a go-to destination for automotive enthusiasts looking for a wide selection of high-quality automotive parts from reliable sellers.
Related: Learn more about WheelPrice’s journey
Benefits for sellers
It’s not just buyers who benefit from multi-vendor marketplaces, sellers do too. In fact, providing benefits to sellers should be a top priority for marketplaces: without them, there is no platform.
The primary benefit for sellers is access to a large group of customers. Any arts or crafts business could set up their own website and sell to customers. But why do that when they could list their products on Etsy, and sell directly to Etsy’s 82 million active buyers?
On the other hand, smaller niche marketplaces with a very targeted audience can also offer a significant business benefit for sellers. WheelPrice is again a great example. Before there was a dedicated platform to sell automotive parts, sellers rarely found the perfect audience for their rarities. This forced them to sell their items for less than they were worth.
The sellers of a multi-vendor marketplace benefit from a bigger and more targeted audience.
“The same set of wheels that sold for $500 on a site like Craigslist could have gone for $1,500 on the right forum," WheelPrice founder Wally Namane explains.
In addition to exposure to bigger or more targeted audiences, many marketplaces also offer sellers better tools to manage their business. Sellers can more effectively manage inventory, learn how to optimize their pricing, and can communicate easily with buyers.
All in, multi-vendor marketplaces represent a huge growth opportunity for sellers. A well-run marketplace gives birth to hundreds, if not thousands of businesses, creating economic security for sellers, their families, and their employees.
Benefits for marketplace entrepreneurs
Multi-vendor marketplaces are attractive businesses for entrepreneurs. The costs to start up your own marketplace have become relatively low after the emergence of multi-vendor marketplace software. No-code marketplace builders make it easy to launch a marketplace platform even without coding skills.
But by far the biggest benefit for marketplace entrepreneurs is the possibility for built-in network effects of the multi-vendor marketplace business model.
Network effects boost the growth of a multi-vendor marketplace. When a platform has network effects, its value grows in line with the number of people that use it. An increase in sellers increases selection and price competition, which help bring in more buyers to the platform. More buyers means more business to the sellers, and so more sellers join the platform.
Marketplace entrepreneurs can also leverage buyer-seller overlap and cross-side virality too boost the network effects on their platforms. Cross-side virality occurs when getting a new seller to join the platform also brings you new customers. If a part of those customers turn into providers as well, you have a great growth opportunity on your hands.
Think back to the example of WheelPrice – the marketplace for selling automotive parts. A high-quality seller with a big selection of exclusive items joins the platform. Along with them, they bring an existing audience – social media followers or customers from a previous platform. A few of them are hobbyists, too, with rarities of their own to sell. They put their items to sell and bring in their existing audience – and on and on it goes.
Network effects are attractive to marketplace entrepreneurs, meaning they can scale their business relatively cheaply. As new users join, the value of the platform increases for all users, which means that the marketplace entrepreneur can charge a higher commission from sellers. This loop continues infinitely. Marketplaces that master it can achieve phenomenal scale.
Challenges of building a successful multi-vendor marketplace
Of course, building a multi-vendor marketplace platform is not without challenges. Network effects are a powerful growth lever, but getting things up and running means overcoming some challenges faced by nearly all early-stage marketplace entrepreneurs. These include solving the chicken-or-egg problem, achieving liquidity, and building trust.
The chicken-or-egg problem
What comes first, buyers or sellers? Buyers will be attracted to marketplaces with many sellers, and sellers will be attracted to marketplaces with many buyers. When you’re building a marketplace, you need both sides.
Our advice: focus on bringing an initial group of sellers on board first, then recruiting buyers. There are a lot of ways to overcome this problem. To learn more, check out this article: 19 tactics to solve the chicken-or-egg problem
Liquidity is the most important metric for a multi-vendor marketplace.
Building a multi-vendor marketplace is almost like building two individual businesses. You need different strategies for bringing in sellers and buyers. You also need to retain them by ensuring that a seller is likely to find customers and make money and that potential customers are likely to find what they’re looking for. This is called liquidity.
If an individual user is likely to reach their goal on your marketplace, you've reached a good level of liquidity.
Liquidity is arguably the single-most-important metric on your marketplace. The best way to achieve liquidity is to focus on a small niche. And expand when (and only when) the business starts to become successful in the first niche.
Consider focusing on one geographic area to start, and then expanding into new markets from there. This is a playbook followed by numerous successful multi-vendor marketplaces, from Uber to Taskrabbit, both of which started in the San Francisco Bay Area.
For a marketplace to be successful, buyers and sellers must have trust. Both in each other and in the marketplace platform.
Establishing trust is hard for any new business, but even more so for multi-vendor marketplaces. Buyers might be spending a lot of money, and sellers could be sharing valuable assets like their homes (Airbnb) or cars (Turo).
There’s a wide variety of strategies that marketplace entrepreneurs can implement in order to build trust between their users. Some, like reviews and profiles, are relatively simple, whereas others, like handling payments, can be much more complicated.
Read more about how to build trust between users in this article: How to build trust in your marketplace
Now that you’re up to speed on multi-vendor marketplaces, let’s explore how you can build your own. We’ll assess all the different options, from open source solutions to marketplace builders, and show you how to get your own multi-vendor marketplace up and running in less than a day.
Ready? Let’s get started!
What kind of multi-vendor marketplace are you building?
Any kind of multi-vendor marketplace will need a set of core marketplace features. The rest of your feature requirements will depend on your marketplace type.
There are many different types of multi-vendor marketplaces. Each category requires its own set of features. There are a few ways to determine what type of marketplace you should build. Consider what your vendors are selling on your marketplace, and who they’re selling to.
Let’s explore these different types of marketplaces, as well as the different types of features that they require.
What are your vendors offering?
Many feature and design decisions should be driven by the type of product, service, or rental that vendors will sell on your marketplace. Let’s explore the different models.
Multi-vendor marketplace for products: Etsy, Amazon, or eBay
Product-led marketplaces are perhaps the most common type of marketplace. The most well-known product marketplaces include platforms like Etsy and eBay, but many marketplaces start by offering products in a particular niche – examples include From The People and WheelPrice.
Whether your sellers offer physical products, rentals, or services will impact your marketplace feature requirements.
Multi-vendor product marketplaces require several distinct features. Exact specifications will vary for every marketplace, but core features include seller profiles, product listing pages, and reviews. If you want to process payments on the platform (like all the examples mentioned do), you also need payment solutions that are compliant with regulations. "Online mall" types of B2C product marketplaces like Amazon also need a multi-vendor shopping cart.
Multi-vendor rental marketplaces: Airbnb, Turo
Rental marketplaces let buyers rent a variety of things from sellers. The most popular example is Airbnb, but in reality, many different things can be rented – Sharetribe customer Swimmy helps people rent swimming pools, while Studiotime helps musicians rent studios.
Features like a booking calendar, messaging interface, reviews, and location services are a must. Features like a shopping cart or inventory management aren’t as relevant.
Related: If you're building a rental marketplace like Airbnb, check out this article.
Multi-vendor services marketplaces: Fiverr, Upwork
Service-based marketplaces allow buyers to hire sellers to help them with tasks. These could be anything from professional services like graphic design, construction, or cleaning services to shorter-term tasks like dog-walking.
Similarly to rental-based marketplaces, these platforms need booking calendars, location-based search, and user profiles with ratings and reviews.
What is your audience type?
It’s not just what your marketplace sells that determines what features you need, it’s also the audience that you plan on marketing your platform to. There are three different types of audiences, including:
P2P marketplaces: audiences on P2P marketplaces value simplicity, security, and streamlined design. Be sure to include profiles, two-way reviews, and simple, secure payments.
B2C multi-vendor: if you’re working with business sellers, be sure to give them all the professional tools they need to manage their business.
B2B multi-vendor: B2B marketplaces require a lot of custom functionality, including complicated transaction flows, contracts, and reporting tools.
What is your booking flow like?
How you want sellers and providers to communicate will impact your feature requirements.
The standard marketplace flow is the most common. On a B2C marketplace like Amazon, a B2B/B2C platform like Fiverr, or P2P site like Airbnb, users go through the motions relatively similarly. Customers enter the site and browse listings. After finding what they want, they initiate a transaction by making a booking, purchasing an item, or contacting the seller.
A reverse flow is also possible. On Upwork, buyers can browse sellers’ profiles and contact the most promising candidates. They can also post a job and ask for sellers to provide quotes.
Of course, there are lots of smaller things to consider in your booking flow. For example, are prices fixed or negotiated? Are bookings scheduled or happen on-demand? Do sellers and buyers need to be verified? Do contracts or NDAs get signed? And so on.
Comparison of the best multi-vendor marketplace builders
When it’s time to build your marketplace, there’s no shortage of options. Make sure you choose the best strategy for your business needs, budget, and technical skills.
Early-stage marketplace entrepreneurs have a range of options when they’re ready to start building their marketplace. There’s more solutions available than ever, with choices for everyone from novices to experienced developers.
It’s possible to build a multi-vendor marketplace app from scratch. But this approach is both time-consuming and expensive: it requires several months of development work from a full-stack technical team. In recent years, open-source marketplace solutions and marketplace website builders have emerged as viable alternatives, offering marketplace entrepreneurs the ability to build flexibly and cheaply.
Let’s break down the different options available and consider the pros and cons of each approach. We'll keep things concise here – for the full analysis of all the different methods of building a marketplace, check out this article.
Building a multi-vendor marketplace from scratch is time-consuming and expensive.
Using a multi-vendor open-source solution or script
Open source solutions or scripts are available freely on the Internet, and with the right expertise, can help entrepreneurs get their marketplace up and running faster than building everything from scratch. These open-source solutions tend to be freely available on platforms like GitHub.
Before picking one, read reviews and evaluate whether the frameworks provide the features your platform needs. Most scripts and open-source solutions weren’t built to be expanded, so they may have less than stellar developer experience and prove difficult to scale with. Most solutions use different coding languages.
Pros of using an open-source solution or script
- No need to code everything from scratch – using existing code for the core features may help you launch faster
- Customization – ability to customize features (provided you can code).
- Cost – if you don’t count in the cost of development, hosting, and maintenance, open-source solutions are affordable to get started with.
Cons of using an open-source solution or script
- Time to launch – even if using marketplace scripts can save time compared to starting from scratch, they’ll never be as fast as no-code marketplace builders like Sharetribe Go.
- Technical complexity – using open-source code and frameworks requires technical expertise. If you don’t already have a development team, hiring one can be expensive.
- Scalability – adding custom features can be challenging, and you’ll need to work within the limitations of the open-source framework as you scale.
- Maintenance – ongoing maintenance needs can rack up costs over time.
Dive deeper: Open source marketplaces: the complete guide
Use Wordpress with a multi-vendor theme or plugin
Another option to consider is using Wordpress themes and plugins to build a multi-vendor marketplace. This helps you launch with a small upfront investment and limited technical skills. However, you'll need to use several plugins to get the functionality you need and process payments in a legally compliant manner. That also means maintaining your site will require regular effort.
Pros of using Wordpress with a multi-vendor theme or plugin
- Cost – affordable monthly fees.
- Variety – huge selection of themes and plugins.
- Payments – multiple options to process online payments.
- Network – access to the entire Wordpress codebase.
Wordpress offers a huge selection of themes and plugins. But maintaining them for a secure multi-vendor marketplace experience takes continuous effort.
Cons of using Wordpress with a multi-vendor theme or plugin
- Time to launch – while building with WordPress is a lighter technical lift, you’ll need some technical skills, and several days of work, to get your platform up and running.
- Interdependability of systems – installing, updating, and maintaining a network of plugins takes a lot of work. If one plugin fails or needs an update, there’s a chance your entire marketplace might crash.
- Maintenance – keeping your themes and plugins up to date will regularly require attention. At scale, the cost of hosting and maintenance is considerable.
- Custom-building new features – though it’s possible to customize the Wordpress codebase, building entire new features is much more challenging than with API-based solutions like Sharetribe Flex.
Using an eCommerce builder with extensions (e.g. Shopify, Magento)
These eCommerce tools are great for building a standard eCommerce website, but you’ll likely encounter limitations when trying to add marketplace features. Let’s explore the pros and cons.
Pros of using an eCommerce builder with extensions
- Features – powerful features for regular eCommerce sites, as well as a suite of apps that you can use to add new features to your store.
- Community: large online communities of users help answer questions. If you need additional developers, hiring should be relatively straightforward.
Cons of using an eCommerce builder with extensions
- Marketplace functionality – these platforms aren’t meant to support multi-vendor marketplaces, so it might feel like you’re trying to fit a square peg into a round hole. It’s likely you’ll struggle to build key marketplace features, making it difficult to create value for your users. A certain type of B2C multi-vendor product marketplace can work on top of eCommerce builders – other types will very likely miss critical features.
- Payments – often, the payment infrastructure supported by eCommerce platforms isn’t well-suited to the complexity of marketplace payments.
- New features – custom-building new features is challenging, and the architecture of most eCommerce builders doesn’t support the rapid development and launch of new features at scale.
Use an online marketplace builder
Of all the strategies to create an online multi-vendor marketplace, using software created exactly for this purpose is the best option in most cases. There are several marketplace software alternatives to consider, and comparing them is beyond the scope of this article. If you decide to use a marketplace builder, this article helps you compare alternatives.
Using purpose-built marketplace software makes it possible to launch quickly, add new features as required, and transition to more advanced solutions when the time is right.
That being said, there are still some pros and cons to consider.
A multi-vendor marketplace builder is your fastest way to market.
Pros of using an online marketplace builder
- Speed – online marketplace builders are the fastest way to launch your business. Sharetribe Go customers have launched marketplaces in less than a day.
- Accessibility – A no-code marketplace Saas solution like Sharetribe Go lets you get your marketplace up and running without writing a single line of code. You also won't need to worry about hosting, maintenance, backups, or security.
- Cost – there are minimal upfront costs, and many platforms even offer a free trial. Marketplace software providers benefit from economies of scale, which means they can host and maintain your platform at a lower cost than what you'd have to pay for the same services on your own.
- Features – Sharetribe focuses exclusively on powering multi-vendor marketplaces. All the essential features a marketplace needs come out of the box, without configuring plugins, extensions, themes, or add-ons. New features are constantly added by expert marketplace developers, so you know your platform is always up to speed with the best practices of the industry.
- Scalability – once you find yourself starting to need more advanced features, Sharetribe Go users can easily transition to Sharetribe Flex and build a completely unique marketplace.
- Developer experience – Sharetribe Flex was built from the ground up to be expanded. Customizing the front-end, adding third-party integrations, changing the transaction flow, or building entire custom features is fast and enjoyable.
Cons of using an online marketplace builder
- Lower customization with no-code tools – Sharetribe Go lets you adjust the look & feel of your platform. Flex offers unlimited customization, but achieving them will require coding skills.
- Monthly subscription – if you don't calculate in the cost of maintaining and hosting your platform, open-source scripts of Wordpress can be more affordable in the long run.
- Limited feature set out of the box – Sharetribe is great for building service and rental marketplaces for all audience types, as well as peer-to-peer product marketplaces like Etsy. For online malls like Amazon, Sharetribe's offering is more limited.
Choosing the right solution for you
Your feature requirements, budget, technical skills, and desired launch time all play a role when choosing the right marketplace solution.
- Sharetribe Go is great for getting started fast. You can launch in a day without writing a line of code, and hosting, maintenance, backups, security, and updates are included. Learn more about Go.
- Sharetribe Flex lets you build a unique marketplace at a fraction of the cost of developing it from scratch. Its APIs make custom-building features and third-party integrations a breeze. Using Flex requires technical skills, or you can hire a verified Expert from our global network. Learn more about Flex.
We usually recommend early-stage founders to get started with Sharetribe Go, and move their marketplace to Flex when they have validated their idea and gained traction. Let's look at how this path could look in practice.
Compare Sharetribe Go vs. Sharetribe Flex
How to build a multi-vendor marketplace – fast
Launching fast gives you a great competitive advantage: you get more time to learn about your audience.
How to launch in a day with Sharetribe Go
Nothing is more frustrating than spending years on an idea just to notice it wasn't any good in the first place. Launching your marketplace as fast as possible gives you a phenomenal advantage. The faster you get your idea out into the world, the more time you have to learn about your audience and figure out how you can serve them better than any existing solution.
Launching a multi-vendor marketplace with Sharetribe Go is as simple as following these 10 steps:
- Sign up for Sharetribe Go and activate your free trial. Enter your information: your marketplace name, language, and location. Don’t worry if you’re not sure yet – it’s easy to change these later.
- Add a catchy slogan and description that explains what your marketplace does.
- Select a cover photo. Unsplash is great for free images, but you could also check out some high-quality images available to buy on Stocksy.
- Set up your online payment infrastructure. Sharetribe is partnered with Stripe and PayPal, and you can use one or the other, or both. Once activated, you’ll be able to start accepting payments and collecting your commission.
- Add a logo and a color scheme.
- Select your order flow, and decide on your units of pricing.
- Set up your search function. You can choose keyword- or location-based, or use both.
- Add any relevant text to content pages, for example, your Terms & Conditions page and a description of how your marketplace works.
- Check everything over one last time.
- Congrats! You’re ready to launch your multi-vendor marketplace – the sky's the limit!
How to take your marketplace to the next level with Sharetribe Flex
Approach the first version of your multi-vendor marketplace as your MVP – Minimum Viable Product. The goal of your multi-vendor marketplace MVP is to get feedback from users and start improving your platform to better address your users needs.
Once you start to see traction with your marketplace, you'll be able to come up with and prioritize improvements that bring the most value to your users and to you as the marketplace entrepreneur. Building a marketplace is a journey, and the best marketplaces are always learning from users, building new features, and improving their platform in line with user demands.
When you find yourself starting to need these more advanced features, you can move all the data from your Go-powered marketplace to Sharetribe Flex. Sharetribe Flex is a headless, API-based marketplace solution that enables entrepreneurs to create more advanced features uniquely suited to the needs of their business.
Thanks to Flex's complete customizability, working with Flex is a process that is unique to every founder and marketplace idea. But more often than not, the process follows these steps.
- Sign up to Flex. After that, you can choose the path more suited to your needs. Check out the marketplace demo, figure out what kinds of customizations your idea requires, and get connected to a developer from our network. Our guide on working with a Flex developer will help you through the steps. Or get developing right away by moving to step 2.
- Choose one of Flex's three website templates, download it, and set up your development environment. Here's a comprehensve getting started guide in Flex's technical documentation.
- Customize your chosen template to fit your marketplace idea and requirements.
- Have the data from your Go marketplace migrated to your new Flex-powered platform. Here's what this process entails.
- Choose a Flex plan and launch your bespoke multi-vendor marketplace! 🚀
After your marketplace runs on Flex, the sky is the limit. You can keep repeating the build–>learn–>improve process as your business grows.
Want to introduce multiple new transactions flows? Easy. Integrate third-party services like marketing automation, shipping providers, or user authentication? Sure! Build complete new custom features to serve your niche? Absolutely possible.
While you're growing your business, Sharetribe continues to host your backend, take care of maintenance, security, and compliance, and introduce powerful new feature updates regularly. No matter how ambitious your goals are, you can realize them with Flex.
Start building your multi-vendor marketplace today
Get started today – and have the first version of your marketplace live by tomorrow.
Building a marketplace is a journey, and the first step is the most important. Take your first step and start building your multi-vendor marketplace on Sharetribe today. With a free 30 day trial, it’s easy to get your marketplace up and running, try out different features, and get feedback from early users. You don’t even need a credit card to get started!
Need some inspiration? Check out our customer gallery to learn about some of the amazing businesses that have been built on Sharetribe. Want some marketplace business advice? Head to our Marketplace Academy for in-depth guides on everything you need to know to start a multi-vendor marketplace business.
Stuck? Reach out to Sharetribe's friendly customer support team seven days a week. They’re experts on online marketplaces and will help you as you get familiar with Sharetribe and move forwards with your multi-vendor marketplace.