Create a marketplace in 10 practical steps

Introduction

Amazon, Airbnb, Etsy, Uber, and Upwork are all examples of online marketplaces.

What sets marketplaces apart from traditional e-commerce is that they are two-sided. An online store has one seller. A marketplace has several.

The platform matches the right seller with the right buyer and facilitates transactions – that is: exchange of value – between them. Everyone wins!

The marketplace trend began in the C2C sphere (think Craigslist and Airbnb) and has since found new opportunities in B2C and B2B. Based on what’s being sold, marketplaces are often divided into:

• Product marketplaces like Amazon, ebay, Alibaba, Etsy, and Poshmark
• Service marketplaces like Upwork, Fiverr, and Thumbtack
• Rental marketplaces like Airbnb, Turo, VRBO, and Booking.com
• Event and ticketing marketplaces like Eventbrite, SeatGeek, and Ticketmaster

In short: whatever niche and audience you can think of, there could be potential for a marketplace.

Why create an online marketplace?

There’s never been a better time to start a marketplace.

Online marketplaces are taking a larger share of e-commerce each year. A 2022 report found that third-party sales through online marketplaces are expected to account for 59% of global e-commerce sales by 2027 and become the largest and fastest-growing retail channel globally.

More than ever, people are open to reselling things, renting property, and sharing their skills through online platforms. A marketplace can easily be the cheapest, most convenient, and environmentally friendly way to make a purchase.

And marketplace growth reflects this: ThredUp’s annual survey found that the U.S. secondhand apparel market grew five times faster than the broader retail clothing market.

If that’s not enough to convince you, how about this: to start a marketplace business, you don’t need your own inventory. You can start the company from your couch or run it on the beach.

Finally, building a marketplace website has become easy and affordable: no-code marketplace software, ways to automate tasks, easily accessible online services, and so on.

To put it simply: marketplaces are the future. And creating your own marketplace website has never been easier.

Key takeaways of this article

There are many paths to building a marketplace business. These are the steps we've seen work time and time again.

1. Identify a strong marketplace idea. Focus on ideas that address real problems for both sellers and buyers, target a significant market, exist in a fragmented industry, and have potential for frequent use. Successful founders often spot these ideas through personal experiences, identifying underused assets, or recognizing niche markets poorly served by existing platforms.
2. Choose the right marketplace business model. The world's most successful marketplaces use one or several of six business models: commission, subscription, listing fees, lead fees, freemium models, and featured listings. The most common and potentially lucrative model is commission, but the choice depends on your specific marketplace.
3. Start with a focused scope. Begin with a narrow focus to quickly learn and adapt. This approach helps you offer a great user experience for your initial audience, get your first transactions, and iterate and learn without burning lots of money.
4. Pre-validate your marketplace idea. Validate your assumptions about the problem, solution, and business model with both sellers and buyers. Get out of the building, talk to people, and build relationships with your user base.
5. Build a marketplace website – start with an MVP. Build a Minimum Viable Platform that efficiently solves core problems for both sellers and buyers. Use no-code tools or a specialized no-code marketplace builder (like ours at Sharetribe) for a quick and cost-effective solution.
6. Onboard your first sellers. Solve the chicken-and-egg problem by focusing first on the supply side. Use strategies like targeting specific online communities, offering incentives, and emphasizing potential customer reach.
7. Launch your marketplace. Bring the first customers on board as soon as possible to start facilitating transactions and learning from real-world interactions. Begin with a small group of early adopters before considering a bigger marketing launch.
8. Reach problem-solution fit. Get your first transaction, then the second. Are users returning to your marketplace? Are you closer to reaching liquidity? Iterate on your business idea and platform based on user feedback.
9. Reach product-market fit. Turn your MVP into a more powerful marketplace product. Grow your user base and work towards profitability. Pay close attention to liquidity and other key metrics, and invest in growth strategies tailored to your marketplace.
10. Scale into new markets. Expand into new categories, locations, or customer segments. Tackle one new market at a time, reach product-market fit there – and move on to the next market.

Next, we’ll discuss each step in a bit more detail. Each section has links to further reading and inspiring examples of marketplace success stories. 

We also offer a ten-step video course on building a marketplace. The course draws from this marketplace guide and Sharetribe's other content, as well as top expert knowledge. Take the video course on building a successful marketplace business here at Marketplace Academy!

Or listen to the audio versions of our most popular articles on the Marketplace Academy Podcast!

Step 1

In a nutshell, a great marketplace idea is the result of four factors:

1. It solves a real problem for both sides of your marketplace (supply and demand).
2. It targets a large enough market that matches your business goals.
3. The market is fragmented (many suppliers and customers).
4. There’s potential for frequent usage (repeat purchases).

At Sharetribe, we've found that successful founders often land on their ideas through three different routes.

1. They identify a problem they have themselves. 
2. They identify underused assets and inefficient buying processes or fragmented markets. 
3. They identify a niche market that’s poorly served on existing platforms. 

For example, our customer Ana struggled to buy baby gear sustainably, so she founded The Octopus Club, a marketplace for secondhand baby, child, and maternity items. 

The Drive lah founders realized that privately owned cars sit idle most of the time while renting a car is extremely cumbersome. 

Myleah realized buying cosplay on existing platforms was extremely frustrating – and created Lumikha Cosplay Resale.

Below are more resources and success stories below. You can also check out our customer gallery to see what others have built with Sharetribe.

Step 2

At Sharetribe, we studied how the top one hundred marketplaces in the world monetize. 

What we found is that all of them use one or several of six different business models: 

• Commission
• Subscription
• Listing fees
• Lead fees
• Freemium models
• Featured listings. 

Depending on your marketplace, any one of these models can work well for you alone or in combination with others.

Commission (also known as transaction fee, take rate, or rake) is the most common marketplace revenue model. And with good reason:

1. It’s great for users. They only pay you when they get value themselves. Before that, using the platform is free.
2. It’s usually the most lucrative for the marketplace founder. You get a piece of all the value (gross merchandise value, GMV) that passes through your marketplace. And as you grow, your commission profits do too.

If you choose the commission model, you need to consider three things:

1. Will you charge the supply or demand side of your marketplace? 
2. How big will your commission be? 
3. How do you prevent users from circumventing your payments? 

Choosing a business model, pricing strategy, and payment system is a huge decision. Below are some more resources to help you navigate.

Step 3

It’s pretty intuitive to think that the broader your marketplace’s focus, the bigger the potential user base. The bigger the user base, the faster your marketplace will grow. 

But this is not necessarily true. 

According to research by Lenny Rachitsky, almost every single one of today's most successful marketplaces initially constrained their offering. They either focused on a small geographic location (city or neighborhood) or a single category.

Starting small lets you:

• Appeal to strongly to a small group of users.
• Get your first transactions and repeat purchases faster.
• Iterate and change direction fast if needed.
• Burn less money in the early days.
• Make learning from mistakes less expensive.

So: dream big, but start small. 

As startup guru Paul Graham told Airbnb founder Brian Chesky: “It's better to have 100 people love you than a million people sort of like you.”

More on the huge benefits of starting small below.

Step 4

In a nutshell, pre-validating your marketplace idea means making sure you’ve made the right assumptions about:

• The problem: Do buyers and sellers actually experience the problem you’re trying to solve?
• The solution: Does your idea for solving it resonate with them?
• The business model: Will people pay for the solution, and how?

Here are the steps:

1. Find and talk to your target audience. Engage with them on social media or online forums (like subreddits, Facebook groups, and Discord servers), or meet them in person in your initial location. You should include both buyers and sellers.
2. Ask open-ended questions to understand their behavior. Here are some examples:
   For buyers: How do you currently find the product or service? Is it easy? How do you compare different sellers?
   For sellers: Could you take in more customers than you currently have? How do your customers currently find you?
3. Pitch a prototype of your idea. Listen to their feedback and take notes on both the buyer and seller experience.
4. Iterate and validate again as needed. If the feedback shows some of your assumptions were wrong, use that information to change your approach. It’s okay if you don’t get it right on the first try.

To go a step further, try running a small-scale pilot. This can be as simple as a private waitlist or a spreadsheet-based approach to match early buyers and sellers. You can find these beta testers in niche online communities, local meetups and events (if your market is location-based), or your own email lists and social media if you’ve already built an audience (or can partner with someone who has).

This approach gives you great feedback to refine your idea and helps you discover the core features you need to build for your MVP.

More on pre-validating a marketplace idea below.

Step 5

The best way to build a marketplace website is in stages.

The first version of your platform can be extremely simple. It only needs to do two things really well: 

1. Solve your suppliers’ core problem. 
2. Solve your customers’ core problem.

This version is called the Minimum Viable Platform, or MVP.

In the MVP stage, it’s okay to do things manually – even if you plan to automate them later. Many successful marketplace founders have first connected supply with demand manually. As a bonus, you learn much faster by interacting with early adopters.

How do you go about actually building an MVP? There are a few options:

1. Hire a freelancer or an agency to build your MVP from scratch.
2. Find a technical co-founder to build an MVP for free.
3. Build the MVP yourself with no-code tools.

The first two methods are either expensive, time-consuming, difficult, or all three. We recommend the last option. Even if you know how to code, no-code get your first version live a lot faster. 

Here's list of no-code tools you can use to build your MVP

• Create a custom landing page with Webflow.
• Collect data from your users via Typeform.
• Organize the data into a database with Airtable.
• Set up a simple calendar booking and payment with Calendly.
• Use MailChimp for marketing automation.
• Connect the workflows between all these tools with Zapier.
• Or use Sharetribe to build a fully functional marketplace with a single tool.

The benefit of a no-code marketplace builder (like ours at Sharetribe) is that it has all the essential marketplace features like automated user creation, matching, and online payments built in. You can launch fast and with less manual work – and focus on building your business.

You can also extend your Sharetribe-powered platform endlessly with code whenever needed, which makes Sharetribe the best way to build and run your marketplace at any scale, from your first 10 users to 10 million.

Below, you'll find some more resources on building MVPs, along with some great stories of successful and unsuccessful marketplace MVPs.

Step 6

Your marketplace is ready for its first users. But how do you get suppliers without customers and how do you get customers without suppliers?

This is the classic marketplace chicken-and-egg problem. Most successful marketplaces have solved it by focusing first on the supply. 

There are many ways to build marketplace supply:

• Find them in online forums and groups
• Visit local meetups and events
• Visit them in person
• Maybe become a supplier yourself
• Fake initial supply (scrape listings from the web or find the listing your customer booked manually)

There are also many ways to convince early supply to join before you have any customers:

• Offer them a better supplier experience than existing marketplaces
• Offer discounts or deals to early adopters
• Offer exclusivity by communicating that you only accept the very best suppliers
• Communicate buyer potential (if you have an existing pool, such as a community you’re a part of)
• Build a community first and then develop the marketplace business around it.
• Start with a single-player mode by offering a SaaS tool first and building a marketplace around it later.

Onboarding your first sellers is an area where learning from founders who have made it is especially useful. You can find some great resources below.

Step 7

After your initial supply is onboard, you should launch to a small customer base.

(By “launching”, we don’t mean a big-bang marketing and PR launch yet! Make the first launch a smaller product launch that opens your platform to customers.)

The faster you launch, the faster you’ll know if your marketplace has real potential. 

So, how do you find your first customers? Hopefully, you’ve accumulated some initial customer interest at the pre-validation stage. A few additional sources can be:

• Online groups and communities (e.g. Facebook groups, subreddits, etc.)
• Offline groups and communities (e.g. local flea markets, gyms, day care centers, etc.)
• Using paid search engine ads (with a small budget)
• For B2B customers: cold-calling, direct sales, visiting the companies, and taking part in related conferences and events.

After your product launch, the right time for a marketing launch is when you know that your platform works for the small initial group.

More on launching your marketplace below.

Step 8

When you have both sellers and buyers on your platform, you can start working towards problem-solution fit.

Problem/solution fit is a stage where you:

• consistently facilitate transactions between supply and demand and
• collect revenue from those transactions.

This doesn’t mean your marketplace needs to be profitable. But there should be promising signals that it can be. 

But what if problem-solution fit isn’t there? What if your marketplace has 50 users on your marketplace, but no transactions?

Don’t lose faith – this simply means you need to iterate. Contact your users and ask them what’s wrong. Here are some examples to inspire you:

• Did they not understand what the site was for? Look into how you’re communicating your value proposition. 
• Was nothing they wanted on offer? You need more suppliers.
• Was it too difficult to find what they were looking for? Time to rethink your matching process. 
• Did they find something but not complete a transaction? You may need to redesign your transaction flow or think about your pricing.

It’s important to not strive for too ambitious growth yet. Growing too early amplifies flaws in the business model, making them harder to fix. 

However, you do need to start growing beyond your initial user base to get enough data to guide your iterations. 

Below are some practical resources and inspiring stories for this stage.

Step 9

Once you’ve reached problem-solution fit, the next goal in your journey is product-market fit.

You need to prove your marketplace can become profitable in your initial category or location. In short, that means:

• Being in a good market 
• Having a product that can satisfy that market 

You can track whether you’ve reached product-market fit by paying close attention to key marketplace metrics, such as: 

• Liquidity
• Repeat-purchase rate
• GMV retention
• Unit economics (customer acquisition costs vs. customer lifetime value)

The most important metric is liquidity. It measures the likelihood that a seller gets their listing sold and that a buyer finds what they’re looking for. 

To get those numbers up, it’s time to build a growth engine for your marketplace. Choose the strategies that work best for you. You have a huge number of options from marketplace SEO to viral marketing, from direct sales to hyperlocal offline marketing. See if you can start noticing and leveraging network effects.

From a product perspective, a manual MVP likely won’t cut it at this stage. You’ll need to invest some time and money in developing your marketplace platform further.

But if your marketplace is powered by Sharetribe, adding custom-coded elements on top of the no-code builder is very easy. If you used more general tools, this is a stage where you’ll need to invest in re-building your platform.

Find some essential reading for marketplace founders in the product-market fit stage below.

Step 10

Scaling a marketplace means expanding into new markets. There are three ways a marketplace can scale:

• By adding a new location
• By adding a new category
• By adding a new customer segment

Reaching product-market fit before scaling is essential because you’ll use those learnings to succeed in new markets.

In a nutshell, the steps to scale a marketplace successfully are:

1. Scale one market at a time. Focus on one market so you can iterate quickly, learn from real users, and build credibility. For example, Airbnb began in San Francisco before gradually expanding city by city.
2. Reach product-market fit in that market. Make sure you’ve achieved consistent demand and strong retention before moving on. Without this, you risk spreading your resources too thin and stalling growth.Create a playbook of what works.
3. Create a playbook of what works. Document your most effective growth strategies, onboarding flows, pricing models, and marketing channels so they can be reused. A clear playbook helps maintain quality and consistency across new markets. You can also show this to potential investors to let them know you have a plan and know what you’re doing.
4. Choose your next market carefully. Consider how your second market differs from your first. Differences in buyer behavior, seller expectations, pricing sensitivity, or cultural norms can make parts of your playbook unusable. Conduct market research—like user interviews, competitive analysis, and demand validation—so you can expand into a market where your playbook is likely to succeed with only minor tweaks.
5. Repeat until your business goals are reached. Systematically apply your playbook to each new market, adjusting where necessary. This approach keeps your expansion efficient and aligned with your broader vision.

Some resources and inspiration for this exciting stage of your marketplace business below.

Final words

In this article, we covered the 10 practical steps of building a marketplace. 

You learned how to validate your concept, develop a marketplace website, grow your user base, and, most importantly, facilitate transactions between your users. 

The article also shared a long list of additional resources for each step. You can read everything in one go to get a complete understanding of the marketplace founder journey. Or you can use the guide as a go-to source to refer to as you build your business. 

If this guide helps you avoid even one of the mistakes we’ve made ourselves developing marketplace websites over the past 10 years, we consider it a huge success.

But in the end, there’s only so much you can learn from others. The best way to learn is to start a marketplace business of your own.

Creating a marketplace is a challenge, but it’s also incredibly rewarding. Whatever happens, the things you’ll learn along the way about building a platform, a user base, and a community will stay with you for the rest of your life.

Best of luck with your marketplace business!