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 eCommerce 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: Upwork, Fiverr, Thumbtack.
• Rental marketplaces: Airbnb, Turo, VRBO, Booking.com.
• Event and ticketing marketplaces: Eventbrite, SeatGeek, 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 getting a bigger and bigger share of eCommerce each year. In 2021, marketplace sales accounted for 67% of all global eCommerce. The top 100 marketplaces alone brought in over $3.2 trillion dollars of revenue.

By 2027, third-party sales through online marketplaces will be 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.

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 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 platform 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 platform – 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 onboard 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.

Find some resources and success stories below.

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 – 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 you think sellers and buyers have
• The solution you have to the problem
• Your plan to monetize solving the problem (your business model).

Here are the steps:

1. Find and talk to your target audience in person and online. 
2. Ask if people have the problem you think – and how they’re solving it now. Then, pitch a prototype of your idea and listen to their feedback.
3. If the feedback shows some of your assumptions were wrong, change your approach and validate again! 

Starting small makes finding your first target audience a lot easier. You can engage them in online forums and groups, or meet them live in your initial location. 

In terms of what you should ask them, open-ended questions tend to work best. Some great questions could be:

• How do you currently find the product or service? Is it easy?
• How do you compare different sellers?
• Could you take in more customers than you currently have?
• How do your customers currently find you?
• And so on.

More on pre-validating a marketplace idea below.

Step 5

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

The first version 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 ok 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 a lot faster because you’re 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 are either expensive, time-consuming, difficult – or all these things. I 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.

Below, you'll find some more resources on building MVPs – and 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: communicate 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: offer a SaaS tool first and building a marketplace around it later.

This is an area where learning from founders who have made it is especially useful. Find some great resources below.

Step 7

After your initial supply is onboard, you should launch to a small group of customers.

(By “launching”, I 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 to find the 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 you have fifty 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.

• 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. 
• Or perhaps they found something but did 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 
• with 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: 

• 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 product development.

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.
2. Reach product/market fit in that market.
3. Create a playbook of what works.
4. Repeat until your business goals are reached.

Decide your next market carefully. You’ll likely want to do some market research and consider how your second market differs from your first. Collect all the best strategies and knowledge you’ve learned when scaling to new markets and turn them into a playbook.

A playbook is also something to show potential investors to let them know you have a plan and know what you’re doing.

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

Final words

In this, article we went through the ten 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 work on your business. 

If this guide helps you avoid even one of the mistakes we’ve made ourselves developing marketplace websites over the past ten 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!