How to Build an Online Marketplace in 2023: Core Features & Cost Estimate

Key takeaways:

• Start with a discovery phase to make sure your marketplace app idea is viable and worth investing in.
• Consider outsourcing marketplace development to free up time for strategic work on your startup.
• Adopt an Agile methodology to enable incremental improvements through regular releases. Being flexible in development also allows you to react to market changes faster than your competitors.

The sharing economy has become a buzzword in recent years. It’s about sharing assets you own but currently aren’t using with people who need them.

Exchanging goods and services isn’t a new idea. However, the digital evolution has made the sharing economy massive and international through online marketplace websites.

In 2007, two young men, Brian Chesky and Joe Gebbia, moved to San Francisco with one aim — to become part of the rapidly developing tech industry. They could barely pay the rent, so they started looking for ideas to earn money quickly. During this period, the Industry Design Conference took place in their city. Brian and Joe decided to offer airbeds and breakfast in their rented apartment to conference participants who had not managed to book a hotel. The first three customers came quickly, proving that sharing free space in a flat or house may be a good way to earn extra money.

From this unassuming start, Brian Chesky and Joe Gebbia turned their idea into one of the most successful startups of our time — Airbnb.

Globally known marketplace websites inspire many modern e-commerce trends, and the hype around the sharing economy makes thousands of entrepreneurs think about how to create a marketplace. If you are among them, we have to warn you: this path is long and thorny. However, having a reliable technical advisor by your side will help you cross the finish line.

In this guide, we give you detailed instructions on how to launch a marketplace website and enter the fascinating world of startups.

What is an online marketplace?

An online marketplace allows providers of goods and services to present those goods and services directly to potential customers. The key attribute of a marketplace like Airbnb is the peer-to-peer, or P2P, business model. This means that anyone (not necessarily an organization) can be both a provider and a customer, switching between the roles.

Online marketplace business: why should you start one?

The terms online marketplace and online store are often used interchangeably. However, they are not synonymous.

An online marketplace is an intermediary service connecting sellers and buyers.

Unlike an online store, which offers products from a single producer or distributor, a marketplace website provides a platform for multiple producers or distributors to sell things at the same time.

It’s common for existing retailers or producers to expand and start online marketplace businesses, as they offer more opportunities for development and diversification. This is how it may work:

Let’s say you have a woodworking workshop that produces unique furniture. You decide to expand and start selling online. When researching the market, you realize that many other businesses in your niche are ready to offer their products or services online but lack a platform to do so.

If you decide to build a home improvement online marketplace, you can kill two birds with one stone:

1. Grow your sales by reaching out to more potential customers online
2. Build a marketplace where other businesses can promote their services

A marketplace gives you an alternative source of revenue with huge scaling potential. You can switch to being a fully digital business or run an online marketplace website along with growing your carpentry workshop — the choice is yours.

Such a platform caters to the needs of two groups of users: buyers and sellers. And both have good reasons to choose your service.

Joining a marketplace website is a good decision for a business owner striving to sell online for a few reasons:

• No need to hire dedicated developers to build an online store
• No need to support and maintain a website
• No need to pay for advertising and marketing campaigns
• Constant flow of potential buyers

It’s obvious that the majority of small business owners would prefer a simple, fast, and cheap way to start selling online. And in most cases, it will be joining an online marketplace for services or products.

Buyers also have a few good reasons to shop on a marketplace website:

• Wide selection of brands and products on a single platform
• Easy communication and transactions
• Unified payment and delivery policies
• Centralized review system for products and/or sellers

In 2020, Forrester stated that one-third of all business in the USA now flows through e-commerce, and 63% of that is through marketplace websites.

As you can see, both sellers and buyers benefit from using marketplace apps. The only problem may be a lack of specialized platforms despite the fact that demand is huge.

I bet there is no centralized platform for buying and selling new and used furniture in your region.

I bet there is no platform in your region where pet owners can order services and buy goods for their animals.

I bet there is no… you name it.

Here’s where you can enter the game. Building a marketplace business means satisfying existing demand with a well-thought-out solution. Let’s find out how to build an online marketplace and achieve this goal.

We will cover two major components of launching an online marketplace: the discovery phase and app development. We also focus on the possible marketplace website cost and time to market.

Stage 1. Discovery phase

A beneficial feature of the sharing economy is that literally anyone can enter the market with a marketplace idea and become successful.

Take Airbnb, for example. It began by solving a problem the founders themselves had and grew into a company that now operates in 99% of countries worldwide.

The founders of the Fiverr marketplace were searching for alternatives to a 9-to-5 job and ended up helping millions of people find well-paid projects to suit their lifestyles.

This doesn’t mean you have to replicate this success and build another online marketplace like Fiverr. Just the opposite.

Answer one simple question: What is the problem you want to solve for yourself?

If you are a carpenter creating exclusive furniture, you are likely in need of a platform to sell your goods.

You can create an online marketplace for customers who want to renovate, furnish, and decorate their homes. Along with selling your own furniture, you can invite producers of wallpapers, curtains, bedding, and dinnerware to post their listings. This way you solve your own problem (selling your products), help solve a similar problem for other small business owners, and satisfy the demand of customers who want to renovate their homes. All you have to do is build a marketplace website.

Having an idea is essential, but your first step should be to validate it and prove that the idea is worth the effort. This is done during the discovery phase.

You can go through the discovery phase on your own or can hire a consultancy team. Hiring a team will help you get the most out of the research and make well-grounded decisions to create a marketplace website that generates revenue.

Let’s review the steps you’ll have to go through as part of your discovery phase.

Step 1. Fill in the business model canvas

A business model canvas is a template you should fill in at the planning stage of your new digital business. It will help you find the answers to crucial cuestions, prevent spontaneous decisions, and get a clear vision of the platform you’re going to build.

A business model canvas summarizes information about your platform, its users, expenses, and sources of revenue for your startup. Conduct research and brainstorm with your co-founders or external consultants to answer the following questions:

• What is your value proposition?
  Formulate the real problem and how you’re going to solve it with your app. Since we’re talking about a two-sided marketplace, you have to define the problem and the solution for both your potential sellers and buyers.
• Who are your partners?
  Describe all partnerships you need to launch your business. It’s time to think of your co-founders, development team, vendors, suppliers, etc.
• What are your resources?
  Think of the financial resources you have at your disposal as well as the available material resources you can use, such as real estate, equipment, and transportation.
• Who are your customers?
  You will have to deal with two major groups of users. Describe each of them in as much detail as you can. Make sure you define your buyer personas and understand your buyers’ needs and wants before you build a marketplace website.
• What activities will help you attract customers?
  Here, your main task is to find the solution to the chicken and egg problem. Whom will you attract first: buyers or sellers? Which strategy will work best in your specific case? You decide.
• How will you work with customers?
  Supporting your customers on their journey through your marketplace is just as important as attracting them. Plan your communication with platform users in advance.
• What are the channels where you can reach your users?
  Define what devices, social media channels, news websites, and online streaming services your target audience uses. Knowing their preferences, you can reach them more easily.
• What is the possible cost structure of your company?
  Estimate the expenses to create an online marketplace in advance. Think of the operating costs, salaries, app development costs, monthly marketing expenses, etc.
• What are the possible revenue streams for your company?
  Think about ways to monetize your app before you build a marketplace. You have to understand where your money will come from. Along with traditional marketplace monetization models, think of alternative revenue streams such as banner advertising or a white label model. Also, think about possible ways to attract investors to your platform.

 

You can print the template and fill it out during your brainstorming session. Be brief.

If you’re serious with your idea to build a marketplace, we recommend you read our article with detailed instructions on filling out a business model canvas for your future application.

Step 2. Research your competition

In a perfect world, you’d love to have your idea in a big blue ocean without any competitors. But the reality is different. Almost everything you can think of has already been invented. That’s why it’s important to understand your competitors. This will give you a chance to create an online marketplace that can beat them.

Basic competitor research consists of four steps:

1. Identify marketplaces that deliver similar services.
2. Analyze those marketplaces: go through their websites, check out the features, and read user reviews. It will also be helpful to become a customer and actually make a few purchases. This helps you go through the user journey and identify strong and weak points.
3. Find the weaknesses of competing services and think about how your marketplace platform can overcome them.
4. Conduct a SWOT analysis of your future product to identify its strengths, weaknesses, opportunities, and threats.

However, your competitor is not necessarily a marketplace with the same services. Think of where else your target users do their shopping now.

Let’s return to the case of the home improvement platform. You may decide to build a marketplace website in this niche because there is no such platform in your region. But people still purchase the things they need to renovate or decorate their homes. Where do they shop? Analyze their current shopping experience with country-wide online stores, global chain stores, small appliance and decoration shops, private workshops, etc.

As soon as you have a list of stores and platforms where your target audience does their shopping, include them in your SWOT analysis. You have to clearly identify why people change their shopping habits and turn to your marketplace platform.

Analyzing the competition, you become aware of the existing market situation and can prepare to dive into an ocean full of sharks.

Step 3. Prove the project’s technical feasibility and plan its implementation

Say you have a genius idea to build an online marketplace with a few features no one has ever built. After implementing the desired functionality, you will instantly beat the competition.

However, how likely is it that such functionality has never been implemented before just because it’s not feasible? If this is the case, you’d prefer to find this out at the very beginning, before you have spent much time and money on building a marketplace.

During the discovery phase, your engineering team builds simple technical prototypes for critical pieces of functionality to prove their feasibility.

For example, a marketplace for used appliances should have a killer feature — presenting the current price of the same device new in online stores right in the listing of the appliance for sale. You assume such a comparison should motivate your visitors to purchase used devices instead of new ones. Everyone wants to save money, right?

But how do you get the current prices from online stores? You definitely don’t want your sellers to research and add them manually when creating a listing.

As this is one of your central features but is not common in this type of app, you have to prove it can be implemented. Before starting the development process, your engineering team should create a prototype of a parser that gathers information about the prices of similar products in the main online stores in your region or country. You don’t need any app design or front end to test whether this is possible. All you need is a few hours of skilled programmer’s time.

If it is possible, move on and build the marketplace you’ve planned.

If it is not possible, think of some other killer feature or pivot with your idea.

As a result of prototyping, the discovery team gets an understanding of how the desired application can be brought to life. This results in a few more important decisions: the technology stack and third-party integrations to build the online marketplace and app architecture. Let’s discuss them in detail.

Technology stack

The choice of technology stack defines the whole development process for years ahead.

At the initial stage, you can focus on your current resources. For example, say your technical co-founder is skilled in Java. This programming language is not the optimal choice to build a marketplace, but it’s a good way to start lean and validate your idea.

However, investing more time and effort into smart planning brings you better results in the long run. We recommend you consider one of the JavaScript-based stacks: MEAN, MERN, or MEVN. They consist of four core technologies:

• MongoDB — a document-oriented database
• Express.js — a backend development framework for Node.js
• Angular, React, or Vue.js — one of the three top frameworks for frontend development
• Node.js — a JavaScript runtime environment

When choosing one of these technology stacks, you can rely exclusively on JavaScript to build your application end to end. By hiring full-stack JavaScript developers, you can make sure their roles in the project are interchangeable, making your app creation process smooth and optimized.

Integrations

Some of the app’s features require integrations with external services. For example, to enable payments on your platform, you have to integrate a payment gateway. Each third-party service offers particular functionality, charges different rates, and targets specific regions. During the discovery phase, you should compare payment gateways and choose the one that best caters to your needs.

You can also reduce the marketplace cost by using third-party services instead of building functionality from scratch. For example, if your marketplace app should enable chat between two parties, you can integrate a messaging API such as Twilio, WhatsApp, or Weavy.

Defining all necessary integrations during the discovery phase is important for creating detailed product requirements and making a reliable marketplace website cost estimate.

Architecture development

The structure of a marketplace website is distinctive due to the need to build functionality for different categories of users:

• Suppliers
• Buyers
• Admins

Some features are required by two or all three categories of users, while others are required only by one category. To build an online marketplace application properly, you have to think through its structure in advance and take into account future scaling. Otherwise, an unoptimized architecture may result in poor performance and a negative user experience.

You can go through the technical aspects of the discovery phase on your own. However, if you lack the technical background to cope with the mentioned tasks, we recommend you opt for software development consulting. This way, you can rely on the guidance of professionals that have released multiple successful projects and know exactly how to build a marketplace website. Their experience will help you avoid bottlenecks and spend your resources wisely.

Step 4. Estimate the marketplace cost and development time

The discovery phase brings you an answer to another critical question: How much will it cost to develop my application?

At the very beginning, when you interview your potential development partners, you describe your idea and get a time and cost estimate. This estimate is very rough, as the team has only a basic understanding of your idea. They have to compare your vision of the app with similar products their team has built before and guess the possible marketplace cost.

During the discovery phase, the team gets a clear understanding of what the end result should look like. They define a list of features, the high-level software architecture, the technology stack, the number of specialists needed to build the app, etc. As a result, their answers to all cost-related questions become data-driven and therefore more reliable.

As a result of the discovery phase, you should receive the following documents describing in detail how to build a marketplace website according to your requirements and how much it will cost:

• Project charter — contains the scope of work and a list of project participants
• Work breakdown structure — includes essential product features and the time needed to build them
• Cost estimate — shows the budget you need to allocate to bring your product to life

In fact, the discovery phase can result in dozens of possible deliverables, such as a business model canvas, SWOT analysis document, wireframes, interactive prototypes, design guidelines, product requirements document, product architecture, risk assessment and mitigation plan, product roadmap, product growth approach, and many more. We call all these things project documentation.

The importance of these deliverables varies depending on the type of product you want to build, the market you target, your previous experience in the field, your scaling plans, and so on.

Make sure you work on the critical documents that truly affect the development process and don’t waste your time and resources on others.

Stage 2. Product development phase

Let’s assume that during the discovery phase, you received evidence that your idea has real potential. It solves existing problems, there is a market for it, and there’s even the possibility of earning money. You know that your idea can be converted into a real application and you know what means you need to achieve it. You understand the expenses and are ready to allocate the necessary resources.

Congratulations! You are ready to build a marketplace website. Make sure you go through the following steps:

Step 1. Find and hire a development team

Developing your product based on your research should start with hiring the right people to complete the task. If you’ve worked with a discovery team and are happy with their output, you can continue your partnership and entrust them with building a marketplace.

If that’s not your situation, consider one of the following options:

• Develop with internal software engineers
  If you and/or your co-founder are technical experts, you can start development on your own and hire specialists to do things where you lack experience.
• Hire freelancers
  You can hire freelance developers, designers, and quality assurance engineers. However, you’ll spend much time hiring each team member, managing them, assigning tasks, and explaining what has to be done
• Hire an outsourcing product development team
  If you don’t have any technical expertise or don’t want to spend much time managing the team, you can outsource marketplace development. Partnering with a product development agency, you get an autonomous team that understands your end goal and how to achieve it.

Your choice may depend on your budget, your technical expertise, your expected involvement in the development process, and your communication preferences.

Think carefully about your top priorities and choose the cooperation model that is most beneficial for your specific case.

Marketplace MVP development team structure

Who exactly should be on the team responsible for building a marketplace app? Let’s review the key roles.

• Product owner
  This is you: the ideas driver, the visionary, the main stakeholder. As part of the development team, you are responsible for communicating your marketplace goals.
• Business analyst
  The task of a business analyst is to translate your vision into detailed requirements. The BA’s main activities are market research, problem identification, budget planning, and risk management.
• Project manager
  The project manager breaks down the scope of work into smaller tasks, assigns responsibilities, controls implementation, and resolves issues. Ensuring proper communication and maximum team efficiency is their direct responsibility.
• UI/UX designer
  A designer is responsible for creation of your marketplace’s brand identity and user interfaces. This specialist stands behind the emotions and feelings your app evokes. To represent the vision of your app, the designer and the development team build a prototype.
• Software engineers
  As a rule, you will need several engineers on your team. A frontend developer (choose a programmer with proven experience in Vue.js, React, or Angular) and a backend developer can work simultaneously when developing a web application. If you also plan to build a marketplace mobile app, consider hiring a React Native developer – React Native is the go-to technology for MVP development regardless of the operating system you target.
• Quality assurance engineers
  Software quality is the responsibility of a manual or automation QA engineer who searches for inconsistencies with initial software requirements, functional issues, and interface-related mistakes.

To build an online marketplace MVP from scratch, you will have to hire a team of five to six people: a UI/UX designer, two to three software developers, a quality assurance engineer, and a project manager. The software development team structure varies from project to project and can be defined based on your product requirements.

Typically, it takes 66 days to fill a technical position in the U.S. Software developers are in especially high demand, which is why hiring a programmer takes 81 days on average. This means that hiring an in-house technical team is a time-consuming task, especially for a startup founder with no recruiting experience and dozens of other tasks in the backlog.

On the other hand, if you opt for app development outsourcing, you will get a complete team led by an experienced project manager in a matter of days. This is your chance both to start building a marketplace in the shortest time and to save money.

Step 2. Adopt an Agile methodology and do sprint planning

An Agile methodology is a perfect complement to MVP development. By adopting an Agile methodology, you divide your scope of work into small tasks that can be accomplished within a defined period of time, referred to as a sprint. The duration of a sprint can vary between one week and one month, with two weeks being the common choice for most projects.

The distinctive feature of Agile is the necessity to end each sprint with a release. This means that after the sprint ends, the features your team has worked on during the sprint become instantly available to your marketplace website users. Your application may be updated on a biweekly basis, enabling incremental improvements.

Sprint planning requires a smart approach, as the project manager has to divide the desired functionality into small chunks that can be implemented in just two weeks, with each chunk being logically complete, e.g. suitable for release.

Another benefit of Agile is its flexible nature when compared to traditional approaches. The Waterfall methodology, for example, forces the team to plan the whole app development process in advance. The plan is rigid and doesn’t leave space for creativity and adaptability. Agile, on the other hand, allows the team to make quick decisions, introduce new features, experiment with designs, and instantly react to external circumstances.

Step 3. Build your MVP

At this point, you have the team and are ready to start developing the minimum viable product with just enough features to attract early users. After releasing the MVP, you can gather insights from user feedback and prepare for steady improvements.

Interactions with your first users may give you ideas for further marketplace website development. It is also possible that you’ll have to change your direction slightly and adjust your idea to meet the real needs of the market.

Just take a look at how Airbnb started their web presence as a simple website with the only feature being to book a stay for a particular date. Years later, Airbnb has become a go-to portal for travelers, offering unique tours and experiences from community members, securing bookings, providing insurance for hosts, and so on. The company quickly reacted to the massive wave of refugees as a result of Russia’s war against Ukraine, refunding stays for Ukrainians.

One of the latest updates on Airbnb is Split Stays — the ability to book homes in two different locations during a single trip. Travelers were doing this for years manually, but the company decided to address their needs and simplify the experience with a new feature. Airbnb analyzes users' behavior and needs before introducing any updates. This is their key to success.

You may strive to build an Airbnb-style website straight away, but you shouldn’t skip the minimum viable product stage.

The initial idea to build an MVP is to start an online marketplace with just enough functionality to attract early adopters. An MVP is not about offering extensive features and earning money. It’s about validating your idea, finding potential users, receiving feedback on the product you build, and constantly improving it.

In addition to validating your assumptions about your marketplace idea, an MVP of an online marketplace like Airbnb will help you attract your first users and even your first payments. Having a minimum viable product that’s already showing results also makes you attractive to initial investors.

How much does it cost to build an online marketplace?

Usually, the cost to build an online marketplace app is calculated according to a simple formula:

Marketplace website cost = # of hours × hourly rate

In this section, we pay attention to the duration of various stages of app development and the difference in hourly rates across countries.

Discovery phase cost and duration

Now that you know a lot about the discovery phase and development stage, it’s time to discuss their cost and duration.

Let’s start with the discovery phase.

To maximize the efficiency of the discovery phase, you can work with a professional consulting team. They will help you use your resources efficiently and get the most benefits from the discovery phase.

The composition of the discovery team varies from product to product and may include three to eight professionals including a product owner, project manager, business analyst, UI/UX designer, software architect, and quality assurance engineer.

Depending on your specific case and the company you decide to cooperate with, the discovery phase may take three to four weeks and cost you between $10,000 and $20,000.

The deliverables mentioned in the table above are not necessary for every project. After analyzing your idea and expectations, the discovery team should come up with a list of essential documents that make the most sense for your product. The goal of the team is to define the 20% of effort that translates into 80% of the result.

Find out how a discovery phase has helped real businesses.

Spending $10,000 to $20,000 at the very beginning on the discovery phase may save you tens of thousands of dollars during development.

Marketplace website development

The time required to build an online marketplace app is hard to estimate, since the time and cost of development completely depends on the application’s functionality, the chosen technology stack, the size of the team, and more.

We recommend you get acquainted with our example estimate for a marketplace MVP. It includes typical features for this type of application and the estimated time needed to complete each feature.

The average time to build an MVP of a marketplace application is 2,000 hours. Keep in mind that your estimate may differ since you may give up some features or prioritize functionality we haven’t described in our MVP example. You should request a time estimate from your potential vendor.

Software development rates by region

The price of a project is calculated based on a software company’s rate, and average rates vary by region:

• US and Canada — $150 to $180 per hour
• Western and Northern Europe — $90 to $120 per hour
• Eastern Europe — $35 to $75 per hour
• Asia and South America — $15 to $45 per hour

Eastern Europe is considered the most attractive offshore software development destination. In our further calculations, we will use $50 per hour as an average rate for software development in Ukraine — a country with a reasonable price to quality ratio. Assuming your application requires 2,000 hours to build, the development stage may cost you:

2,000 hours × $50 per hour = $100,000

Let’s sum up.

How much does it cost to build an online marketplace from scratch?

It costs about $10,000 to $20,000 for the discovery phase and $100,000+ for the actual software development.

Want to learn how to build a marketplace website based on the example of a real project? Check out our case study for Toddy, an Australian startup that connects parents with babysitters.

Conclusion

Although the sharing economy isn’t a new concept, it has become more widespread in the digital era. Modern marketplace websites connect providers of goods and services with customers worldwide in seconds, giving everyone enormous opportunities.

Online marketplaces like Etsy, Airbnb, Couchsurfing, Uber, BlaBlaCar, and Lyft prove that if an idea solves users’ existing problems, it has a bright future. If an idea can stand out in a crowd of competitors, it can overcome them. If an idea has the potential for monetization by making people’s lives better, it is worth implementing.

FAQ

• What is an online marketplace?
  An online marketplace is a platform connecting sellers and buyers, or connecting service providers and their potential customers.
• What are the main types of marketplaces?
  There are multiple classifications of online marketplaces. Usually, we distinguish among service and product marketplaces, vertical and horizontal marketplaces, and local and global marketplaces.
• Why is the marketplace business model so popular?
  The marketplace model allows for starting a business without having to produce anything for sale or deliver services to end users. Instead, you offer a platform on which other producers and service providers can find potential customers.
• How do marketplace apps make money?
  There are a few monetization models for an online marketplace including freemium, listing fees, subscriptions, and advertising. Most marketplaces combine a few to develop their custom monetization model.
• What are all the features I need for an online marketplace website?
  You will develop your marketplace app for two groups of users: sellers and buyers. Each requires specific functionality. The crucial features for a seller are the ability to create and edit listings, chat with potential buyers, securely receive payments online, and integrate with shipping services. Buyers appreciate convenient search with filters, the ability to compare listings, and a seamless and secure checkout process.