Most startups fail. Businesses often have to shut down because they do not meet the market's needs, overspend their budgets, and cannot withstand the competition.
Developing a minimum viable product is a proven life-saving option for those wondering how to build a marketplace website with minimal risk. With years of experience in custom and Saas e-commerce development, DigitalSuits knows all about the benefits of MVPs.
Today we'll talk about building a successful MVP marketplace and the business prospects for this approach. You'll learn:
- what metrics determine a platform's health
- features and functions a commercially marketable product needs
- which development model to choose
How to find a product-market fit
A minimum viable product is a test launch of a service with a small set of features valuable to the purchaser. The primary purpose of the MVP launch is to check the service's viability. As a result, investors know whether the service can withstand the competition. It is crucial when there is a choice to develop the product further or not.
It is worth noting that many of today's giants started their journey with MVPs. For example, Tobias Lütke, the founder of the retail service Shopify came up with this idea after the failed launch of a snowboarding goods store. In 2006, the entrepreneur decided to develop a minimal-featured retail platform. In 2022 Shopify had already reached an annual turnover of $5.245 billion, with a yearly growth rate of 24.59%. Before building an online marketplace, it is vital to conduct a market fit test. This step helps you assume how successful the project will be without wasting resources on launching and testing.
Why is it important to do a niche analysis before developing the MVP? If a business knows its audience and competitors, it is easier to choose the proper positioning. Otherwise, the company will launch the platform blindly, by trial and error. This approach, in turn, will lead to budget waste with no guarantee of success.
How to build a marketplace based on market requirements? For this, you need to conduct a comprehensive study, which consists of seven steps:
- Determine your business goals
- Come up with several hypotheses
- Prioritize each hypothesis
- Choose an e-commerce business model
- Ask people to leave feedback
- Test your hypotheses with an MVP
- Analyze your product's impact and define the working hypothesis
These simple steps will help businesses better understand their audience and competitors. If done correctly, you'll get four signs of market fit:
- Organic growth. It shows up in increased sales, conversions, targeted website actions, and purchaser engagement.
- User retention rate. If your goods or services keep at least 40% of users returning, you're on the right track.
- The ratio of retention costs to sales. The ideal is when a business spends no more than ⅓ of lifetime value on shopper retention.
- Less expensive user acquisition. If your customers come back and spread the word about your service, it’s a good sign you propose a highly in-demand product.
Key metrics for a marketplace MVP
Analysis of marketable enterprise metrics helps to test the hypotheses. By tracking key metrics, the business can see the project's flaws early on and change the strategy. What is worth your attention?
It is important to understand how extensively the app or website is used. Such statistics include the time spent on the page and the bounce rate. Let's talk about each metric in more detail:
A commercial platform should attract new people and be helpful. Analysts evaluate what percentage of visitors "abandoned" the page: the lower this figure, the better for the project. The page is irrelevant if the client stays on the page for less than five seconds. In this case, the visitor got there by mistake, or the proposal does not match the request.
Time on site
Like the bounce rate, this metric assesses how valuable the service is. A commercial site thrives when purchasers spend much time there. However, if they waste hours looking for offers, it means they can't find the commodity they want. The same goes for sessions that are too short. You can track visitor behavior using cookies.
We also suggest using Google Analytics as it counts the number of resource newcomers, traffic sources, bounce rate, conversions, and more. Optionally providers can request the Analytics report during partner site selection. Keep in mind that Google Analytics requires the Tracking ID to be connected.
MAU (Monthly active users)
It is a fundamental component in the audience tracking process. MAU is the total number of visitors who have used the platform at least once a month. If this number doesn’t grow, the company either doesn't get new clients or loses them faster than it attracts them. It means a red flag for a startup.
Commercial platforms require specific metrics. Let’s examine them.
Many people pay attention solely to the number of transactions. This way is quite logical but only partially wise. Indeed, you can analyze the quantity of purchases, but you also need to understand their “quality.” In other words, the business needs to assess how convenient it is for the visitor to make a payment. The advice is to pay attention to the following indicators.
Supplier and buyer liquidity
Experts estimate the ratio between views and actual purchases. Each business uses statistics for a selected period (hour, day, month, etc.). For e-commerce, such figures are reasonable to assess once a month. Supplier liquidity is the percentage of items (goods) sold within a certain period.
The metric shows the probability of a transaction. If the company is growing steadily, the buyer liquidity varies around 30-60%. To calculate the liquidity percentage, you need to find the ratio between visits and purchases (without considering the bounce rate). We suggest subtracting the number of visits from vendors for more accurate results.
This factor helps you estimate how many customers one provider can serve. We emphasize that there is no benchmark ratio. The percentage is specific for each company and changes as the project scales. It's imperative to involve as many vendors as possible in the early stages of the MVP.
You can optimize your seller-to-buyer ratio by studying the deal frequency and retention rates. In other words, you should focus on buyer liquidity early on. A business with a high vendor-to-consumer percentage should build up its client base. Otherwise, the supplier leaves your site for a more lucrative one.
Repeat purchase ratio
It is the percentage rate of customers who have purchased more than once. Make sure to distinguish this concept from the number of loyal clients. The repeat rate does not measure a loyalty rate to a brand. It is a metric that predicts the likelihood of a repeat order. The higher it is, the more money a company can invest in attracting new buyers.
The logic is simple: if a company knows a consumer will use the resource multiple times, the profit will exceed the attraction cost. Conversely, if a consumer is unlikely to return, the business is likely to experience some problems.
Now, let's discuss the critical metrics for e-commerce sites. These key metrics measure the success of trading platforms, revenue, and consumer behavior. To stay afloat, businesses must monitor the following factors.
Gross merchandise volume
This metric refers to the e-commerce platform’s total amount of sales in a selected period. Pay special attention to it if you wonder how to build marketplace website. It is a universal metric for evaluating service growth. At the initial stage, you can use it instead of visitor dynamics. However, the GMV alone is not enough to assess the overall health of the product.
Cost of audience attracting
CAC describes the expenditures for attracting each new client. Your CAC costs must be lower than the amount of money each customer brings you. If your online store sells luxury goods, spending, for instance, $100 per customer may be reasonable. However, if an average customer brings you $150 and the cost per consumer is $140, you may need to change your business strategy.
Сustomer lifetime value
This metric indicates the total revenue expected from each active customer. It should always be higher than the cost of attracting a new audience. Otherwise, your business is considered unsustainable. It leads to stagnation, budget overruns, and deterioration of your investment appeal. If the cost of attracting new customers is higher than the projected profit, you need to find the reason. Your answer may be in the conversion funnel.
Conversion funnel metrics
The marketing funnel is handy for understanding the behavior of new clients. With it, a business can analyze the audience's path before purchasing. This way, the company understands at what stage a consumer leaves. This knowledge allows you to optimize your marketing strategy. For instance, if a particular segment of your audience goes through the same path but never buys the commodity, you can turn off ads just for them. This way, you keep yourself from overspending your budget.
What conclusions can we draw from the funnel? If there are few visitors, you need to strengthen the focus on their acquisition. If there are enough visitors, but the failure rate is high, you must choose the right target audience. So it would be best to focus on targeting and positioning.
When a user browses through many proposals but does not place an order, the problem lies in the catalog and navigation system. You should reconsider the payment options if the consumer adds an item to the cart but doesn't pay.
Consumer satisfaction metrics
Metrics can tell you much about what is going on in a platform. However, they don't answer why this is the case. The client satisfaction scores can help. In this section, we will tell you how to quantify the shopper experience. We suggest using two recognized methods.
Net promoter score
NPS is a well-known method that became popular back in 2003. Then the approach was described by Frederick F. Reichheld in "The One Number You Need to Grow." We bet you've heard of this method.
To determine how healthy a retail service is, ask buyers one question. "How likely are you to recommend our service to your friends?" Ask them to describe the score with a number from 0 to 9. A score of zero means the consumers would never recommend your company. They probably encountered several problems and difficulties in the buying process. If, on the other hand, you got a score of 9, your platform is a perfect fit for buyers.
For instance, the tech support company, GrooveHQ, has divided the audience into three categories:
- You received a score of 9-10. Your customers are promoters. They are the most loyal to the brand. These people make repeat purchases and attract new visitors.
- You received a score of 7-8. Your customers are passives. They can hardly tell others about you. But this segment would use your services when they need to.
- You got 0-6 points. Your customers are not good for you. They are unlikely to make a repeat purchase. Such consumers can also warn friends and family against your company. You need to contact the customer and help them overcome the problem.
Experts also rate the user satisfaction on a scale of -100 to +100. To calculate the score, you have to subtract the percentage of detractors from the percentage of promoters. A business succeeds if the number turns out to be positive. If your score was +50 or higher, you're doing great.
However, the NPS survey only partially reflects the satisfaction rate. The interviewee may not tell the truth because of upbringing or other reasons. That's why experts use more sophisticated methods, such as the Sean Ellis test.
The Sean Ellis test
We mentioned this method in the previous paragraphs and now we will discuss it in detail. The questionnaire is ideal for B2C needs. It gives the team a sense of how attractive the service is to the audience. The Sean Ellis method includes the following questions:
- How did you learn about the service?
- How would you react if the service disappeared from the market?
- Very disappointed;
- Slightly disappointed;
- Not disappointed;
- Not applicable to me;
- What alternative would you use?
- What is the benefit of the service to you personally?
- Can you recommend the service?
- Who benefits the most from using the service?
- What is worth improving about the service?
The test helps you understand how loyal your audience is and what should be changed. The most important question of the test is number two. If at least 40% of purchasers are "very disappointed" with the enterprise’s departure, you understand your audience well.
Key features for a marketplace MVP
How to build an online marketplace? Designing and launching a marketplace MVP consists of three stages: design, measurement, and research.
Build. After checking for market fit, developers build an e-commerce website with minimum features. Key features attract first buyers and investors. You can then test hypotheses, show the website/app to shareholders, and choose a strategy for growth.
Measure. After the launch, the company gets the first feedback on the product. At this stage, monitoring comments, conducting surveys, etc., is essential.
Learn. Once you have the first research results, you analyze the results. The company looks for its weaknesses and points of growth. After that, the work on mistakes begins.
Regardless of the specifics of your store, you need to include a few universal features. They help the visitor get the most out of your marketable product.
Sign up and login A personal account is a shopper’s profile. It stores addresses, payment information, numbers, and wish lists. It makes it less time-consuming for the consumer to checkout. The personal account also allows users to track purchases and get information about unique discounts and offers.
The vendor profile allows vendors to post their goods, edit descriptions, and view transactions. Sellers can export merchandise and sales data for later analysis.
The home page is the cover page of the online shop. It is the first thing buyers and sellers see on your site. It is an excellent place to put information about the platform and indicate popular categories and special offers. You should display the most popular items and discounts on the main page. The purchaser may want to buy a completely different item, but your unique selling proposition may encourage them to make an additional purchase.
It is the backstage of the commercial site. The admin panel is hidden from customers and suppliers. With its help, sellers can update the design of pages and add items. They can also get statistics, evaluate incoming traffic, and react to comments.
The product listing page is the leading website area to which a potential consumer pays attention. We recommend breaking down item groups into logical categories. In addition to the main features, we recommend adding a comprehensive description of each item. As the service grows, you can diversify the report with ratings, item comparisons, etc.
Search and discovery
Accessible navigation is the foundation for a long-lived e-commerce platform. Search by keyword should give an exact match. In addition, you should add the ability to search for relevant alternatives. If the buyer can't find the position they want, the e-commerce website will fail. Pay attention to recent trends, in particular, the option of voice search.
Comments and reviews help you get a better idea of the growth. Every seller praises their offers. Reviews from actual purchasers give consumers an honest opinion about the goods. The item may have flaws and shortcomings. Reviews help to find out about it. Positive evaluations encourage the visitor to make a purchase more willingly.
Consumers can contact customer service and ask questions. Many want to check availability, find out payment terms, delivery, etc. Chat helps solve such problems as quickly as possible. In addition, a built-in messaging form provides feedback. If the client is dissatisfied with the order, they try to tell the service staff about it. If the team satisfies the client’s pain, the likelihood of negative feedback is reduced.
To save resources, we advise using chatbots. They can resolve some basic issues automatically. When the automatic helper can’t help, it redirects the appeal to a human consultant.
The payment process should be as easy as the search. It would be ideal if the shopper could make a payment without leaving the site. To do this, include quick payment forms. PayPal, Stripe, or Square services can come in handy. After payment, the consumer should receive a receipt with delivery information.
E-Commerce MVP development: DigitalSuits experience
DigitalSuits has extensive experience in custom e-commerce MVP development and offers clients the most functional solutions. American Outlets, an international retailer, recently approached us. The company has ambitions to scale up to the Amazon level. Therefore, the brand needed to create an innovative platform to compare retail offers from different sellers.
We integrated and grouped items from multiple stores and developed a PIM system. It runs on Node.Js, ElasticSearch, and AWS. As a result, the platform could process vast amounts of information in real time. It has helped increase user satisfaction, and access has become as fast as possible.
Let’s build a successful marketplace MVP together!
Commercial MVP has many advantages and is one of the most popular options among retail startups. This kind of software is quick to launch and easy to scale or add new features. Businesses get maximum performance with the least amount of resources. At the same time, the consumers enjoy a smoothly running service and help determine its future development.
If you are looking for how to build an online marketplace, contact us. The experts at DigitalSuits have years of experience and are constantly updating their skills so that you always get a top-notch product. We are passionate about the development process, and eager to take on challenges and develop innovative solutions.