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How to Build a Marketplace MVP

How to Build a Marketplace MVP

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:

  1. Determine your business goals
  2. Come up with several hypotheses
  3. Prioritize each hypothesis
  4. Choose an e-commerce business model
  5. Ask people to leave feedback
  6. Test your hypotheses with an MVP
  7. 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.

How to find a product-market fit

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?

Usage metrics

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:

Bounce rate

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 metrics

Commercial platforms require specific metrics. Let’s examine them.

Transactions

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.

Vendor-to-buyer ratio

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.

Business metrics

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 consum