HomeBlogHow to build supply for your marketplace: ultimate step-by-step guide

How to Build Supply for Your Marketplace: Ultimate Step-by-Step Guide

How to Build Supply for Your Marketplace_ Ultimate Step-by-Step Guide

When you run a marketplace, it’s your responsibility to balance the demand and supply on the platform. If you don’t, you risk losing potential customers because they can’t find what they’re looking for. Or, you may alienate your providers if they can’t acquire customers through your platform.

In the case of new marketplaces, it’s a sounder strategy to build supply first and approach attracting demand afterward. Unfortunately, many marketplaces fail because they don’t know how to do it from scratch and what common mistakes they should avoid.

Today, let us at Digital Suits share this detailed step-by-step guide on building supply for a marketplace. As an e-commerce web development company, we have helped multiple startups not just with developing an outstanding marketplace – but also with preparing it for launch.

1. Define and research your target audience

Before diving into the ins and outs of building supply for a marketplace, ensure you’ve done your homework on the fundamentals of creating a marketplace platform. Those fundamentals start with your target audience. Who are they?

To answer this seemingly easy question, create an ideal customer persona. It is a fictional character representing the customer you want to attract. You can use this ideal customer persona template to do so:

  1. Demographics. How old are they? What’s their gender? Where do they live?
  2. Occupation and finances. What do they do for a living? What’s their financial situation?
  3. Personal life. What’s their background? Do they live alone? Do they have a family?
  4. Behavior. What are their interests and hobbies? How do they spend their time?
  5. Objectives. What are their goals and ambitions?
  6. Pain points. What challenges and difficulties do they encounter? (Focus on the ones your marketplace can help solve.)
  7. Your marketplace’s value. How can your marketplace address those pain points? (Be as specific as possible here.)
  8. Ideal lead generation. How can they learn about your marketplace? What will push them to sign up and become your customer?

2. Determine your offering

Now, it’s time to pinpoint the scope of your marketplace. In other words, what products or services will it specialize in?

Be mindful: your marketplace has to solve real-life problems your prospective customers encounter. You can do it in one of the three main ways:

  • Help them save money on a product
  • Help them get a product of a better quality
  • Make a particular process more convenient for them

If you lack ideas, here are three questions that can help you settle on your marketplace’s offering:

  • Are there assets that are sitting idle in a certain market?
  • Are there any fragmented markets you could unify on your platform?
  • Is there an existing solution you could improve (e.g., with a reputation or verification system)?

When you decide on your marketplace’s offering, remember to:

  • Keep your focus narrow. Your best chance at success is finding and cornering a niche – a specific segment of the market.
  • Research potential competitors. See what niches they may underserved. If you want to take on big brands head-on, consider the gaps in their solution on both the customers’ and the providers’ sides.
  • Run your idea by others. Talk to people who fit your ideal buyer persona and get their feedback on your idea. Discuss it with people who understand the marketplace business, too – they’ll help you improve it from the business standpoint.

3. Understand who your providers are

You know who your ideal customers are, but what about the sellers? Before answering this question, think about the type of your marketplace – it can tell you a lot about providers:

  • B2B (business-to-business): you’ll need to look for providers specializing in B2B services or products
  • B2C (business-to-consumer): your sellers are businesses specializing in consumer products or services
  • C2C (consumer-to-consumer) or P2P (peer-to-peer): your users are both sellers and buyers that find one another on your platform

When you profile your providers who can help you build supply, you’ll also need to consider their:

  • Location. Should they be bound to a specific geography? Or can they provide products or services without being present in your customers’ area?
  • Size. Are they self-employed professionals, small stores, or big manufacturers?
  • Offerings. What products or services should they provide? Does their product come with any constraints (e.g., expiry date)?
  • Business model. What are their marginal costs, for example?
  • Customer acquisition channels. How do they get their customers now? And how can you help them with it?

4. Choose your business model

How will your marketplace make money? That’s a question you should ask yourself before you think about marketplace supplies. There are five common marketplace business models you can choose from, as listed below.

But keep in mind: there’s no such thing as “the best business model for a marketplace.” Which model will work best for you depends on the specifics of your platform. Don’t hesitate to diversify your revenue sources and combine different types of fees as your marketplace grows, too.

1. Commission fees

You take a cut every time a customer pays a provider. Sellers don’t have any upfront costs under this model, making your marketplace more attractive. But it won’t work smoothly with large transaction sizes, complex invoicing, or diverse offering types.

2. Subscription fees

You charge some or all of your users a monthly fee in exchange for access to your platform. This model is suitable for marketplaces where no financial transactions occur (e.g., dating sites or recruiting platforms), but it can exacerbate the chicken-and-egg problem.

3. Listing fees

Your providers pay a fee every time they publish a new listing. It’s efficient when providers can get large value out of every listing. However, if they’re not certain they’ll acquire customers on your platform, convincing them to pay for a listing upfront will be next to impossible.

4. Freemium model

Under this model, you offer the basic marketplace features or services for free, while others, more advanced, are accessible in exchange for a subscription fee. Here, you’ll need to strike a fine balance between a free platform version worth sticking around and a premium one worth paying for.

5. Ads

You can offer your providers to feature their listing at the top of search results or advertise it differently – in exchange for a fee, of course. However, advertising becomes a substantial revenue stream only if you have a lot of users on your platform.

How to monetize your marketplace

5. Settle on your pricing strategy

The same goes for the pricing strategy: there’s no one “correct” strategy for calculating your take rate. Photo stocks can take as much as 60-85% in commission fees, while Uber charges 25%. Etsy, in its turn, takes a cut of only 6.5% in transaction fees.

Your best starting point is analyzing your competitors’ pricing strategy. Then:

  • Consider your providers’ profit margins (if they’re low, you won’t be able to charge a large cut of it)
  • Decide if you’ll differentiate pricing based on the providers’ performance
  • Keep your take as low as possible to avoid alienating prospective sellers

6. Pinpoint what it’ll take for providers and customers to participate

What’s your unique selling proposition (USP) for buyers and sellers? What value does your platform offer? Without answering these questions, you’re unlikely to attract providers and customers to your marketplace.

If you struggle with formulating your USP, here’s a list of four tips for crafting a compelling one:

  • Avoid generic phrases like “we offer the best quality at an affordable price.” Be specific – and don’t repeat after your competitors.
  • Concentrate on what matters to your customers. If you don’t, your message won’t resonate with your target audience.
  • Don’t make misleading claims or embellish the truth. Your USP has to be reflected throughout every part of your business.
  • Create separate unique selling propositions for your customers and your providers. Their motivations for joining your marketplace will differ, and so should your sales pitch.

7. Select your supply-building strategy

There are three main strategies you can employ to build supply for a marketplace. Choose one before moving on to finding and attracting your first providers.

Comprehensiveness

This strategy focuses on bringing in as diverse and extensive a supply base as possible. Think of Netflix at the beginning of its journey as an example here. It positioned itself as the only subscription you’ll ever need to watch all your favorite TV shows and movies.

However, as enticing as this strategy may be, it takes time in execution. The inventory will be constantly changing, making it more difficult to keep track of it.

Another potential challenge is supplier power. In certain highly concentrated industries (e.g., air travel), providers can dictate the take rate for a marketplace.

Exclusivity

Let’s return to the example of Netflix. Once the company realized it would be next to impossible to offer every TV show and movie in streaming, it switched to the exclusive content strategy. Disney+ uses the same approach today: you can find your favorite Star Wars TV show only on this streaming service and no other.

The allure of t