Proven Tips to Avoid Ineffective Marketplace Development

08.31.2020 | 10 min read

Online platforms (marketplace) is one of the booming business trends since the dotcom era, they consume more market value each year since 2015. The research of the world platform market in the sharing economy segment predicts the annual turnover of industry for 335 billion till the end of 2025. The idea of sharing goods and services among individuals and businesses either for free or for a fee is becoming increasingly popular. You don’t have to store the goods, just be an intermediate between the customer and contractor. The accessibility of mobile technology and the Internet lets us manage share-based transactions smoothly. Most popular marketplaces are Uber, Airbnb and Amazon.

Ready to build a peer-to-peer marketplace?

Even though building an online marketplace from scratch requires much time, effort, and expense, it gives you unique business logic and original user interface and user experience.

Take a look at Karzal, for example.

Karzal is a digital renting platform for machinery, equipment, household appliances, and other goods that we recently developed. It’s an excellent example of how genuine your marketplace can look. Unfortunately, the product owner missed some pain points, we’ll discuss them further.

As well as outstanding appearance, your marketplace can also have the architecture that will suit your application best. It will be more flexible than a platform-based product, allowing to change more code for better performance. You are free to choose the technology stack for your project, which makes your product more scalable.

The number of new marketplaces is steadily growing. However, in reality, only 1 or 2 out of 20 of them work successfully. Most of the problems come from poor planning and management.

Appservice team has a three-year experience of building online marketplaces from scratch. We prepared a list of problems and solutions based on our own development experience.

1. Scattering across key features.

Many startups seek to cover a wide range of services from the very beginning. Thus target audience, product placement, and market capacity become unclear. That leads to an enormous marketing budget that some companies can’t afford. Small companies without brands will be destroyed by competitors.

Solution: Find and sell niche products, they are targeted to a specific group of buyers. Focus on several key features for promotion and development to cover a narrow category of customers and increase your revenue. Thus you reduce your costs for development and launch a product getting user feedback for further improvement.

2. Wrong market placement.

Building a brand from scratch is a hard job to do. To get first loyal customers and make people aware of your product you’ll need a solid marketing budget. Don’t try to work internationally from the beginning. It will take extra costs and bring you more competitors.

Solution: Mind the MVP basics and try to deliver the product fast and cheap. Operate in one or two cities to estimate the scale of demand for your services and advance your product functionality. It will help create your own local brand and build a base of loyal customers without taking risks.

3. Charging high transaction fees

The transactional business model is one of the ways of monetizing a marketplace. Offering contractors a platform for selling goods and services, startups charge either a percentage of the total amount or a fixed fee for each transaction conducted on their website or app. To maximize profit and recoup production losses for 1-3 years, they impose huge fees of 10-20% and, therefore, lose a lot of their clients.

Solution: Combine various business models to monetize your marketplace. In addition to charging a 3-7% fee, allow your contractors to promote their products and services by publishing ads on your marketplace or charge them fixed subscription fees. It will help you increase your revenue and grow a massive base of contractors.

4. Engaging too many contractors 

Due to lack of experience, many marketplace owners want to collaborate with as many contractors as they can. It leads to high competition for a potential client’s order on the market. As a result, both customers and contractors slip away because the former is not able to make a choice and the latter experience low conversion rates.

Solution: Make sure the number of contractors you plan to work with is sensible and meets your business capabilities. Furthermore, you can limit the number of customers’ responses to an application in order not to spam clients. Calculate your potential orders the number shouldn’t be less than 10-15% of the whole value. The average profitable conversion rate is about 2-3%. 

5. Offer unnecessary functions to attract clients

Many startups choose to develop customer account functions into apps and websites instead of integrating convenient and functional CRMs. It takes lots of time for analytics and resources. As a result, they develop a raw version of a customer account that is not adaptable to the client’s business needs. Besides, many clients use their own CRMs, and it is impractical to duplicate the information.

Solution: Find out what CRMs most of your contractors use (Zoho, Pipedrive, Oracle, Salesforce) and integrate them for efficient customers’ orders accumulation and management. It will enable your contractors to provide services to their customers using their usual software. You can make the service fee-based.

6. Ignoring the entertaining features.

New marketplaces are coming to the market every day. You have to be different or outstand somehow. Make a research in popular trends. Maybe you’ll find something that entertains your customers or makes their life easier.

Solution: Go beyond allowing clients to order a service. Better create additional functions like an Instagram mask or integration with other apps as a supplement to the service instead. It will help you promote the service you sell and attract new customers.

Why choose Appservice?

Appservice is experienced and knowledgeable developing different kinds of platforms based on sharing economy principles. We’ve built and smoothly run peer-to-peer marketplaces. We can re-use existing functionality and adapt the custom features for your platform, due to our expertise in this domain, allowing you to save time and money. We’ll help you to develop a functioning marketplace that will generate traffic, boost your sales, increase your conversion rate, and help you build a solid base of loyal vendors and customers.

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