I’m sure everyone has seen those “Get rich quick” videos all over social media, touting “Make $8 billion dollars in the next 31 days, all without spending a dollar!” Most of us know they are 99% hot air, while the idea of spinning up an online site and profiting instantly is very intriguing, it’s just not that easy.
When it comes to online shops, there are a few different flavors, and in this article I wanted to cover the pros/cons of two different approaches, a traditional eCommerce site and a marketplace business model.
I know what you’re thinking, “Aren’t all eCommerce sites marketplaces?” Touche.
When I say marketplace, what I mean is an eCommerce site where the owner, aka the admin, does not actually sell products directly. Some of the more well know marketplaces would be eBay and Etsy, with Amazon being a hybrid (meaning Amazon sells products, but vendors can also signup and sell products). Instead of selling a product, the market admin’s job is to sell their platform, and your vendors are your primary customers.
So what are the benefits of a marketplace?
The biggest benefit is you will have no inventory to stock! That is the number one reason that I converted a traditional eCommerce site to the marketplace model. After amassing a basement full of inventory, and having it creep into a spare bedroom, I made the decision to move to a marketplace model to help expand our product lines without giving up any more rooms. We would increase our inventory by getting vendors to join the site, instead of purchasing more product and trying to store it. This method eliminates a large startup cost many stores face, as well as giving the store owner an avenue to rapidly expand their inventory. If the marketplace admin can make a compelling case to potential vendors, they could quickly gain a large product inventory in a very short time.
Another benefit to the marketplace model, especially for stores that sell physical products, is the lack of shipping required by the site owner. Remember that basement full of products I mentioned? Well, we had an entire bedroom dedicated to shipping. If vendors are selling products on your site, those same vendors will generally be shipping the products as well.
The greatest benefit of all for a marketplace though, in my opinion, is the fact that you are not tied to a single location. If you do not need to keep inventory on hand, and you don’t have to ship inventory when it sells, then there is nothing that requires you to be in a specific place. At that point, your duties as a marketplace admin will be purely digital, and can be accomplished from a home office just as easily as they can be accomplished from a beach (with wifi access, of course). That type of freedom can really be liberating, as there were years of my life that I dreaded vacations because I knew orders would come in, and despite notifying customers every which way from Sunday, they would still complain when their orders didn’t ship in 12 hours.
With that said, there are a few things to consider before hopping into the marketplace area.
Since you now not only require a customer, but a vendor, you have two sets of users to find, cultivate, nurture and keep happy. That can be a little aggravating, especially if a vendor drops the ball, because ultimately they will be responsible for the satisfaction of the consumer. That makes vendor vetting a top priority.
Finding vendors and customers can also be tough when you first start. Without customers, vendors won’t stick around, and without vendors, you will have nothing to bring customers to you. This is one of the trickiest parts to staring a marketplace, in my opinion. Some marketplace owners overcome this by having some products they sell directly, to establish traffic, and some marketplace owners will do a “Prelaunch” that focuses solely on vendor signups. There is no right or wrong way, and there are plenty of other ways to go about it. Each site will be a little different, and a custom approach is always a good idea.
With that in mind, if you have an idea for an online marketplace, and the time to devote to it, you just might surprise yourself! The low startup costs, coupled with the ease at which prebuilt solutions can be used to create a marketplace, makes maketplaces a great way to flex your entrepreneurial muscle.