There are numerous hugely successful online multi-vendor marketplaces, like Amazon, Rover, and Airbnb, and even more marketplace unicorns are stepping out on the scene every year. Depending on the customer experience, some marketplace customers may not even be aware they are buying from a multi-vendor marketplace when they shop online. But below online marketplace storefronts and seamless customer experiences is the invisible marketplace infrastructure powering these ecommerce giants.
While not every marketplace offers the same products or experience, each one has to make a decision on how to build and manage its marketplace infrastructure. Choosing the correct underlying marketplace technology for your business is key to your marketplace success.
So, how do you know how to build your marketplace?
In this blog, we’ll cover:
- The ways to build a multi-vendor marketplace
- The definition of a multi-vendor marketplace platform
- How a multi-vendor marketplace differs from a traditional e-commerce store
- Key functions of a multi-vendor marketplace platform
Ways to Build a Multi-Vendor Marketplace
There are three common approaches to building a multi-vendor marketplace:
- Building a custom marketplace platform
- Using a marketplace app on top of an ecommerce platform, like Shopify
- Launching with a multi-vendor marketplace platform
Custom marketplace builds are expensive (we’re talking millions), risky, and have a long time to market. After the initial build, there will be ongoing maintenance necessary to keep the platform up to date.
The multi-vendor apps added to ecommerce platforms offer limited functionality and scalability. The bolt-on offerings are inherently limited by the ecommerce platform they are built upon and many marketplace operators find themselves hitting hard scaling limits.
With an on-demand multi-vendor marketplace platform, you get the flexibility of a custom build with rapid speed to market.
So, what is a multi-vendor marketplace platform?
A multi-vendor marketplace platform is an end-to-end Software-as-a-Service (SaaS) solution that powers online marketplaces. The marketplace platform acts as an orchestration layer for orders that flow between buyers and sellers on the marketplace. A multi-vendor marketplace platform offers both the multi-vendor storefront and vendor portal as a complete offering. A multi-vendor platform is hosted in the cloud, and the technology is managed and maintained by the platform provider.
The benefits of using a multi-vendor marketplace platform include:
- Native multi-vendor checkout
- Faster time to market
- Low-risk build
- Continuous updates to the platform
- Built-in marketplace best practices
Key Functions of a Multi-Vendor Marketplace Platform
While many multi-vendor products simply offer a vendor portal, a complete multi-vendor marketplace platform must offer order, product, logistics and vendor management.
Order management
A multi-vendor marketplace platform should offer order management capabilities. This starts with the ability for customers to order from multiple vendors in the same checkout, which most traditional ecommerce platforms aren’t able to do. Once the order is placed, the multi-vendor marketplace platform will notify the various sellers involved in the order of the sale and track the order through fulfillment, shipment, and any returns flow. Along with the order flow, the marketplace operator, the sellers, and the buyer will be notified as the order moves through the transaction process.
Below is the lifecycle of an order in a multi-vendor marketplace sale. The multi-vendor marketplace platform must communicate these steps between the marketplace operator, the sellers, and the buyer to ensure a seamless transaction.
Product management
A marketplace is only as good as its inventory. The best multi-vendor marketplace platforms allow vendors to upload their product catalogs onto the marketplace seamlessly. The product uploads can be done through integrations into other marketplace platforms, ecommerce platforms, or via CSV. Detailed product descriptions, images, specifications, and categorization will help customers quickly find the right items on the marketplace.
We’ve all seen the “What I ordered vs what I got” online shopping fails. Make sure your marketplace allows sellers to describe their products for potential buyers accurately.
Customers must want to purchase what’s being sold and trust that they will receive the item. Multi-vendor marketplace platforms assist with maintaining an up-to-date product catalog that both you and your vendors can access and manage. They also assist with inventory management, warning when inventory numbers hit their reorder point. Your platform should also assist with categorization. This feature makes it easy to navigate your inventory catalog, regardless of how many vendors are in your marketplace.
Additionally, these direct integrations into the platforms used by your marketplace vendors will give you more visibility into their available inventory and ensure you aren’t offering an item on your marketplace that is out of stock.
Logistics management
The logistics management function is overlooked by many ecommerce platforms but is integral to the multi-vendor marketplace experience. Most marketplaces do not hold any inventory themselves but instead list products and services fulfilled and shipped/delivered by their sellers. The coordination between the marketplace and its sellers requires elegant logistics management. Enabling marketplace sellers to integrate directly with shipping providers like ShipBob, ShipStation, or Shippo inside the multi-vendor marketplace platform will enhance the visibility of the transaction’s status.
The logistics function also includes the ability to ship from warehouses worldwide. In some ecommerce platforms, there is a limited number of warehouses that you can send from as a vendor. These warehouse limits mean you have to find a workaround for your vendors’ “ship from” locations.
Vendor management
Making it easy for vendors to join and sell on your marketplace is a vital factor for the success of your marketplace. A multi-vendor marketplace platform should include the following features for marketplace vendors:
- Self-service vendor onboarding
- Vendor contract management and commission calculation
- Payout accounting and adjustments
- Vendor portal for product uploads and inventory management
- Communications tools
- Ecommerce tool integrations
The multi-vendor marketplace platform you choose should enable vendors to sell on your marketplace with minimal effort.
Why should you build your marketplace on a purpose-built multi-vendor marketplace platform?
Multi-vendor marketplace platforms were built specifically for the complexities of marketplace transactions.
Traditional ecommerce sites were made for a single vendor who is shipping items directly to customers. The single vendor manages everything in the store, from products to inventory to shipping and fulfillment. But most multi-vendor marketplaces do not make their products, hold their inventory, or perform fulfillment. Instead, they orchestrate transactions between marketplace buyers and sellers. Because of this orchestration role, marketplaces live at the intersection of commerce, fintech, and logistics and need to be built on top of a platform with functionality across all three vectors.
In a marketplace, you are expected to serve up a customer experience equal to what you would find on a traditional ecommerce site, but building a successful marketplace requires much more investment in the invisible back-office functions.
Here are some needs of a marketplace that aren’t requirements of a traditional ecommerce store:
- Commerce: Multi-vendor checkout, multi-site capabilities, vendor portal for uploading products
- Fintech: Know-Your-Vendor checks, tax obligations, payout functionality
- Logistics: Multiple warehouses, shipping integrations per vendor
Build on a Multi-Vendor Marketplace Platform
If you’re launching on online marketplace, are scaling out of a marketplace built on an ecommerce platform, or are tired of paying to maintain your marketplace, consider investing in a purpose-built multi-vendor marketplace platform. A platform built with the complexities of multi-vendor transactions in mind will streamline logistics, order, product, and vendor management, enabling you to spend your time finding vendors and buyers for your marketplace instead of worrying about the underlying marketplace technology.
