Online Marketplace Costs:
How much does it cost to develop a professional online marketplace?

As an aspiring marketplace entrepreneur, the question quickly arises regarding the costs for the development of a professional online marketplace – and besides the financial aspect, the personal time investment required is also a factor.

However, there is no uniform answer to the question of development costs, as different industries and models require different functionalities for a marketplace. The costs are basically influenced by the underlying programming effort, which depends on the chosen programming language as well as the shop system. Furthermore, you should not overlook the marketing costs that arise after the marketplace is developed.

These and many other cost positions will be explained in the following article.

The Most Important at a Glance

1. Types of Marketplaces

There is a range of attributes by which online marketplaces are differentiated – such as business models, offered products, complexity of functionalities, types of users, and many more. Depending on which model you want to operate your online marketplace with, the costs can vary. This is especially evident from the integration with various external providers, for example payment providers, shipping providers, and other external providers, which are specific to their respective business model (think, for example, of an interactive map functionality on a marketplace, where the location is also determined).

Based on the offered products, these marketplaces are divided into the following groups:

• Goods and Products (eBay, Amazon, Etsy)
• Services (Uber, Airbnb, Couchsurfing)
• Media (Matpra Mediamarktplatz, MediaMath)
• Investment and Crowdfunding (Kickstarter, Indiegogo, CircleUp)
• Other Unusual Types such as social communities, advertising marketplaces, etc.

Marketplaces for goods and products like Amazon and eBay are the classic representatives of this category.

2. Marketplace Customer Focus: B2C, C2C and B2B

B2C: Business with the Customer

This is the traditional model that enables interaction between sellers and customers. On such platforms, there are always many offers. The best online marketplace examples are Amazon, eBay, and Booking. High competitiveness provides a strong incentive for sellers to present quality products and improve customer service.

The broad range of features places high demands on marketplace programming and increases the costs. Furthermore, the marketing costs are also quite high due to the intense competition.

B2B: From Business to Business

In this case, one company sells to another. B2B marketplaces are useful for wholesale and for businesses seeking suppliers. Good examples are Alibaba and Made-in-China.

B2B marketplaces are, in terms of functionality, similar to B2C marketplaces, but can offer additional functionalities. However, the requirements for design and marketing are generally not as high as for B2C or C2C marketplaces.

C2C: From Customer to Customer

This model involves negotiations between individual customers. Typically, participants on such platforms are not entrepreneurs, but rather private individuals. On these platforms, people exchange expertise, skills, and services. Examples of such marketplaces are eBay Classifieds, BlaBlaCar, and Couchsurfing.

C2C marketplaces can be relatively inexpensive to develop – they often focus on delivering a specific service and require only a relatively compact set of features. Nevertheless, the C2C business model demands a lot of innovation in its offering.

AliExpress is the classic example of a B2B online marketplace. In recent years, the marketplace has gained even more popularity due to its very low prices and has also shifted its focus towards B2C.

3. Preparation

Creating a strategy for development and limiting costs depends on the business details and the competitive ideas that secure future success. A good preparation of the marketplace development can save you many costs – especially in programming. The timely creation of a final requirements specification will define the necessary functions in advance so that later there are no difficulties for the marketplace developers.

3.1 Choose the Right Business Model

Find out all the details about each business model, such as the development and operating costs. It is risky to launch a marketplace with the wrong business model.

Initially, it is advisable to offer a typical marketplace and the associated invoicing tools for several small providers on a smaller scale. This keeps the costs low and the development of the marketplace remains manageable, while the providers come to appreciate the benefits through ease of use and many advantages. In the beginning, the operator should not expect profits, as usually the costs only cover the revenues, and a marketplace in its early stages often proves to be volatile. However, it is unwise to rely on the assumption that profits will eventually flow. Therefore, the marketplace should establish itself in the market in the first business year so that revenues begin to flow. Unfortunately, it is during this period that it becomes apparent whether the chosen concept fails and the operator loses their financial investment.

Marketplaces like Chronext, which focus on a niche, have to compete with a limited number of competitors and have higher chances of success.

3.2 Implement Market Research

Before launching, the operator should gather information about other marketplaces and study their problems in order to optimize their own offering. Market research requires more time than financial resources, but in the end it can be costly. Nevertheless, conducting extensive market research is indispensable – do not try to cut costs in this area.

3.3 Choose a Platform

The average costs for developing a simple online marketplace start at 10,000 Euro and complex marketplaces can incur much higher costs. An individual development using a programming language, however, can become very expensive.

The cheapest option to start an online marketplace is to begin with a simple e-commerce system like WooCommerce. Marketplace programming with WooCommerce is quite inexpensive and can be implemented by a single person with minimal programming skills. With the WooCommerce extension for WordPress, which transforms your simple WordPress site into a functional online shop, you can update your online shop to an online marketplace using the WC Marketplace plugin.

The trade-off with WooCommerce is that the CMS is poorly scalable and not very expandable in the long term. WooCommerce is only suitable for those marketplace operators with a limited budget. Alternatively, you can start the prototype of your online marketplace on WooCommerce to test demand and the market situation and then migrate in time to a more complex e-commerce system (e.g., Magento, Shopware, or Drupal) or have your online marketplace developed.

The WooCommerce extension WC Marketplace offers a cost-effective solution for marketplace operators with a limited budget.

Individual programming with a programming language or framework offers a high degree of flexibility and performance, but comes with higher effort. This effort is reflected not only in the programming but also in the maintenance, upkeep, and enrichment of content – content management systems generally provide an easy way to implement content changes on the marketplace, even if you have no programming skills.

There are also out-of-the-box systems like Sharetribe which are quick to start but offer rather simple functionalities. Sharetribe is a platform specifically designed for developing online marketplaces and in its operation resembles CMS systems.

Depending on the purpose, the selection of marketplace software should be made to ensure a customer-specific development that meets the unique business needs. However, if a simple off-the-shelf solution is desired, it can be used for the online marketplace. Such platforms allow you to launch the system quickly, reduce execution effort with available resources, increase operational performance, reduce maintenance costs, and order new equipment that will simplify the future integration of the trading platform with partners or other associates.

3.4 Spend Money More Wisely

During the first year, the budget will be spent on two main things: the development of the online marketplace and its marketing. As soon as the operator achieves profits on the marketplace, a legal company must be established. The costs for this depend on the respective country. Therefore, it only makes sense if the operator truly believes that this project will be a great success. Otherwise, neither the time nor the money spent on a new marketplace is worthwhile.

4. How to Correctly Assess a Marketplace Project

The development and launch of a marketplace is similar to any web application. Here are the points that are among the most important:

• User Interface and Design that conveys the look, feel, and appearance of the marketplace
• Accessible HTML and CSS that work on every device
• Programming User Interactions
• Reprogramming Server-Side Business Logic
• Automated Testing to eliminate programming errors
• Testing on All Browsers (Chrome, Internet Explorer, Firefox, etc.)
• Testing on All Mobile Devices

After the initial launch of a marketplace, the operator should collect feedback from users. This feedback will then be used for the further development of the online marketplace.

5. Which Features Do Providers Value for a Marketplace MVP?

• Modern Design
• Intuitive User Flow
• Essential Range of Features
• Integration of Payment Providers (PayPal, Credit Card, Direct Debit, etc.)

Once the first two stages are completed, the functionality can be checked. Each feature in the project is associated with a specific type of user:

• Site Visitor
• Logged-in User
• Customer (an authorized user who buys an item)
• Seller (an authorized user who has listed a product)

Reverb is an online marketplace for musicians that offers all the functionalities and user groups characteristic of a successful marketplace.

6. Main Features of a Successful Online Marketplace

During development, the operator should consider both the core values and the costs represented by their products and further develop the marketplace.

Personal User Reviews

Personal reviews and profiles based on all available data are important to offer customers options that meet their needs. This factor must already play a role during development. Buyers want a simple registration process, sustainable navigation, and detailed information about the seller. Sellers should be able to group their products or services, create new offers, and publish their information.

Messaging

During a product search, users often have questions. Therefore, fast messaging and communication are really important and should be a key component of the project’s development.

Pre-ordering

This functionality gives users the opportunity to pre-order a service or product. When they return to purchase it, registration should be added. This way, the user can pre-order a desired item without having to go through a complicated registration process first.

Flexible Payment System

Above all, both buyers and sellers should be convinced that the payment procedure is secure. For convenience, you should provide a transparent payment system that automatically calculates the costs of services and standard fees. It is also important for users to be able to view their transaction history and choose an easy payment method – something that should also be considered during development. Proven payment methods include: PayPal, Credit Card, Instant Bank Transfer, Direct Debit, and Invoice.

Listings

Providers should be able to publish and manage products and services that users can find by using appropriate filters when searching for a listing.

Reviews

Online shopping differs significantly from offline retail in that a buyer can only evaluate a product based on a description or photo. Many buyers appreciate receiving information about services, products, and sellers. Feedback is trusted information. Reviews build trust between buyers and sellers, which is why all users should have access to reviews.

Here is a brief overview of the costs for programming an online marketplace

7. Marketing Strategies

After development, there are additional important costs that arise for an online marketplace. Unfortunately, marketing often has to cope with a limited budget, which is why blogging is recommended. For this, the operator needs their own blog and a corresponding blogging platform, as is available with WordPress. This blog can be connected with the marketplace, and the annual costs are very low. Another low-cost marketing method is building an address list. MailChimp is recommended, as the first subscribers are free. Additionally, the software integrates well with WordPress.

Before launching the marketplace, the operator should collect contacts and email addresses with a simple landing page. This landing page should be located in the same area as the marketplace. Instapage or Launchrock are suitable tools to keep the development and marketing costs low. Whether the marketing is sufficient is demonstrated, for example, by Google Analytics, which in the first year produces the key analyses such as visitor numbers at no extra cost.

If you have a larger budget for development costs, often less remains for the marketing concept than originally hoped. As a solution, it is advisable to spend some money on Google and Facebook ads to boost demand. If the operator only has a marketing budget of under 1,000 Euro, there are hardly any significant contributions that ensure good marketing. However, it helps to focus on the available possibilities and use them for meetups or a local publicity manager. This person can boost the online media presence, where the results are easier to track. The right strategy really depends on the type of marketplace and the initial target audience.

If the budget is already exhausted after implementation, then you should focus on so-called guerrilla marketing measures that place more emphasis on innovation than on cost.

8. In the First Year: Achieving Profitability

After the first year, you should have achieved a basic liquidity with the marketplace: transactions occur continuously and there is a small but loyal group of regular customers. The marketplace does not necessarily have to show rapid growth; it runs autonomously and covers the costs incurred since development. This profitability is also called the “critical mass”, where a sufficient number of registered and active providers and demanders already exist.

If an operator does not reach this state, it does not mean that they should immediately stop. However, something in the existing concept should urgently be changed.

Conclusion

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