How to determine marketplace development cost?
Many variables influence marketplace development cost. For one thing, there are many types: are we talking about B2B or B2C? Is it centralized or peer-to-peer, vertical or horizontal? To determine a specific cost, you need a system.
Marketplaces can be complicated, but things get easier if there’s a system in place. In this post, we’ll tackle the cost layers by layers, from architecture to functionality. Hopefully, with this, you’ll be able to calculate a cost for a marketplace that closely resembles the one you want.
Consideration 1: Vertical or horizontal
Vertical or horizontal distinction refers to the niche that a platform covers. Vertical marketplaces focus on one field and grow in-depth. This means they attract more offers in a particular area so that users can fish out the best offers – and often, some rare ones.
Horizontal eCommerce marketplaces span across multiple niches. Rather than digging deep in one field, such companies prefer attracting business owners in different industries – the bet is on versatility. It’s a jack-of-all-trades where customers can find a lot – but not always the high-quality stuff.
Putting both approaches head-to-head
|Vertical marketplace||Horisontal marketplace|
|Knowing customers better: the team can research one niche well. They know exactly what marketing messages to pick, which UX to focus on, etc.||Limited scalability: there’s only so far you can go in one field. Sooner or later, the niche can exhaust itself. With emergencies and market shifts, the business risks becoming irrelevant.||More universal: horizontal marketplaces typically go for easier, general designs and features. In the short run, they are much easier to conceptualize.||Overpowering competition: horizontal marketplaces require a lot of money and focus. They end up fighting with established platforms (like Amazon), or with specialized vertical platforms.|
|Quality over quantity: it’s easy for the team to be careful about their partners’ choices when they have only one field to explore. A good reputation then attracts more users and ensures a long-term presence.||Pretenders are called out: if the team fails to educate themselves on the industry of choice, customers might perceive them as unreliable.||Large audience: you are no longer confined in one field. Potentially, a horizontal marketplace can reach 5-10 times more customers than a vertical one.||Marketing issues: trying to reach everyone, marketplace teams end up attracting no one – and splurging budgets while they are at it. A good strategy and large budget help avoid miscommunication, but still, it’s a concern.|
|Better products: when a marketplace becomes a source of right products, it attains high customer loyalty. It’ll translate to higher Net Promoter Scores, efficient word-of-the-mouth, and free visitors.||A lot of transactions: in a best-case scenario, the high number of potential users translates into a high number of buyers. You’ll have more transactions, and well, more money.||The image of unreliability: customers perceive jack-of-all-trades platforms as low-quality stores. If put together with a vertical marketplace, horizontal ones often lose.|
Examples of vertical marketplaces:
- Etsy – a marketplace that’s focused on selling handmade products;
- iTalki – a peer-to-peer marketplace that connects native speakers and language learners;
- BlaBlaCar – a marketplace that makes carpool riding and joint trips easier;
Examples of horizontal marketplaces
- Amazon – a marketplace that covers multiple niches across many countries;
- AliExpress is a horizontal marketplace known for its versatile product lines in many industries and low prices.
While it’s hard to tell which type of eCommerce marketplaces is better – because things depend on the industry, budget, and resources, it’s easy almost certainly to tell what’s cheaper.
Vertical marketplaces require less budget for testing, maintenance, marketing. They might require a more specific design and functionality at the first stages, but it’s a much cheaper option in the long run.
To make matters easier, you can choose a hybrid strategy. That is, even if you decide to go vertical or horizontal, you can still go back. It’s okay to start as a vertical marketplace and then expand to a horizontal – that’s what Amazon did. The vice versa strategy, however, might consume too much time and resources. So, whenever in doubt, it’s best to opt-in favor of horizontal.
B2B or B2C: there’s a cost difference
Strategy and cost for building an eCommerce marketplace depend on the type of audience: are customers individuals (B2C) or other businesses (B2B)? Let’s take a look at the advantages and disadvantages of both, and examine the cost implications.
|B2B marketplaces||B2C marketplaces|
|Wholesale deals: companies prefer buying in bulk. Therefore, even a few customers can drive a lot of profit.||Complex development: B2B marketplaces require more complex admin panels, full product descriptions, and 24/7 support. Businesses have high standards.||Large market: B2C marketplaces potentially cater to millions of customers. There’s a lot of growth potential.||Competition: because B2C markets are large, they often end up targeted by the most significant player in the industry. This is especially true for horizontal marketplaces.|
|Knowledgeable audience: businesses are usually aware of best practices of making deals in the field, and are proactively looking for better offers. You don’t need to convince them why a good deal has to be seized.||Mainstream marketing methods don’t work: promoting a marketplace among organizations requires constant networking and trust-building. PPC, email marketing, and SMM might not be major drivers.||Various marketing methods: most marketing strategies are developed with B2C in mind. Social media promotion, PPC, email marketing, etc – all these methods work for B2C.||Design standards: unlike B2B audience which is usually quite experienced, B2C users might be new to the idea of marketplaces. Often, they lack awareness of their own needs. The interface, therefore, has to suggest and educate.|
|Contract-based cooperation: data security and conditions of transactions are often specified by contracts. You know exactly what regulations to adhere to.||Limited market size: naturally, the number of businesses is lower than the number of individuals. There’s not that much other fish in the sea, and the team needs to cater to each customer.||Less legal work: B2C transactions don’t require a beforehand contract. Customers are usually less demanding about having real-time support and don’t need personalized supervision.||Instability: B2B purchases are usually recurring, but B2C markets tend to be hectic. You can’t count on the existing userbase; the goal is to always expand the number of customers.|
Examples of B2B eCommerce marketplaces
- Amazon Business: a B2B marketplace, created and hosted by Amazon, that provides products for enterprises and small businesses
- Rakuten – an international Tokyo-based B2B marketplace that sells electronic devices, games, clothes
- Global Sources – Hong-Kong based B2B eCommerce marketplace for wholesalers and store owners in multiple fields, from auto parts to gifts
Examples of B2C marketplaces
- Upwork: a marketplace that connects people are willing to hire to experts in a particular field
- Uber: a B2C marketplace that connects individuals – drivers and passengers;
- Fiverr: a eCommerce marketplace that connects individuals looking for a low-cost service and professionals who look for gigs.
The overall difference in cost of B2B and B2C marketplaces isn’t all that pronounced; rather, spendings are distributed differently.
B2B and B2C marketplaces: cost comparison over the product lifecycle
Beginning stage, ideation, design: B2B marketplaces are more expensive because they require complex user flows, detailed admin panels, and ideation of legal formalities.
Development: both B2C and B2B marketplaces have their challenges. B2B marketplaces require transparent reporting, real-time connection to a support team, functionality for managing wholesale operations. B2C, on the other hand, emphasizes intuitive functionality, personalization, automated system of suggestions. If the bar is set high, both types of marketplaces hide tricky challenges.
Marketing: B2B is more challenging to market due to the low efficiency of traditional means. However, these marketing methods rely not as much on a high budget, as instead, on personal networking and dedication. On top of that, B2B eCommerce marketplace teams don’t have to be as focused on expansion, because transaction sizes are large and client retention rates are much higher than in B2C.
B2C, on the other hand, is more straightforward in the beginning. However, the team has to constantly look for ways to attract a lot of new users. Retention is comparatively low, and growth will always be a priority. So generally, B2C promotional budgets tend to be much higher – especially for horizontal marketplaces.
White label-marketplaces versus custom marketplaces
As the marketplace became a mainstream business model, companies built ready solutions that allow users to build and host their marketplace. Now, there are three major ready-to-go platforms for marketplace development: Magento Marketplace and Sharetribe.
White-label services provide templates for interface and functionality; customization is the only thing left to do. The freedom to edit is limited, especially in the back-end, and requires development knowledge anyway. However, it’s a cost-efficient approach, which also allows fast releases.
Advantages of white-label marketplaces
- Fast development: the main functionality and interface are ready;
- Cost-efficiency: you don’t need to hire a team to build basic features and interfaces. Developers only perform customization, deployment, and installation of new modules.
- Ready integrations: when you want to improve functionality or interface, you don’t need to write them from scratch. You can just use ready add-ons – all in all, this takes a few hours of work.
Disadvantages of white-label marketplaces
- Limited personalization: end-functionality and interface end up being generic and don’t really cater to particular clients’ needs;
- Requires customization: rarely companies manage to set up a white-label marketplace without a professional team’s assistance. You still need web developers who’ll install modules, testers who’ll catch bugs, and designers who improve the interface.
- Low scalability: when your marketplace will grow, the team will be inevitably boxed by a limited functionality of available integration or module.s They will be forced either to buy expensive ready features or eventually, migrate from the platform altogether.
Syndicode marketplace developers often help teams customize their marketplaces on Sharetribe or Magento. We do it to help our clients – but we aren’t fans of the approach.
If the team has the intention to grow, they will inevitably become unsatisfied with the possibilities of their hosting platforms. We’ve seen it happen over and over again.
So, if you are really ambitious about your business, a much better bet is to hire a team of developers and designers right away. When you build your marketplace, you know its business logic, infrastructure, backend, data architecture. You can make changes to any of these crucial components. User experience and growth possibilities are so, so much better.
Still, there are some use cases for the white-label platform, in particular:
- Idea validation: when you need to assess your market or business model, ready platforms allow you to do so with low expenses;
- Side-business: if the marketplace isn’t your main offer, but an additional platform, or it’s your core business priority, you can go for ready platforms;
- Really local businesses: if the marketplace is built to cover a neighborhood or one town, a ready platform will easily accommodate such a workload.
Costs of a white-label platform
The cost of a marketplace depends on the platform and its pricing plan. Here’s a summary of the most popular platforms and their pricing offers.
|Free trial||Free||Interface, front-end, and basic backend customization.|
Limitations: no custom domain, no possibility to customize an email address (it’ll be on the Sharetribe domain)expiration date – after 30 days, your marketplace will become unavailable Sharetribe branding is a part of the design
|Hobby plan||$79 per month||All features are available, the expiration date is removed, supports up to 100 users (which is why it’s better suited for B2B) |
Limitations: no custom domain; no possibility to put your email address for queries; Sharetribe branding will be present on pages
|Pro plan||$119 per month||All features are available, with the possibility to choose a custom domain and enter your email addresses. Sharetribe branding is removed from the design.|
Limitations: Up to 1000 accounts are supported
|Growth plan||$159 per month||All features of the Pro plan are available. |
Limitations: Supports up to 10 000 accounts
|Scale||$239 per month||Up to 100 000 users are supported|
Summary: if you want to build a marketplace on Sharetribe, you should start with the Pro plan. From there, costs only differ based on the number of supported users. Still, notice than even the most expensive plan supports up to 100 000 users. If your marketplace is set t grow, in several years, you will have to migrate.
Sharetribe front end and backend customization, however, will likely become a problem much before you reach 100,000 users. We wrote an entire article about Sharetribe’s backend challenges – take a look.
Magento Marketplace cost
Magento Marketplace is one of the most expensive white-label platforms. It offers a lot more possibilities than Sharetribe, but each upgrade costs a lot (so the advantage of a price difference is blurry).
|Open-source||Free||A freeware license of Magento Marketplace code has to be self-installed and hosted by the team. To roll out a ready product, you will need a team of developers and designers. The features are limited and best suited for small businesses.|
|Paid Commerce and Commerce Cloud||Depends on revenue: up to 1 million dollars, the subscription costs $22,000||The cost of the license is calculated based on the yearly gross revenue of the company.|
|Hosting||Monthly costs range from $10 for unmanaged hosting to 550 dollars for dedicated services||Basic hosting can accommodate 100-200 users, whereas dedicated services host the workload from 500,000 users to several million.|
|Themes||From $49 to $229||The cost of the theme varies based on the number of available pages, functionality, color scheme, and difficulty|
|Extensions||The price starts at $50||Magento hosts more than 5,000 extensions for marketplaces. Complex extensions cost from several hundred to several thousand dollars.|
|Customization||Clutch reports the average hourly rate for Magento developers to be $100-125/h||Magento marketplace customization is a narrow niche, which is why it’s often difficult to find local talent.|
Unlike Sharetribe, Magento is a large-scale marketplace hosting platform. The number of dedicated servers and extensions allows business owners to process requests from millions of users and keep scaling. However, development and customization are difficult. You’ll still need to hire developers, but keep paying for licenses and modules on top of that.
Custom marketplace development
The cost and duration of custom marketplace development depends on the requirements for the product. Mostly, the price and speed of production depends on functionality. Let’s take a look at the most common features of online marketplaces and give an hourly estimate for each.
The cost of design online marketplace development
Developing a marketplace feels very much like developing two services. This is a business model that caters to two types of users: sellers and buyers. The functionality required by both often overlaps, but still, it’s important to keep in mind the interests of both.
A rough division of buyer and seller interfaces and features would look somewhat like this.
Buyer marketplace platform
Seller marketplace platform
However, for our purpose of evaluating costs, separating the two is not a good idea. Like we said, the functionality often overlaps in both platforms, with some differences in execution. So, to avoid repeating ourselves, we’ll just take a look at both of these platforms simultaneously.
Just keep in mind that you’ll have to multiply many of these features by two. In some cases, buyers and sellers can use almost identical pages, in others, design and features will be entirely different.
Another note: we are Ruby on Rails development team, and the use of Ruby on Rails lets us do a lot of work faster. So, interpret hour estimates with this consideration in mind.
Marketplaces feature catalogs that provide the product’s title, image, description. Users should be able to filter goods by industry, price, rating, reviews, etc. If the catalogue features hundreds of thousands of products, UX designers and developers need to come up with a fluid flow in between these pages.
Sellers should be able to manage their stocks directly from the platform. The marketplace should offer inventory management functionality – like automated forecasts, notifications about products going out of stock, and intuitive replenishment mechanisms. At any moment, a business owner should be able to see how many items are left and what products should be restocked soon (a reporting feature).
Real-time bidding features become increasingly popular in marketplaces in many industries. Real estate, luxury goods, electronics, gift marketplaces adopt auctioning systems to help buyers and sellers get better deals.
From a development perspective, a bidding service should be able to process multiple requests in a short time. All participants should receive instant notifications about the start of the auction and their progress. Performance requirements for real-time bidding are reasonably strict – which is why this feature requires thorough design and testing.
To offer new items to customers, a marketplace should be equipped with a personalized tracking system. This feature helps hold user’s interest, leverage more purchases, and increase retention.
Recommendation engines rely on data tracking. Here’s a few methods that we often use in the development process:
- Content-based filtering: the engine tracks users’ actions – what products were bought or which pages are visited most. Each user has a custom profile with this behavioral activity. The engine uses insights to make predictions.
- Collaborative filtering: the engine uses the likes of one user to determine possible preferences on another. For instance, a system can detect that users who buy courses on Machine Learning, also are interested in Python development. Then the next user who’ll purchase a Python development course will be offered the Machine Learning one in recommendations.
- Complementary filtering: the system looks for patterns between products’ purchases, detecting complementary items. A food delivery service, for example, can notice that burgers are often bought with Cola, and next time, offer these products together.
- Hybrid recommendation: it’s filtering that combines several types from those described above.
The complexity of recommendation engine development depends on the amount and types of data, the number of patterns that have to be tracked, and the marketplace’s overall data infrastructure.
Customers want to trust the marketplace and its sellers. The easiest way to conquer their loyalty is by offering reviews from other buyers. Reviews are informative, help to build community, and are great for SEO.
Building review engines in custom marketplace development requires messaging functionality, review form design, and display mockups. The emphasis is on intuitivity and visibility.
Marketplaces connect users of several roles. Usually, there are two – sellers and buyers. They require different registration forms for other needs.
Here’s an example of a buyer registration form that we built for HLPRs, a marketplace where users can find errands assistance. Users are required to enter their ZIP code, requested service, set preferences, choose an assistant, and carry on with booking.
Notice that we paired registration with the search for assistants. This decision helped us shorten the path between registration and purchase – since it all happens in an uninterrupted flow.
From sellers, marketplaces normally require a lot more information. It’s natural – buyers have the status of a client, but sellers are stepping into the territory of partnership. To maintain quality, marketplaces need to vet their sellers, assure expertise, and get all the information that will interest buyers.
In Syndicode-developed HLPRS, home assistants are required to fill out the form that describes their experience with chosen tasks. Here’s what a cleaner’s profile should feature.
Search features and booking
Navigating the product catalog directly is uncomfortable. Filtered, the intuitive search is an industry-standard for custom marketplace development. The basic requirements for the feature are:
- Clear search filters: price, address, reviews, rating, date, etc;
- Informative results: a card with a search result should display all necessary information: photo, description, price, date of publication, rating, reviews;
- The number of all found results: a user should be able to see right away how many options the platform can offer;
Booking.com is a great example of informative, yet intuitive search. A tourist can see all the necessary information on the deal – including benefits like Free cancellation, or distance from centre. The flow of a marketplace search experience really shows how well the team understands its audience.
Shipping is often a deal-breaker of a purchase. How much data you give to a buyer, what opportunities you will provide sellers with, and how well will the two be synchronized – these are make-or-break points of the purchase. Here are some of our best practices:
- clear and detailed shipping labels: include address, recipient name, address scanning codes;
- integrate real-time tracking systems: both buyers and sellers should be immediately updated on the progress of order fulfillment;
- offer clear support and contact information on both pages: if something goes wrong, both sellers and buyers should know whom they can contact on the marketplace side if there’s a technical issue;
- enable post-delivery review: ask both users and sellers to rate their shipping experience and ask them to offer suggestions.
Returns, exchange, cancellation
Regardless of whether the marketplace deals with products or services, buyers should have an opportunity to cancel their purchase. Business analysts and UX designers should conceptualize the business logic behind such cancellations. Respecting the interests of both parties can be challenging, and is often a matter for negotiation.
After the business logic is decided, developers, build the cancellation system.
- Cancellations may or may not require a confirmation from both parties – sometimes only users’ decision is necessary.
- In some engines, buyers are offered alternative options – choosing another offer or postponing to a new date.
- Custom marketplace development teams should know costs and challenges, created by returns, for sellers. It’s important to find a mechanism that doesn’t lead to sellers losing too much profit.
- Both parties should receive instant notifications about product cancellations.
Cancelled orders should be also visible in sellers inventory – just like in this example on Amazon.
We recommend our clients use ready payment integrations, because they are already adapted to the needs of ecommerce and marketplaces. Stripe, Paypal, Payoneer support transactions from mobile devices, allow sending payments nationwide and abroad, and are responsible for data protection.
Developers are required to integrate the payment service into the functionality, and test its synchronization. To know how to choose a payment service for marketplaces, check out our blog post.
Marketplaces need to create and manage a lot of content to convince users in their expertise and build trusted relationships. Most common applications are corporate blogs, help centers, community pages. We usually solve this challenge by integrating a Content Management System (WordPress, Drupal, Joomla, etc.).
Here’s an example of a knowledge base we built for HLPRS.
Marketplaces handle financial, personal, and corporate data. It’s a lot of responsibility – which is why security is always a priority. To secure custom marketplace development, developers need to build an error-free data infrastructure, implement encryption, request user permission for every piece of data.
All tracking mechanisms, forms, and personalization engines must be GDPR compliant. This means data usage should be tightly connected to business logic – a service requests only what’s necessary for the operation.
There’s a lot of work that goes into building a secure marketplace: database development and testing, encryption, GDPR-compliance review, design of related tabs and notifications, adding mechanisms for preventing specific attacks, etc. So, specific time spending will always vary.
We implement real-time support by integrating ready messengers into the system. There are a lot of great ready solutions on the market – in most cases, building one from scratch doesn’t make financial sense. However, if the audience’s needs are particular, we can create our own chat interface and functionality.
Sometimes, support might require voice and video calls. In that case, you need to integrate powerful conferencing software into the platform. Technical priorities are security, reliable performance, and fast request processing.
From a design perspective, support experience should be, first and foremost, trust-worthy. Users should know the name, status, experience, and availability of a support agent and build long-term cooperation with the assistant.
Best practices: give users options. Some prefer finding answers on their own by exploring Help Centers. Prepare answers to most common questions and enable simple search. For instant responses, get a chatbot, who will process requests and offer adequate insights.
Customer analysis and retargeting
From your marketplace’s early days, you have to be thinking about future growth. We always suggest our clients a list of features and integrations that will make their promotion much easier. The simplest innovation is implementing retargeting; more complex options are big data analysis, machine learning, and client-focused documentation.
When you implement these features early on, you can neatly accommodate them in the architecture. They will be well synchronized with the main functionality of the service and safely become a part of data systems. Also, there’s another benefit – tracking and documentation data on your very first users will help you know their interests and adjust team’s priorities.
Order detail view
Both buyers and sellers should be able to get a full overview of their orders and purchase history. The best practices include but aren’t limited to the following points:
- A seller should see details of products, orders by a customer;
- The information on orders and their fulfillment process should be easily exported into excel or pdf documents both on buyers and seller sides;
- Order detail page should also include search and filter features;
- Customers should track their purchase history and special offers, while sellers should see their average revenue (in advanced executions – even a forecast for future weeks/months).
Last but not least, remember – the marketplace is only as strong as are its marketplaces. It’s okay to target most of your promotions towards buyers, but meanwhile, remember to invest in long-term collaboration with sellers.
The on-boarding process should be supported by the marketplace as well. Make sure you have dedicated storage for business licenses, Know-Your-Customer documents, banking documentation, and user agreements.
We build storage where marketplace teams can store this information. Developers and designers can even set up an intuitive admin panel where you can manage on-borading and all the documentation.
Summary of custom marketplace features and costs
|Returns, exchange, cancellation||70||Second|
|Customer analysis and retargeting||60||Third|
|Order detail view||60||First|
What is the essential marketplace functionality?
Marketplace functionality is different for users and buyers, respectively. A lot of features overlap, but the functionality logic and interface typically differ. Must-have features of a marketplace are product catalog, admin panel, order view, search, reviews and ratings, shipping settings, notifications, support, inventory management, etc.
How to determine marketplace cost?
Use a marketplace development calculator to calculate the cost based on features and business model. For a more precise estimate, we recommend referring to a development team directly.
How much time does it take to build a marketplace?
It depends on your niche, business model, functionality, however, the project generally may take up to 6-12 months. To figure out the cost to build an online marketplace, here’s the breakdown of features and their respective time requirements.
How much does it cost to build an online marketplace?
The cost of the custom marketplace development is determined by the difficulty of the task and the time it will take the team of developers, designers, and testers to complete their work. So, calculate the cost to build an online marketplace from hour requirements. Here’s a breakdown based on our recent actual projects.
How to save budget on marketplace development?
You can choose a narrow niche instead of spreading resources over many fields. Picking a creative business model and standing out with a good concept is also a good way to compensate for simple functionality. In our experience, even minimal viable products can be well received by users if the platform taps into the right niche and solves a pressing problem.
Should I build a marketplace on Sharetribe or Magento?
Using Sharetribe or Magento is a good way to cut costs on the MVP development stage. You can use ready-to-go modules, interface, and backend functionality to present your business model. However, for the full version of the project, using Sharetribe or Magento is actually more expensive in the long run. At first, you have to spend resources for customization and subscription, and when the marketplace grows, you’ll have to do everything from scratch to migrate.
The bottom line
When we consider the cost of marketplace development, we always research the industry, audience, and competitors. Features estimated above are an average representation of marketplace functionality. In some cases, you can do just fine with essential components only, but in others, this list will be far from complete.
What’s the way to know for sure? Reach out to our team and get a free estimate. In that case, you’ll also get examples, a summary of our process and best practices, and learn about development guarantees.
Contacting our team is entirely free – we don’t shy off from sharing our experiences and examples. If you are planning to build a marketplace, or are interested in starting one, simply write us.
Contact Syndicode for online marketplace development and consulting.