A Marketplace Business Doesn't Keep Inventory
A business that has no inventory but still makes money? Sounds pretty good to us.
With the traditional eCommerce business model, the business must have inventory on hand to sell to customers and have a CRM/ERP that can deal with intake and warehousing.
There's also the cost of the warehouse itself to keep this inventory, whether it's a rented space or purchased outright. Dealing with overstock or expired products (whether expired food products or items that have gone out of fashion) is also eliminated.
Shipping is another aspect the online marketplace business model doesn't have to deal with. No inventory means no shipping, no shipping staff, and no returns. The only aspect of shipping a marketplace business has to deal with is the shipping software that helps your users ship to each other.
Excellent (and Safe) Profit Margins
Would you rather buy something for $90 and sell it for $100, or let someone else sell something for $100 and take $10 as your commission?
The answer is obvious. If you are buying and selling items yourself, you have to deal with all of those inventory and shipping issues we mentioned above. But if someone is on your marketplace and (essentially) selling for you, you don't assume the risk.
Business models like the commission model make profit margins safe, and when you add additional selling fees like listing fees and other paid services, it's a better value proposition than many traditional eCommerce website businesses.
Focus on the Customers
When you don't have to deal with inventory and shipping, those resources can be focused on other important aspects of running the online marketplace. A primary goal of any marketplace is to improve customer satisfaction at every opportunity.
When developing online marketplaces, owners put considerable effort into researching the needs of the customers they will serve—both buyers and sellers. But no amount of research will give you the information that you'll have once you launch and start dealing with users in real-world situations.
Once you have this information, the marketplace business model lets you put your resources into changing the platform to meet these needs. Many traditional B2C and B2B eCommerce platforms stumble because they can't re-invest in their platform; so much money is tied up in inventory.
Make Good Use of Data
Your marketplace platform will generate a lot of data, and that data is valuable and can help you remain competitive. You'll learn about customer purchases, what makes them repeat purchases from a buyer, which sellers are selling the most, how buyers navigate your site, and hundreds more metrics that can be customized to your needs
You can make good use of this data by using artificial intelligence (AI) and machine learning to make your marketplace app and website better. You can even anonymize customer data and charge sellers a small fee to help them sell better.
More Money Into Marketing
Speaking of having money to improve the business, marketplace business models allow a marketplace to spend its money on marketing the platform. After all, the two primary jobs of such a marketplace are to a) provide the platform, and b) bring users to the platform.
In other words, you can't just launch a consumer-to-consumer site like a marketplace and expect people to show up. The main challenge of a successful marketplace is to bring customers to the site, both sellers and buyers. It's a business plan that works, but it must be followed so that the site doesn't flounder.
Marketplace Business Models Scale Easily
Plan for future growth when selecting your marketplace software platform. An investment in the right platform can make it easy to scale your business as it takes off, allowing you to quickly add thousands or even millions of listings with additional Cloud servers. When doing your research on marketplace eCommerce platforms, make sure you choose a platform that can scale with your needs.
With no money tied up in inventory, incoming funds can be reinvested back into the business and used to grow instead of renting more warehouse space and hiring more shipping staff. You'll be able to plan for 10X growth if your business takes off quickly, without outgrowing your platform before you know it.
Business Grows Business
You'll have to market throughout the life of the platform, but once you get going, some of the marketing takes care of itself: word of mouth.
A marketplace can reach its full potential through the power of increased user numbers. When users are satisfied with a platform and feel they are saving money, they will naturally spread the word to their network and draw fresh customers in.
By providing engaging content and relevant benefits, sellers on your platform can tap into an exponential growth cycle that brings new faces in droves!
If You're the First...
...people tend to stick with you.
Once a network is in place, it’s hard for competitors to make an impact and steal your business. They'll need to offer a superior business model or platform that draws your buyers and sellers away, and they'll have to spend money to outdo your marketing and branding as well. Achieving similar success requires immense resources and considerable time investment.
It's true, your new competition has the advantage of seeing what you've done, but you have the advantage of watching their mistakes—and drawing on your own—and addressing the needs of the community before they do.