One of the first questions that new clients usually ask us, is how much it will cost to turn their marketplace idea into an operational reality. The short answer is that custom development by an experienced marketplace development agency can cost from £10,000 to £100,000 plus. Before you faint at the sight of those numbers, let’s put them into context.
The massive success of OG marketplace platforms like Amazon and eBay, and newer kids on the block like sharing economy marketplaces Airbnb and Uber, has spurred a new generation of marketplace entrepreneurs. These newcomers are exploring exciting new verticals through hybrid models (e.g. offering both products and services, or allowing buy and hire options) and hyper niches like Trouva’s marketplace for boutique homeware.
The OGs may be dominant with Amazon handling 31% of UK online retail, but 1% of a £586bn e-commerce market is still a lot of dosh. This promise of the marketplace model has seen a proliferation in imitators and overnight marketplace entrepreneurs. Just check how many Google search results you get for “Airbnb clone” or “Etsy clone”. The opportunities and success stories are definitely there, but so are the failures.
Three of the biggest reasons for marketplace failure
Lack of product-market fit. If your target market is not interested in the products or services you offer, your marketplace idea will be stillborn. This needs to be tested right from the start.
Incompatible tech stack. Building with the wrong technology can have serious repercussions, ranging from user dissatisfaction to scalability issues. Too many unnecessary features can be just as dangerous as not having the right functionality.
Lack of experience and know-how. Underestimating the complexity of building a marketplace can be disastrous. Your development road map should include the right revenue streams and synchronise with a clear go-to-market strategy.
Development options for online marketplaces
Plug-and-play marketplace website builders average between £300 and £6,000 per year. Note that these are recurring fees that exclude any customisation. The lower end options have restrictions on the number of users, transaction volume, and extensibility.
Content management systems like WordPress can be adapted for marketplace use with an e-commerce plugin like WooCommerce. Using an off the shelf template and various paid plugins you should be able to get up and running for about £100. Once again this excludes customisation and you will need some coding knowledge.
Custom development can cost anywhere from £10,000 as mentioned, depending on which technology is used and how mature your marketplace concept is.
What history tells us about marketplace development
Be careful with glittering success stories that start on a shoestring budget. Home improvement marketplace and quadruple unicorn, Houzz, may have started out as a side project, but it did help that one of the founders was a lead developer at eBay.
Uk success story, Deliveroo, has raised $1.5 billion in funding, a big portion of which went into further development of the platform.
From Airbnb’s well-documented history it is clear that growth hacking, supported by the founders’ design and tech backgrounds, played a pivotal role in the platform’s initial success. WordPress or an online website builder is not going to help you with that.
If you spend too little, you may be wasting your time. Spending too much or inefficiently could be a waste of your money. Carpet bombing your runway with unnecessary features and being overcharged by inexperienced developers that do not provide end-to-end assistance are some other pitfalls to be wary of.
How do you make an informed decision about your marketplace development options?
Let’s break it down into a few key factors that can contribute to marketplace success.
Marketplaces tend to require more moving parts to function properly – e.g. vendor review systems, payment gateways that can handle split payments and escrow, security mechanisms, moderators (for reviews), user flows for buyers and sellers, complex page hierarchies, and custom search functionality.
In contrast, plug-and-play solutions for e-commerce sites are fairly simple and easy to set up.
Online marketplace builders offer a limited service
Some SaaS service providers have tried to replicate the success of e-commerce web builders, like Shopify, for marketplaces. What these online marketplace builders tend to omit in their marketing material, is that compared to standard e-commerce sites, marketplaces need far more input than simply choosing a website template.
The SaaS website builder business model relies on client volume; the success of individual clients is not their core priority. Their responsibility stops when you have chosen your template and added a few extensions.
Even Sharetribe, one of the top SaaS marketplace builders, admit that their product is more suitable to quick market tests instead of long-term scalability. That said, customising a Sharetribe template properly requires some expert assistance to get decent feedback from users. A development partner with a long-term view should be happy to assist with such an experiment, before building a more scalable custom version once the concept has been validated.
Custom marketplace development is a far cry from using an off the shelf template. A custom process not only includes the site infrastructure but also advice on the most suitable tech stack – being tech agnostic can be a big advantage. It also includes UX design, user flow mapping, and feature integration.
The two-sided factor
Their two-sided nature makes it more difficult to establish product-market fit for marketplaces than for single-vendor e-commerce sites. A good development agency will assist with the formulation of your business case and apply a structured iteration process using MVP prototypes to test your assumptions.
Custom marketplace developers are success oriented. The better your marketplace does, the more powerful is its impact on their portfolio. As we all know, your track record is your biggest marketing tool.
Best of all, they know all the budget pitfalls (too many bells and whistles!) and their knowledge of the greater marketplace landscape can provide invaluable insights. The best development agencies have built business intelligence, technology options, design, go-to-market and revenue strategies, as well as process management into their value propositions.
How to choose a custom developer
Your best bet of balancing the cost of developing your marketplace with achieving the desired outcomes is to partner with experienced marketplace developers that are committed to a transparent process. Each specification should be clearly outlined with reasons why it is important. There should also be agreement on which features should be implemented first and how development resources will be allocated.
Here is an example of such an itemised breakdown which makes it easy to keep track of your budget forecasts. You will notice that each item is aligned with a story point or user action to make its implementation clear and relevant. Features should include a detailed description, cost range, risk level, impact on users, and a recommendation for when to add it to the platform.
Time also impacts on cost. If you want a fully bespoke platform ready for an international market within three months it will obviously cost far more than an MVP built for a limited test market. Building a huge hybrid marketplace with lots of bells and whistles like Houzz obviously requires a bigger budget than creating a small specialised marketplace for financial services.
Adding additional functionality like APIs will increase development costs, but may eventually pay off big time. The trick is to know when to add such a functionality. If you haven’t proven product-market fit it is probably not the right time.
The good news is that some UK-based marketplace developers have built teams based on a distributed model which allows them to access top talent at discounted rates (the pound is still quite strong compared to many other currencies). That discount tends to compare very favourably with the UK median developer cost of £56 per hour and the US average rate of $100 per hour. We won’t mention Silicon Valley’s astronomical rates.
We need to be clear here; everyone does not necessarily have the skill sets to run a distributed organisation. There’s no harm in discussing that aspect with a potential development partner. A transparent company should be happy to share how they manage their remote team. Just don’t expect well-appointed shiny offices on the high street – that rent is passed onto you as a discount.
The single most important element in your criteria should be your development partner’s portfolio. And that does not mean glitzy images of fancy websites or case studies about clients who want to make the world a better place. The only thing that matters is if they have helped digital entrepreneurs build sustainable scalable businesses. That means hard facts like user and revenue growth.
Getting back to our initial statement that a custom marketplace can cost anywhere between £10,000 and £100,000 plus to build. It is important to view those numbers in perspective. Where the lower end pays for a quick prototype built with an existing framework like Sharetribe or WordPress to test your initial idea, the top end would represent a fully fledged product that has gone through numerous iterations to establish product-market fit. So different costs for different stages.
Check out our companion post to learn more about the difference between initial marketplace setup costs and a fully-fledged product development budget geared towards product/market fit.
Over time, marketplace budgets tend to shift from a development to a marketing focus. Once the shelves have been stocked with sufficient sellers it is time to drive buyers to your platform. The better your product-market fit has been established in the development phase the less your marketing burden. This should be a key consideration when choosing a development option.
Building an online marketplace is not a sprint (see what we did there :-). It is an endurance race during which you have to do continuous testing and collect user feedback. This will allow you to tweak different aspects of your platform and create better value for all its stakeholders – buyers, sellers, and marketplace owners. And for that you need a development partner you can trust and who is with you every step of the way.
CobbleWeb has a proven track record of developing highly-scalable custom marketplaces. Give your marketplace idea the best chance for success – get in touch for a free consultation.