29.09.21

When will the marketplace pay off?

The Scallium experts are confident that the marketplaces will grow as fast as global e-commerce grows. This business model is one of the most promising in retail. However, marketplace development can be unpredictable for business owners. They have many questions:

What are the costs of creating, launching, and promoting a marketplace?

How much does it cost to build or buy an IT solution?

How quickly can a marketplace return on investment (ROI)?

How long will the investment pay off?

In fact, there are no simple answers to these questions. Different niches require different levels of investment. Sometimes you can succeed with minimal funds, but sometimes you may need hundreds of thousands of dollars.

Let's assume that your marketplace concept does not require complex and expensive IT platform development. Also, we expect you don't plan to compete with giants like Amazon, which has huge budgets and marketing opportunities.

For example, you have a niche marketplace and an inner circle of trusted, reliable suppliers. You offer them your platform, sales tools, and customers. In this case, you may need 2-3 thousand dollars to start.
What are the components of the marketplace creation budget?
Basically, the funds are needed for the development of the platform, marketing, and operating costs.

The good news is you don't need to write code for your platform from scratch. You can invest in one of the existing marketplace platforms or order the development from an outsourced team. In these cases, an MVP (Minimum Viable Product) development will take several months and up to six months.

The bad news is the marketplace will require marketing costs. You need a lot of suppliers to attract customers. But suppliers won't come to you if your platform doesn't have buyers. This is a vicious circle that is difficult to break. But it is possible. We recommend focusing on marketing.
When will the marketplace start generating revenue?
Often, the marketplace does not generate a lot of income at first. During the first year, the marketplace requires investments. This time is a test of your idea. It is excellent if the income comes up so quickly. This means that you have successfully chosen a niche. Otherwise, be patient. It is realistic to estimate the payback period of the marketplace from 1 to 3 years. If the marketplace hasn't taken off in 3 years, something has gone wrong, and you should reconsider your business model.

In addition, you can influence the rate of return on investment in the marketplace. Let's consider how it is work.

Marketplace revenue depends on three factors:

  • Traffic (how many visitors come to your website);

  • Conversion (how many visitors makes a purchase);

  • Order value (what is the average order value or customer lifetime value)

Thus, ROI depends on your income divided by your investment: capital costs and operating expenses.
If you want to drive more traffic, you can go for better SEO. Provide an accurate product description that will display clearly on Google or other search engines. Besides, the more merchants you have, the more extensive the product assortment, the more traffic the marketplace receives.

You can influence all the components of the ROI formula similarly:
Traffic
  • SEO
  • Marketing automation
  • Integration with marketing channels
  • Social integration
  • Multichannel
  • Coupons / gifts / promotions
Conversion
  • Assortment of goods/reduction of shortage of goods
  • Sales Level Agreement (SLA) control
  • Automated search / filters / navigation
  • Page loading speed
  • Personalization
  • Chatbots
Average check
  • Assortment of goods
  • Automated search
  • Download speed
  • Navigation
  • Personalization
  • Chatbots
  • Reducing the deficit
Capital expenditures (investments)
  • Cloud vs. On-Premise platform
  • Best market practices
  • Using accelerators
  • Reuse of off-the-shelf components
  • Scaling on demand
  • Outsourcing and outstaffing
Operating costs
  • Data analytics
  • Product sellers
  • Inventory for sellers
  • Reducing the cost of supporting sellers
  • Dealing with fraud
  • System Integrations
How else can you reduce capital costs?

Building a platform for a marketplace from scratch takes on average two years and requires about $ 5 million (these are world statistics). With the Scallium solutions, you can create a marketplace in 6 months, mostly with a much smaller investment. In this way, you reduce capital expenditures with a cloud-based platform with best market practices.
Would you like to find out more about transformation into marketplace? Please fill in the form and our team will respond to you shortly.