Why are so many aspiring entrepreneurs investigating business models like dropshipping and multi-vendor markets as options for opening online stores? Convenience. As the owner of a multi-vendor marketplace, you can make money selling products without touching a single piece of inventory, without packing a single box. It seems too good to be true, but sites like Amazon, eBay, and Qbids do it every day.
Online retail is booming. There are 95 million Amazon Prime members in the U.S. alone, spending an average of $1,500 per year. Large multi-vendor markets like Amazon carry many different products, but they don’t sell everything yet. They profit by serving niche markets—surfacing specialty items that consumers are searching for. Smaller business owners can profit by starting their own multi-vendor market or by adding eCommerce functionality to their existing site.
Here are some marketplace basics to help you decide if a multi-vendor store is the right business model for you.
What’s a Multi-Vendor Marketplace?
An online multi-vendor marketplace is a website that hosts third-party vendors who provide products and services while the owner manages the website. Customers buy the products on the marketplace and the owner gets a commission from every sale the vendors make.
Multi-vendor marketplaces benefit both owners and sellers. Owners don’t have to find products to sell and vendors don’t have to build and maintain a website. Vendors can focus on providing quality products and owners can focus on building a brand.
Types of Multi-Vendor Marketplaces
One of the strengths of multi-vendor marketplaces is their flexibility—you can mold them into anything you want. For example, eBay and Qbids are auction sites that aggregate products for customers to bid on. Craigslist is a marketplace for classified ads. Amazon is a third-party retail host. All are marketplaces that afford vendors an opportunity to trade in products and services.
Marketplaces are also known for the types of products sold. Some sites like Overstock or AliExpress sell everything from smartwatches to coffee mugs made from Legos. Other marketplaces focus on niche markets like baked goods, high-end watch bands, or offbeat arts and crafts.
General Marketplaces vs. Specialty Marketplaces
Specialty marketplace owners invest more time searching for vendors than owners of general retail marketplaces do. But niche marketplaces make marketing easier—you’re marketing unique items for an engaged audience, not a grab bag of products. Customers looking for these specialty items are more likely to buy. There’s just fewer of them.
Multi-Vendor Marketing Pros and Cons
You can’t just launch a new eCommerce website and simply wait for vendors to trip over one another trying to set up shop. Depending on your business goals, a multi-vendor marketplace may not be the best solution. But for many eCommerce store owners, marketplaces are an efficient way to make money with less direct store management.
Managing a multi-vendor marketplace is a lot different than selling products you make. Instead of managing the success of one line of products, you’re now in charge of many different ones. You’re hitching your eCommerce wagon to many different stars. If one fails, your whole site is the less for it.
Then again, as a multi-vendor marketplace owner, you no longer have to order, ship, and stock products yourself. Most people don’t get into the eCommerce game because they love affixing shipping labels.
As a multi-vendor store owner, your vendors take care of that. You have fewer day-to-day store tasks to complete and more time to focus on the cool stuff—optimizing your marketing and technology.
One of the marketplace administration tasks you’ll have is approving products for sale on your site. Even though vendors bring the products to you, you’ll still need to approve them. Low-quality or off-brand products will affect your consumer reviews and your sales. If you run a niche marketplace for homesteading products, you don’t want a vendor selling alarm clocks (unless the clocks are shaped like Red Rock roosters).
Although you have more product oversight duties, you can “stock” many different products without actually having to acquire them. You can offer customers a much wider variety of items and brands using vendors than if you were doing it alone.
As a multi-vendor marketplace owner, you get paid a commission for every sale to offset the costs of maintaining the site. That’s a new revenue stream if you’re new to eCommerce and an additional one if you’re adding a marketplace to your existing store. And, for those with existing stores, you benefit from the increased traffic and can continue to sell your wares right alongside the other vendors.
But you will need to invest some time and money getting your marketplace operational. This process is easy and affordable with the right eCommerce platform, multi-vendor plugin, and website hosting service.
How to Get Started
There are some key decisions to make when setting up your multi-vendor marketplace. While it can be tempting to base your choices on immediate needs, make sure you’re also looking to the future of your store. Don’t forget to ask, “What will my store need in three years?” Start with a strong foundation and build your eCommerce empire from there.
What’s the Best eCommerce Solution for You?
Ease of use and flexibility are the most important things to look for in an eCommerce solution. Some all-in-one store platforms offer a quick start-up, but little flexibility for branding, plugin integration, or store expansion. It’s easy to get started but hard to change later.
Open-source plugins like WooCommerce are built with flexibility, integration, and customization as top priorities. Since both WordPress and WooCommerce are open sourced, you can change anything you like about them. Both platforms appeal to store owners who want the power and flexibility to stay competitive.
Vendors don’t want to showcase their products just any old place. They look for power, speed, and flexibility in a marketplace. So, your eCommerce solution will affect the quality and number of vendors you attract.
How Much Should You Charge Vendors?
As a marketplace owner, you’ll charge a percentage commision, which should be high enough to make a profit and low enough to attract vendors. If you cut too deep into your vendors’ profits, you’ll discourage them from selling on your store.
Most marketplace owners have a floating percentage fee that changes depending on the product sold. For example, Amazon charges a variable “referral fee” that changes with the product category. Personal computers have an 8% charge, while Amazon device accessories have a 45% charge.
You can base your fee structure on the markup of an item or its popularity. If an item is very popular, you might lower your percentage to keep prices attractive. Then consider charging a flat rate (e.g. 15%) for items that don’t fit into categories.
You can use the Amazon referral fee structure as a base to create your own or search for similar marketplaces in your niche and see what they’re charging vendors.
Who Handles Inventory?
Sure, the sellers bring you the products, but you still need to set guidelines for those relationships. For example: Who will upload product information to your site? You could let vendors upload their own, but then you’re putting the approval process in their hands. What if they upload something of low quality or that isn’t on brand? On the other hand, if you do it all, you’ll have to budget the time.
You also need to decide who will track and order out-of-stock items. Customers can’t buy an item if it’s not available. Vendors are incentivized to make sure products are ready for purchase, but not every vendor is as motivated as you’d like them to be. Again, you have to find the right balance between product control and time management.
What Multi-Vendor Plugin Works for Me?
Along with an eCommerce solution like WooCommerce, you’ll need a multi-vendor plugin that integrates with your store and delivers the features you need. Here are a few features to look for:
- Integration. Make sure your plugin works with your current WordPress theme.
- Price. Do you want a subscription service or a one-time plugin purchase?
- Flexible commission rates. Lets you set different commission rates for product categories.
- Table-rate shipping. Gives you the flexibility to set complex shipping charges based on destination.
- Vendor management. Vendors can upload their own products and set shipping rates.
- Payout Options. You have to pay your vendors. Find a service with options like PayPal or Stripe.
Dokan is a multi-vendor plugin that combines the features of an intuitive vendor dashboard, customer commissions, and integration into one package.
Multi-vendor marketplaces offer store owners and vendors an opportunity to divide responsibilities and profit together. But they also give consumers advantages like more product offerings, lower prices, and a better experience, overall.
For a niche marketplace, vendor competition ensures better quality at lower prices even for specialty products that tend to have a bigger price tag. In the end, it’s the customer’s experience that will make or break your store, and wrangling a group of highly motivated, quality vendors for your customers is one of the best ways to profit in eCommerce.