How to scale a marketplace

By boris, July 05, 2015

As a marketplace figures out how to bring buyers and sellers together and builds liquidity, the virtuous cycle starts kicking in. The growth of sellers and buyers quickly accelerates. The ultimate goal is that a successful startup grows into a big company. But as you begin to scale, there are new considerations and strategies to keep the forward progress going.

Foster trust and safety

A certain level of trust is required for any type of transaction to take place. During the early days of your marketplace, you may have a small and passionate community. As such trust and safety are not significant concerns. However, as a marketplace grows and gains popularity, it will inevitably attract some bad actors.

Your job as a marketplace is to fight these bad actors proactively, so both buyers and sellers have confidence in the platform.

Transparency is one of the most effective ways to establish trust and credibility. This can be done with a rating system, user reviews, or testimonials. Some platforms act on this data to weed out the bad users (either buyers or sellers). For example, you’ll never see an Uber driver with a rating lower than three stars. Uber filters these drivers out, so customers don’t have to sift through driver reviews before getting a ride.

Providing some level of guarantee – be it for service quality, delivery time, or payment – is critical for instilling trust on both sides. If your marketing claims you’ll be at your customer’s doorstep in 15 minutes, you need to make sure you can deliver on that promise. If a buyer never receives their item, you’ll need to be ready with a money-back guarantee.

Support your power sellers

In addition to solving any trust issues, the next step to scaling a marketplace is to support your power sellers – those sellers who earn a living off your marketplace. This approach may seem counter-intuitive for some startups that are typically used to pleasing end users (the buyers). But to be successful at scale, a marketplace needs good supply.

For example, eBay offers an official PowerSeller program where qualified sellers get priority customer, unpaid item protection, a “Top-rated Seller” designation, and support and other promotional offers. Threadflip’s leadership team has regular one-on-one calls with top sellers to find out what they like about the experience and what Threadflip could be doing differently.

Develop an ecosystem

Think about add-on products, services, and experiences that give sellers a deeper connection with your marketplace. These are incredibly effective ways to differentiate the selling experience on your marketplace from other sites, as well as lock in providers/sellers to your site.

The first approach is to develop and/or offer these add-on products and services yourself. For example, Uber connects its drivers with exclusive leasing and financing offers. And qualified drivers (those who completed 200 rides the previous month) can now get gas discounts with the Uber Fuel Card (issued by MasterCard).

The second approach is to support those third-party services that spring up around your site. Marketplaces have a tremendous opportunity to scale into a platform – with an entire ecosystem of value-added services and startups.

Shopify, a SaaS provider of ecommerce stores for SMBs, has done an excellent job of understanding and formalizing the role that third-party developers play in enhancing Shopify’s overall value to sellers. In the Shopify Apps Store, sellers can find third-party apps for selling, marketing, inventory management, customer support, shipping, reporting/analytics, and more.

Build a moat

The last part about scaling your marketplace is to build a moat against the competition by having the right product mix (unique supply) to become a frequent destination for your customers. You can read more about this in the post “Buyer mindshare is key to building a moat”

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  • Daniel Ripoll

    Boris, any benchmarks for the % of monthly active users for a 2 sided marketplace? In other words, what % of a marketplace’s user base should be active in any given month to indicate a healthy, sustainable engagement?

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