5 Things to Consider Before Building a Marketplace with a Development Company

Building a multi-vendor marketplace can be challenging.

While multi-vendor marketplaces are incredibly difficult to slow down once they find network effects, they also have much higher communication and coordination requirements than a traditional ecommerce store. 

A regular ecommerce store processes transactions between a single seller and their customers, but multi-vendor marketplaces have to accommodate buyers and sellers. That means enabling vendors to add their products to your site and allow for multi-vendor checkout — that’s just the beginning. 

Because multi-vendor marketplaces are so complex, some turn to a developer or IT company to build out their marketplace. But is that the best choice?

There’s lots to consider before hiring a developer to build your multi-vendor marketplace, and the process has more than one downside. Here are five of the most important factors to consider before making a decision:

1. They’re expensive to launch

‍Hiring a firm to build a multi-vendor marketplace is a big investment. Costs vary widely depending on what kind of features you want, the scale you’re starting at, and more.

Generally, though, marketplace development costs are estimated to be in the hundreds of thousands of dollars — and they often enter into the millions — just to launch. Budget overruns are common. In fact, 43% of IT projects go over budget, nearly half are late, and 14% are deemed outright failures.  

At Nautical, we've had many conversations with marketplace founders working on their marketplace with custom development shops who have spent hundreds of thousands of dollars, and years, without any marketplace to show for it.

2. They’re costly to maintain

‍ Every line of code eventually requires maintenance. If you’ve paid another company to create your own tailor-made multi-vendor marketplace, upkeep expenses are entirely on you.

Maintenance spending can quickly add up. Want to make a change to your developer-built marketplace? You’ll need to consult with the team behind it every time. As your custom build ages, this will happen more and more often. In addition, new third-party tools are constantly emerging, but you’ll have to keep customizing your marketplace’s back end to leverage them. 

With major institutions like banks, airlines, and government agencies, struggling with aging IT infrastructure, we’ve seen how hard it is to continually update systems — even with vast resources.

3. Launching them is time-consuming

‍With marketplace popularity surging, thousands of niche marketplaces will soon appear. The sheer scale of the opportunity costs related to delays are hard to fathom. 

Yet developing custom software means you’re slowing your time to market from the beginning. It typically takes two years or more to get a custom-built marketplace up and running, and the more time that goes by, the higher the opportunity cost.

Hiring an online marketplace development company will also distract you from what you’re best at: the commerce side of the business. You’re effectively signing on to be a project manager. This will be even more challenging if you’re new to ecommerce, as you’ll need to divert resources from your current operations to provide answers to technical questions from the developers.

4. They might not be built with best-in-class practices

‍Many ecommerce development firms are great at building everyday commerce websites. Far fewer have the specialized knowledge needed to create an optimally functioning multi-vendor marketplace, which combines ecommerce with fintech and logistics. 

Single-vendor estores are simple enough. They use payment providers to accept purchases. Multi-vendor marketplaces must direct payments to suppliers, distributors, and sellers — and in their preferred payment method. 

Depending on location, multi-vendor marketplaces face increased responsibilities to verify vendor identity. They’re also potentially exposed to broader regulation as they could have a network of vendors in different countries, each with its own tax rules and financial regulations. To top it off, instead of a limited number of warehouses, they’re dealing with many.

Due to these complexities, understanding the workflows between all of the systems that make up a marketplace stack necessitates working with marketplace experts.  

Building out a marketplace that can meet these demands isn’t easy. Finding an online marketplace development company that can navigate this terrain is even harder.

5. They aren’t the only option.

Before building your multi-vendor marketplace with an online marketplace development company, you should evaluate other options.

Here are two alternatives to hiring an online marketplace development company for a custom build.‍

Build on an existing ecommerce platform

It’s not unheard of for marketplace founders to try and launch multi-vendor marketplaces on top of ecommerce platforms like Shopify or Magento. There are some benefits with these solutions, like faster launch times, cost savings, and customer support.

However, traditional ecommerce platforms weren’t designed for the multi-vendor setup and, as such, require many third-party apps and plugins, leaving an operation prone to bugs, outages, and slower run times. 

Plus, it’s often difficult for a multi-vendor marketplace to scale on ecommerce platforms because of built-in limitations. The platform may not allow multi-vendor checkouts, or it might cap the number of warehouses and product variations.

Use a multi-vendor marketplace platform

There are multi-vendor specific tools that can be leveraged at every stage of your multi-vendor marketplace journey. These tools were built specifically for the complexities of marketplace transactions, and can help you rapidly validate your marketplace without the upfront cost of custom development. 

Solutions like Nautical Commerce’s multi-vendor marketplace platform democratize software development. Marketplace platforms orchestrate between the different systems in your marketplace stack and give you the tools you need to prepare your marketplace for scale.

With Nautical, you can validate your marketplace in as little as 90 days. With a custom build, you’d still be in the planning phase.

If you're still validating your marketplace,  look to leverage no-code or low-code tools to get your marketplace off the ground.

A multi-vendor marketplace platform is the solution for scale

When you're ready to scale your multi-vendor marketplace, it's crucial to use a platform built for multi-vendor that can get you launched rapidly.

Adopting a multi-vendor marketplace platform like Nautical to scale your marketplace is faster and more cost-effective than doing so with an online marketplace development company and comes with built-in marketplace best practices.

It doesn’t come with the limits of a regular ecommerce platform either, so you’ll be able to expand your marketplace to meet growing demand.

The bottom line: Building your marketplace custom is a resource intensive choice. Choose a multi-vendor marketplace platform and start connecting buyers and sellers within 90 days.