How to Build a Business Case for B2B Marketplaces

Many B2B companies are looking to digitize analog processes that are currently bending under the pressure of disintermediation, digitally-native customers, and an overall shift to online offerings. For many, the marketplace model has been an answer—and a very good answer—to help businesses meet the evolving needs of customers.

Of course, it's one thing to understand the benefits of launching a marketplace in theory. It's another thing entirely to secure executive buy-in, get budget approval, and launch a major technology project in reality. 

To understand the actual value of the marketplace model, Nautical Commerce commissioned a study by Forrester Consulting called From Marketplace to Market Share: High ROI Builds a Business Case for Marketplaces. This cross-industry survey polled 121 North American decision-makers on their firms' digital marketplace solutions and their ROI since launch.

In this article, we’ll explore some of these takeaways, including: 

• The ROI of marketplaces
• Costs to consider when launching a marketplace
• How to strategically start a B2B marketplace 

But first, why are B2B marketplaces becoming so popular? 

Why marketplaces are the future of B2B commerce 

B2C companies, namely retailers and tech, have long figured out the marketplace model’s astounding profitability potential. In fact, B2C online sales via marketplaces are forecast to increase to $4.7 trillion by 2025, with marketplaces capturing a 61% share of total B2C sales.

While the B2B marketplace market is still in its infancy, data shows that B2B marketplaces are already on a path toward becoming a predominant business model:

• B2B online sales via marketplaces are estimated to account for 14% of total B2B ecommerce sales by 2025. Sales in this same period are forecast to jump to $4.0 trillion. (Be STF forecasts) 
• 54% of U.S. companies now place B2B orders via self-service websites, and 22% currently do so through an online marketplace. (Optimizing B2B Payments Report)
• 79% of suppliers have built, are building, or are planning to build a marketplace. (McKinsey & Company)

‍Why? ‍

The marketplace model is built for profitability 

B2B companies are starting to realize the power of third-party selling to expand online storefronts and, thus, revenue potential. 

Introducing third-party selling, allows you to grow SKU depth, website traffic, and customer reach. 

• SKU depth: The marketplace model inherently expands the number of products or services on your website by engaging vendors that sell periphery and even competing SKUs. This means you can increase your SKU depth without creating those offerings. The greater the range of SKUs you offer, the more sales opportunities you have, and the more likely buyers are to visit your marketplace as a one-stop shop for all their needs.
• Increase web traffic: By virtue of Search Engine Optimization (SEO), the more products you have on your website, the more search engines, like Google, will see your site as the answer to a searcher's question. Things like the time a buyer spends on your site also contribute to the frequency your website appears in searches and, therefore, the amount of exposure your website gets. 
• Customer reach: Customer reach works hand-in-hand with SKU-depth and SEO. By increasing your SKU depth, you'll reach customers by fulfilling a greater variety of buying needs. By improving your SEO and generating more web traffic, your marketplace will get in front of more buyers more often, thus attracting new business organically. 

Businesses want B2C experiences

B2C marketplaces have normalized the experience of online browsing, the habit of checking product reviews, and our expectation of inventory diversity. As a result, B2B buyers expect the same experiences when making business purchases. 

PYMTS found that 67% of B2B buyers have switched to vendors with 'more consumer-like experiences.’

The ROI of marketplaces

It’s one thing to understand the value of B2B marketplaces in theory, it’s another to understand it applied to your own business. And it can be even more challenging to demonstrate the value of a marketplace to executives and shareholders when decision-makers see a marketplace project as a costly and complex leap into the unknown. 

Forrester's study sheds light on the true impact of marketplaces, helping turn unknowns into knowns.

The majority of B2B companies surveyed launched their marketplace project hoping to increase revenue (92%), improve buyer experience (93%), and grow their customer base (91%). The results confirm that launching a marketplace succeeds in meeting these objectives.  

After launching marketplaces, the study’s participants experienced an average year-over-year growth in:

• New customers (44% increase) 
• Overall revenue (42% increase)
• Revenue per user (38% increase) 
• Average order value, or AOV (36% increase) 

These results prove that marketplaces have an incredibly high ROI and positively impact outcomes across the business, ultimately increasing revenue.

Costs to consider when launching a marketplace

Like any business transformation, marketplaces are an investment. They offer a new way to make money and, therefore, require a lot of change. 

Even understanding this, most business leaders fear devoting significant resources to a technology project that could fail to produce results. The reality is most marketplaces that fail do so before they can even begin generating results. They fall apart pre-launch because teams underestimate the time, resources, and budget needed to get a fully functional marketplace off the ground. 

To set a marketplace up for success, businesses, leaders, and their teams must go into a marketplace project with their eyes open to the full spectrum of costs. 

Forrester Consulting's study provides insight into the average costs of marketplace development.

Marketplace launches need time

For most businesses, launching a marketplace takes at least half a year. Forrester found that nearly two-thirds (66%) of respondents took over six months to launch their marketplace. Notably, it took 36% more than a year to go live. 

Of course, timing is entirely dependent on your technology approach. A custom-built marketplace requires ground-up development and takes much longer than a purchased vendor solution.

Marketplace launches need people

The study found that marketplacification takes elbow grease. All respondents reported hiring more employees to help adopt and manage their marketplaces. And nearly half hired more than 15 employees. The majority of those employees were in IT (72%).

Similar to how a marketplace requires an investment in new technology, it also requires an investment in people. Successfully launching a marketplace means hiring additional staff. But how many new people you need to hire will depend on the current organizational structure and expertise and the technology you choose to implement. For example, software with event-driven architecture can help allay additional staffing needs as you scale. 

Marketplace launches need money

Fifty-nine percent of respondents spent $3 million or more to launch their marketplaces. What’s more, 80% spent more than initially anticipated. It’s clear businesses face significant challenges in estimating the budget needed to get their marketplaces off the ground. 

But with a strategic approach and access to expertise, it becomes easier to keep down costs and maximize return. For example, businesses that tried to build their marketplaces in-house were 43% more likely to cost $6 million or more than those who partnered with technology vendors — a telling statistic when it comes to the question of build vs. buy.

How to start a B2B marketplace: 3 strategies

1. Consider commerce, fintech, and logistics from the start 

Operating a marketplace encompasses much more than a first-party online store, because marketplaces are more than just commerce. They exist at the intersection of commerce, fintech, and logistics.

Companies need best-in-class fintech to process large payments, comply with regional tax requirements, support multi-vendor checkout, and facilitate supplier payouts. They also require carefully orchestrated logistics to communicate order information, manage shipping, and facilitate returns to numerous suppliers. Neglecting a marketplace's fintech and logistics components means you’ll supplement technology gaps with headcount and Frankenstein solutions, in turn, send your costs soaring. 

2. Take a phased approach to validate quickly and incorporate learnings 

Boil the ocean approaches are prone to risk and have a higher failure rate. For a marketplace to work and work well, it's best to take a phased approach to launch. Launching a marketplace isn’t a one-time event. It’s a process. And your goal throughout the process should be to continually learn. 

• First, validate your business model. Launch the marketplace functionality for internal use first to make sure it works well for your staff. Finesse processes before giving access to your customers.
• Next, pilot the project. Choose a few highly-invested customers and trusted suppliers to test out the functionality.
• Then, launch publicly. Go live with the functionality for all customers and suppliers to enjoy. 
• And finally, rocketship your growth. Expand your assortment and profitability by adding more suppliers and capabilities.

An incremental approach enables you to validate your business model quickly with customers and suppliers, ensuring everyone gets what they need. A phased approach also de-risks unknowns by alerting you to problems early based on marketplace KPIs and feedback, allowing you to pivot without the costs of a re-work or total failure.

3. Leverage technology vendor solutions

Every marketplace is unique, and there’s a case to be made for tailoring the buying experience. But, all marketplaces, from Uber to Wayfair to Convoy, have the same plumbing: an operator connects sellers with buyers. So when it comes to the backend, there's no need to reinvent the wheel. Companies that lean on vendor solutions for the backend of their marketplace can focus their efforts on differentiating the buyer experience. 

What's more, marketplace-specific software vendors maintain infrastructure updates, provide integrations, have important marketplace features, and facilitate your marketplace's commerce, fintech, and logistical components. This results in a marketplace that is more easily adoptable,  affordable to run and maintain, and scalable. 

Learn more about Nautical’s marketplace platform.

Build a strategic business case for your marketplace

No business wants to fall behind in rapidly advancing digital landscape. 

The Forrester study findings prove that marketplaces have a clear ROI when looking at revenue growth, customer growth, and AOV. 

Like any form of digital transformation, launching a marketplace requires an upfront investment. Still, companies can contain and significantly reduce this investment via vendor-built technology and strategic planning. 

As learnings and technology become more accessible, leading B2B companies will be empowered with the right tools and resources to ease the upfront costs of launching a marketplace. The result? A marketplace that’s strategically built for long-term ROI.‍

‍🔵 Download the full Forrester Consulting study for free 🔵

Additional Resources:

• Check out Nautical's glossary of terms to help navigate marketplace conversations
• Download the marketplace key decisions checklist as a guide for critical questions to ask yourself before launch
• Read the Forrester Opportunity Snapshot we commissioned to dive deeper into the data on maximizing the ROI on your marketplace