How To Launch Marketplace For Services the Right Way

Launch Marketplace For Services
The On-Demand Economy / App Development Guides

How To Launch Marketplace For Services the Right Way

Last Updated on November 25, 2023

If you have ever come across an online marketplace, you know how intriguing it can be once you find them. Online marketplaces combine all the positive points of an online business but without the heavy load of buying any inventory or worrying about supply. According to reports from Forrester, at least 1/3rd of US business is routed through e-commerce, and of that at least 63% is performed through marketplace apps. If you are planning to launch marketplace for services, this blog is for you.

An online service marketplace is a discovery platform that allows suppliers and customers to meet in one place. Instead of managing inventory for services; these platforms just provide a place where customers can meet service providers and avail services from them. A great example of a service marketplace is Handy, which is a place where customers can find handymen when they need help with household services. Service marketplaces are similar to other marketplaces but instead of buying goods customers come here to avail services.

Service marketplaces have become popular over the years because they allow customers to find different service providers in one place allowing them to select the one most suitable for them. Gone are the days of yellow pages, where people would have to look up others to get their contacts and then individually contact them. Now you get all the information you need in front of you, making it easy to make an informed choice.

Unlike other businesses, marketplaces don’t need too many resources. Top Marketplace Platforms like Etsy and Fiverr have become popular and generate regular revenue without requiring too many resources. The main component required for these businesses is a unique idea that can be scalable. Here are a few things that service marketplaces need:

  • Multi-vendors- This allows a balance between demand and supply
  • Buyers- they showcase demand for the services and bring in revenue
  • The right business model with a transparent payment process

These service marketplaces are becoming the first choice whenever a person wants any kind of help. Some of the SMs that have become popular over the years include Freelancer, Fiverr, and ODesk where you can find professional freelancers for services like design, editing, etc. Others include Taskrabbit, Alfred for at home handyman, Up Counsel for attorneys, Uber for taxi service, Better Help for therapy, and many more. Most of these platforms allow service providers to charge according to their skill levels.

This provides customers with different service providers at different prices and they get to decide whether they would want someone who is best in their field and pay more or someone who charges less.

Benefits of starting a service marketplace over other models include:

  • Growth in service marketplaces is rather easier, all you need is a unique idea and good service provides a willingness to join your platform
  • SMs focus a lot on creating a network among parties and this creates a sense of commitment
  • Because service marketplaces depend on third party customers and sellers, these form their own ecosystem which functions by itself without much external help

Challenges With Service Marketplaces

Like all businesses, service marketplaces have their own set of challenges, these include:

  1. Maintaining constant revenue- Service marketplaces are tricky as they deal with services that are intangible. In addition to this, marketplaces need to have a correct revenue model in mind. Different industries work best with different revenue models and if you don’t choose the one suitable for you, you might end up losing money.
  2. Parties making transactions outside the platform- Because SMs provide customers with a network of service providers, sometimes customers get contacts of the service providers. Here, instead of letting the platform facilitate the transaction for them, they do it externally thus trying to get away with the platform fees. This happens because the party that needs to pay the fees is motivated to abandon the platform and not pay this fee at all
  3. Obtaining Feedback- The service marketplace is never directly interacting with the parties, hence it becomes difficult to get feedback on the platform functioning.

Points To Keep In Mind To Launch Marketplace For Services

There’s a lot of research that is required before you start your service marketplace. SMs are volatile, and hence a single wrong decision can change the entire course of your business. Some of the things to keep in mind when opening a service marketplace includes:

1. Target Market Research– According to various research articles, the biggest reason for a start-up’s failure is its inadequacy to understand the market need. If there is no need for your service in the market, your product won’t be able to garner any interest. In order to have sufficient market research, you need to access the already existing market industry and look at the businesses that are currently providing services there.

This will help you in understanding whether your service makes sense for the market, if not you might have to tweak your model. It would also be beneficial to check whether there were any businesses that had similar offerings to you and were unable to grow in the industry. Next, make sure you are entering a clearly defined niche.

2. Identifying Users– A service marketplace heavily depends on maintaining a balance between supply and demand. If you don’t have enough customers, your suppliers will also start opting out. Your SM is majorly being built to service customers, hence it is necessary to know who these people are. You might need to look at their pain points and their daily life journey’s to see what problems they face and find ways to solve them. If you are able to find the biggest pain point of your audience, there is no stopping your business from lasting growth.

3. Making User Engagement Top Priority– Many service marketplace owners feel like user engagement brings little to no impact. This is where many businesses go wrong. Keeping in mind there is no dearth of options available in every industry, customers generally end up choosing the one they feel most connected to. This is why we suggest that you start engaging with your consumers even before they actually make a transaction with you.

It is necessary for SMs to listen to their customers, form a connection with them, and make sure you are involving them at every step of the journey. This allows your start-up to get feedback in the fastest way from the people who actually avail of your services.

4. Choosing The Correct Business Model- There are a few different business models for Marketplaces that you can choose from. Choosing the one that makes the most sense for you is the most important thing. The business model you choose will form the base of your revenue model and also make sure your business is profitable. There are many businesses that select the wrong business model and in turn, lose money or earn a lot less in comparison to their competitors. We will discuss more on this in the coming section.

5. Choosing The Right Technology Partner – To make your marketplace app world-class and stand out from your competitors it is important to choose an experienced marketplace app development company that can understand your vision and successfully bring your idea to life with their app development expertise. 

6. Finding The Right People– Finding the right people includes finding the perfect team as well as partnering with the right kind of vendors. While most of your business may seem intangible, your team can add a human touch to the experience and make sure your customers are happy. Additionally, you may need a team to make sure that your platform is working correctly and being updated regularly.

7. Focusing On Marketing and Sales– Constant growth is another aspect of the service marketplace you need to take care of. This is why you need people to manage marketing and sales. Marketing makes sure you keep adding on new service providers on the platforms and sales can help upsell these people or efficiently bring them on the platform.

Business Models in Marketplace For Services

Different Business Models In The Service Marketplace Industry

A SM owner can select any one of the following business models depending on their industry, business objectives, etc. The business models they can select from include:

Transaction Business Model- Under this business model, the service marketplace generally takes a fixed cut out of all the transactions made on the platform. Hence, the more transactions an app makes, the more a business owner would earn. Customers generally like this model because they can freely browse on the portal and only have to give the business money when they actually make a transaction. This means there is no upfront cost of joining the platform and entry is free.

Subscription-Based Model- Like the name suggests, in a subscription model a customer has to pay a monthly or yearly subscription fees. Hence, the customers have to pay on a recurring basis, and the amount they pay is then used towards any service they want to avail on the platform.

This business model is generally good for customers when they use an app frequently. If the use of the app is frequent, the benefits, in the long run, will outgrow the amount of subscription paid. This model is also great for the business because they get a fixed amount of recurring income. The biggest benefit of this model is that once a customer starts paying a subscription fee, they are less willing to opt-out. Many customers also forget to pause their subscription and then don’t bother canceling the same.

Sign-Up Fees Model- In this model, a customer is charged when they join the platform. The same is called a sign-up fee. It’s really important to sell the vision of the business to the customers if you want them to pay these sign-up fees. The biggest drawback of the model is that once a customer joins, it can become difficult to scale the model, hence you might have to look for other ways of monetization.

Lead-Based Model– In a lead-based model, suppliers are generally the ones who pay. In this model, a customer puts a request for a service on the platform. Service providers or professionals who are interested can then send out bids for customers. The customer then selects one person who will provide the service.  Thumbtack is one of the businesses that work on this model. The benefit here is that you can gain a large user base really fast with this model. This happens because you are not asking your customers to pay. This model is more beneficial for the customers than the suppliers.

Technology Stack You Can Use For A Marketplace For Services

  • Application and Data– JavaScript, jQuery, Java, MySQL, CloudFlare, Google Drive, AngularJS, Redis, Amazon S3, Amazon EC2, Sass, Ruby, Heroku, Markdown, Amazon RDS, Objective-C, Memcached, Spring, Passenger, Amazon VPC, Amazon ElastiCache, Fastly, Sidekiq, Amazon EBS, Sinatra
  • Utilities– Google Analytics, PayPal, GitHub Pages, Amazon, Route 53, Twilio SendGrid, Mailgun, Mixpanel, Optimizely, Segment
  • DevOps-GitHub, Git, Docker, IntelliJ IDEA, Sublime Text, VirtualBox, Vim, New Relic, Ansible, Sentry, Vagrant,Amazon CloudWatch, CircleCI, Datadog, Bower, Pingdom, Chef, Code Climate, boot2docker, Tutum
  • Business Tools– Jira, Confluence, Skype, HipChat

Going through all of these steps will bring you one step further to your dream service marketplace business. The business may seem complicated at first, but it is also intriguing and exciting. Following the guidelines listed above will help make the situation less complex and bring method to madness. Just make sure you have the right marketplace business model and treat each and every customer like they are your highest paying one and you will see success.

Wrapping Up

There are different types of marketplaces that are being launched today due to the sheer convenience these kind of apps provide. There are multivendor marketplaces that cater to the grocery industry. There are marketplaces to buy and sell electronic gadgets like Gazelle. Also, there are marketplaces to sell second-hand products like Letgo and Ebay. 

It is important to identify the need in your geographical market and align it with your business plan to choose the right type of marketplace application for your business.

Frequently Asked Questions When Building A Marketplace For Services (FAQs)

1. How can I generate revenue through a marketplace app?

A. Marketplaces make money by earning commissions from sellers when someone views, clicks on or purchases their item, or any combination of these actions. 

2. How do I find the right business model for my marketplace app?

A. If you have an idea for a business then you should consider the elements like Market Potential, Competitive Landscape, Ideal customer, Value Proposition, Distribution channels, Revenue streams, and strategic relationships, to help determine your best approach and decide the right business model for your marketplace.

3. What are some famous existing Marketplace apps?

A. Amazon, TaskRabbit, Zaarly are some of the top marketplaces among others.

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