Marketplace Development: Costs and Pitfalls

Anton Repev, Lodoss agency director, who has developed a dozen of marketplaces, tells about the main features, modules and cost estimates for the marketplace development.

All e-commerce falls into online stores, services (SaaS, PaaS, IaaS), and marketplaces.

Online stores, designed to sell things or services, usually belong to the same owner. Examples are: Loreal, Sony or Carters.

Services are designed to provide various services that save user time and facilitate their work. An example of such a site is LegalNature project, where users can quickly create and notarize various legal documents.

Marketplaces are online trading platforms that act as intermediaries between the buyer and the seller. They can be classified by type of their participants (B2B, B2C, C2C), by products they offer, by services, and by monetization. But the main purpose of the marketplace is to facilitate the interaction between service / product providers and their customers, to help the two sides find each other and increase the number of transactions.

For a visitor, a marketplace appears to be just a showcase with some products. In fact, it is a platform with sophisticated business logic and processes.

The main pitfalls when creating a marketplace

Increasingly popular, marketplace is commonplace today. They crowd out online stores; online trading, especially small and medium businesses gravitate around them. Indeed, creating an account on an already existing site with a large number of visitors – and getting customers from day 1 is much easier than starting an e-store on your own and thinking of promoting it, paying developers and maintaining the entire infrastructure.

But no matter how profitable creating your own marketplace may seem – with all the blackjack and perks you need to think twice, since this is a high-risk business that requires large investments.

In 8 years, we have made about a dozen marketplaces: for goods transportation, for renting housing, for delivering food, for teaching foreign languages. Each of them was interesting and peculiar in its own way. Sadly enough, only few survived.

We create applications and monitor their lives, we see which solutions are popular and which are not, what lives and what dies. We try to convey all this experience to our clients, but, unfortunately, not all our clients are receptive.

Let’s look at the most common mistakes in building marketplaces.

Choose the Right Tools and Team!

Marketplace development costs are highly dependent on a particular business features: you can create a marketplace based on “box”, ready-made, standard solutions, or order an individual (customized) development. Often the owners who want to save money choose box solutions at the initial stage, which is quite understandable if you are pressed for money and time, or you want to test some hypothesis. But with box solutions flexibility is limited, and sometimes customizing the box version is much longer and more expensive than developing similar functionality from scratch. Therefore, analysis and selection of the right tools before starting work is crucial. And, please, avoid hiring a Jack-of-all-trades or a team that agrees to fulfill all your whims and desires without a question. Most likely, they are interested in doing more tasks and getting more money, rather than in the success of your business. Professionals will surely help suggesting the best solution, so respect their feedback.

Once a client came to us who told he had already had 80% of the entire application done when the current developer started to fail: much too slow, they handed in work with lots of defects; every job had to be returned for revisions and corrections several times, etc.

We audited the code and found out that the developer had complicated the architecture greatly, applied over-engineering solutions, and, due to the limited budget and timing, had not written automated tests. As a result, correction of some problems gave rise to a large number of others, which were not so easy to detect. The code written was clearly suggestive of skills bend towards the backend development, so the decisions on the frontend did not meet the requirements well.

As a result, we had to completely rewrite some parts of the application.

Coming up with new features while developing: think twice!

Often in the development process, customers begin to invent new features that can hardly be embedded into the already created architecture. Well, why not, if there is time and money for this; but more often than not the client gets over-excited and tempted to spend most of the budget on things that are not really necessary to make a start. And then the client simply runs out of money for other key parts of the business, i.e. marketing and attracting customers. To avoid such a situation you need to learn to prioritize. Non-priority tasks can be safely added after the launch of the marketplace.

A few years ago, one of our clients wanted to create the best, the fastest, the most fault-tolerant social network. He flatly rejected our advice to start with MVP, to make the version ASAP, to attract people and to test his hypotheses on users. He wanted to release the perfect product. He only hired from us a team of programmers to develop, and took the whole process over. It took him almost two years to develop the application with help of our specialists; at times he got stuck for several months polishing some “killer feature” for perfection. As a result, he ran out of money, he did not release the product, and later also had problems with investors.

Development Costs 

Marketplace development costs can vary greatly depending on the direction of the business and the necessary functionality, so you cannot give a very precise estimate. Remember the advertisement about a woman who wanted to buy 200 or 300 grams of sausage, and the seller questioned her quite rudely: “How much shall I weigh out in grams?” So, when developing complex products, such as the marketplace, you cannot say how much the final product will cost. But you can calculate an approximate budget.

As I mentioned above, the development of the marketplace can be “boxed” – or customized. There are large numbers of all kinds of box marketplaces on the market. The development of the base version can cost up to a million RUR; the completion period is 1.5–2 months.

With customized or individual development, the cost of creating a trading platform will start from 3 million RUR; the completion period is minimum 3 months.

Depending on the business logic, design, and additional functionality, the cost of development may vary significantly.

Let’s take a look at the labor costs and minimal functionality to be implemented. Below is the list of main parts or modules of any marketplace:

  • authorization and registration module,
  • data and roles management module,
  • administration module,
  • search module,
  • module of goods or services management,
  • module of social interaction,
  • notification module,
  • payment module.

Login and Registration Module

Usually it has standard authorization via email and password, and can be expanded by authorization through social networks or two-factor authorization via SMS or other sources. When registering, mail is usually confirmed using a verification code sent to the specified e-mail. Accordingly, there is a page where the sent code is checked. Page and password recovery functionality.

This module development takes from 40 to 80 hours. 

Data and Roles Management Module

Create and edit personal and company data, validate entered data, upload files and images, create roles and restrict access rights.

This module development takes from 60 to 120 hours.

Administration Module

View and manage all data in the system, view transactions, dispute resolution, analytics and statistics.

This module development takes from 150 to 300 hours.

Search module

Search by fields, filtering and sorting data, data output restrictions, optimization and acceleration.

The development of this module takes from 80 to 200 hours.

Module of goods/services management 

Add, edit and delete products and services with a different field sets. Data categorization. Management of the state of goods and services.

This module development takes from 80 to 200 hours.

Social interaction module

Creating chats for communication between suppliers and consumers, the like/dislike feature, tools to leave reviews and comments, as well as ratings.

This module development takes from 150 to 300 hours.

Notification module

Creating both instant notifications and sending e-mail or SMS, push-notifications.

The development of this module takes from 80 to 160 hours.

Payment module

Adding of cards and integration with payment systems, viewing and managing transactions, payment history, cancellation of payment.

Card adding and integration with payment systems when creating a marketplace.

The development of this module takes from 80 to 200 hours.

Analytics and Strong Team Go First!

In a nutshell: if you have a cool idea, and you decide to create a marketplace, the very first thing to do (and it’s worth the money!) is analytics and choosing the right tools and team interested in improving your business. This will help save a decent amount of money, because you will not have to redo the project several times. 

Marketplace development is quite costly, but you need to know that at least as much – or, more likely, even more, you will need to spend on marketing, advertising and attracting customers. No matter what cool and convenient trading platform you create, it does not make sense without clients!