How to Build a Profitable Service Marketplace

Article by Charlène Guicheron - 02 Mar 2020 - 4 minute read

How do you build a profitable service marketplace? Here’s how to quickly grow a successful marketplace just like Airbnb and Uber.

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How do you build a profitable service marketplace? 

After all, some of the most successful marketplaces are service marketplaces. Today, you learn how to build a service marketplace website in the fastest and easiest way. 

Curious to learn more? Let’s dive right in. 

The perks of service marketplace businesses 

The past decade has seen the launch of many successful marketplaces, such as Airbnb, Uber, Fiverr, and Upwork. And no wonder: Services are a huge market. In the US alone, the consumer service economy is a $9.7 trillion industry. 

Besides, a service marketplace can be easier and more profitable to manage than an ecommerce marketplace. After all, service marketplaces are all about offering skills, whereas an ecommerce marketplace requires you to figure out things like policies for returns. 

A service marketplace can be easier to start because your service providers have a low barrier to entry. They only need their skills. In addition, you can take a higher commission than on ecommerce products because things like shipping and inventory don’t eat up sellers’ profit margins.

How to find a great service marketplace business idea

But how do you find a business idea for your service marketplace? The most important thing to keep in mind is this: Your marketplace needs to solve a problem for the customer. 

To figure this out, take a look at what your target marketplace users are talking about. You can do some research by taking a look at what people are talking about in online forums like Facebook groups or Reddit. 

Even better? Hop on the phone with some of your ideal users (note: not random friends, but people who would actually use your platform). Ask them what they’re looking for in a marketplace and why they want that. And since you’re already researching online forums, you can use them to find people in your audience to interview. 

Plus, a mistake many people make is to discard a business idea if there’s already a business in that space. But think about it: If there’s a successful business in your chosen niche, it probably means that there are paying customers. Take Airbnb. The apartment rental market is huge and there’s room for more than one, major player in the field. 

However, to stand out, you might want to consider niching down. So if you’re looking to start a freelancing platform, you probably want to niche down to something specific so that YOUR marketplace can stand out among other marketplaces. 

The best way to figure out how you should niche down? Talk to your audience! That’s the best way to ensure that your marketplace idea will work. 

Service marketplace business models

Once you’ve chosen a marketplace idea, it’s time to decide on your marketplace business model. 

First, you need to decide if you want to start a business-to-customer (B2C) or a business-to-business (B2B) service marketplace (think: Airbnb or Upwork). 

The most common, and in most cases the most profitable, pricing model is a commission model. This means that for every transaction that is made on your platform, you take a percentage or a certain amount of the sales price. 

The biggest challenge with this business model is that you need to prevent platform leakage. The risk is that people will decide to take their business outside of your platform once they’ve established a relationship with their client. That’s why you need to provide them with a reason to stay. For example, added security, easier transactions, flexible systems, and great customer service add extra value to your users. 

Now, there are exceptions to this rule. For example, if your service is a one-off B2B service, you might want to consider a different business model, such as a one-off fee. 

Want to learn more about marketplace business models? You can read our in-depth guide here

How to launch your service marketplace

What’s the first step in building a service marketplace?

Good question. Contrary to what a lot of people think, you shouldn’t start by fleshing out a fully-built website. Instead, start by building a Minimum Viable Product (MVP). For your MVP, you only need the most important features like a payment option, user profiles, and listings. 

To build your marketplace website, you have two options.

You can either custom-build your website from scratch. This will allow you to build everything from start to finish. However, it’s often costly and not a very flexible way of building your business. 

An easy way to create your service marketplace website that doesn’t require any technical skills is to use a marketplace website builder like Kreezalid. With Kreezalid, you set up your website in minutes and you have access to all the features (and customization options) you need for your MVP, as well as features you will need later down the line when your marketplace takes off. 

How much does each of these options cost? A custom-built website will cost at least somewhere around $20,000 to get started. Every time you need a new feature or make any changes, you will have extra costs.

A website built with Kreezalid starts at $99/month. We also offer enterprise and customization options, so you are always covered with our services regardless of what your current needs are. 

How to get your first service marketplace users 

As you know, a marketplace needs both service providers, or sellers, and buyers. But who should join your marketplace first? 

This “chicken or egg” problem is something that marketplace owners need to get right from the start. After all, if you only attract sellers to your platform, they will soon leave because no one is buying from them. And in the same sense, buyers will disappear if there is nothing to buy. 

Fortunately, there is a solution to this problem. By first getting (not too many) sellers to your profile, you have something to offer to your buyers. The trick is to always keep a balance between the two sides. 

For example, you can keep your marketplace exclusive to invited members until you’re at a point where you can expand. Or you can use different incentives, like coupon codes, to get people to join. 

To get your first service providers and buyers, start by doing some organic outreach. For example, go to places where people are already offering what you want to offer on your platform and ask them to join your platform. Then, you get people who are already buying these services to join your marketplace. 

How to scale your service marketplace (and make it profitable!)

Once you have your first few marketplace users, it’s time to scale your business.

That means mapping out a marketing strategy that will bring in hundreds, if not thousands, of new users. 

Overall, there are two ways in which you can grow your marketplace:

Organically and with paid advertising. 

Organic growth (for example, social media posts, blog posts, and SEO) take time, but these are also essentially free marketing strategies. In the end, they offer the best return on investment.

However, paid advertising will bring you leads faster, but it will also eat up on your profits.

A good way to get started?

Organic growth with faster results (for example, engaging in online forums where your target audience hangs out) can be a great way to start seeing organic growth. Pair that with paid advertising and you have a great start to your business.

Want to learn more? 

The thing is:

You can grow your service marketplace indefinitely. But to get started, you need to take the first step. 

What is it? Get started with Kreezalid today to build your own service marketplace. Once you have your website up and running, you can start growing your platform.

Try Kreezalid for free here!

Charlène Guicheron
About Charlène Guicheron

Co-Founder and CEO of Kreezalid

After 5 years helping companies to develop their online marketplace, I saw success stories as well as failures. Today I share my experience and my clients feedbacks through useful resources that will allow you to focus on what really matters for the success of your online marketplace. Because believe me, the secret isn't in the code ...