Launching a marketplace is a significant business opportunity, but it also requires significant investment on the part of operators. Although marketplaces share some similarities with e-commerce sites, there are crucial differences, particularly in terms of cost structure and revenue streams. In this context, it is crucial to develop a realistic marketplace business plan to assess the profitability of the project, understand the cash flow generation mechanisms and ensure long-term value creation.
What is the purpose of a marketplace business plan?
A business plan is essential for launching a marketplace: it is used to convince decision-makers, partners and investors of the potential of your project. This document should provide an overview of the project, including your financial forecasts for the first few years. The business plan shows the anticipated profitability of the marketplace, backed up by revenue forecasts.
A marketplace business plan should provide answers to the following questions:
- Who are we?
- What do we offer?
- Who are our services aimed at?
- How will we operate?
- What are the key stages in our development?
- What needs does our project meet?
- What competition are we up against?
- What are our financial requirements?
Fluctuations in expenditure, necessary investment, recruitment, stock management: the business plan must take account of all the scenarios, with high and low ranges. The idea is to fine-tune the viability of your business model. For example, are commission rates sufficient to be profitable, or do you need additional income from subscriptions or seller services?
What are the key elements of an e-commerce business plan?
The traffic generated by your site
The Internet traffic generated by your marketplace is one of the main factors in determining the market potential of your project: volume of monthly visits expected, sources of traffic envisaged, anticipated conversion rate, strategies for optimising natural referencing, etc.
Above all, don’t take the risk of overestimating traffic in order to ‘inflate’ the attractiveness of your business plan. Use rigorous methods and make sure you diversify your sources of traffic, whether they are paid sources such as SEA and retargeting, or free sources such as SEO and publications on social networks. Take the time to identify the communication channels best suited to your marketplace and use reliable tools to assess the performance of each.
Then, depending on your digital marketing actions (content creation, press relations, backlinks strategy), apply an organic growth rate to the estimated traffic. Don’t forget to model paid traffic acquisition campaigns too, so that you can include a complete forecast in your marketplace business plan!
Estimated revenues
How will you sell on the marketplace? To estimate your marketplace revenue accurately, start by identifying all the potential sources of sales, such as commissions, advertising revenue and additional services offered to sellers.
To determine your pricing strategies, ask yourself :
- How many orders do you expect to receive each month?
- What will be the average value of each basket?
- What will be the overall volume of business generated?
You have to multiply the number of customers converted by the average revenue per customer to determine this volume,. Next, calculate the total amount of transactions carried out on the platform and multiply this by the average commission rate applied per transaction to obtain your forecast turnover.
It’s important to note that if you use different commission levels for different categories of products sold, you’ll need to do this calculation for each category in order to refine your revenue forecasts.
Expected costs
To draw up a complete marketplace business plan, you also need to have a complete picture of the associated costs and expenses. These expenses include :
- staff costs
- technical costs
- design and technology advice
- the cost of licences for SaaS solutions
- hosting and server costs
- marketing costs to promote the platform and attract traffic
Although setting up a marketplace is generally less expensive than opening a physical business, these operational costs should not be overlooked!
5 steps to creating a marketplace business plan
1. Presentation of your marketplace project (executive summary)
The presentation of your marketplace needs to be more detailed than a simple pitch: it needs to captivate your potential partners and investors. Explain why your project is destined for success and clearly define :
- your target audience (B2B, B2C, C2C)
- what you are selling (products, services, rentals, etc)
- the technology used (own solution or SaaS)
- your main points of differentiation (innovation, market niche, local solution)
- your value proposition (price, ease of use, vendor selection, security)
2. Analysis of your market
The marketplace is a high-volume market with lower margins than traditional e-commerce. So you need to be sure that the market exists and is big enough to be profitable! Carry out detailed market research for your marketplace business plan, identify potential sellers and their conditions, and analyse your direct and indirect competitors to assess their impact and online presence.
3. Define your business model
Clearly define how your marketplace will generate revenue. Specify the details :
- commissions (fixed or percentage, based on transactions or introductions)
- membership or subscription fees
- registration fees
- premium services
- advertising options
4. Drawing up an action plan
Develop a detailed action plan that aligns your marketing, sales and development strategies with previous analyses. As part of your marketplace business plan, define clear strategic objectives with key performance indicators. Detail the steps to achieve these objectives, including vendor recruitment and marketing initiatives.
5. Creating a financial forecast
Finally, present a detailed financial assessment of your project. To do this, take into account the investment required, the breakdown of operating costs, and revenue projections. As mentioned above, propose several scenarios in your marketplace business plan to cover different risks and demonstrate the financial viability of your marketplace through a break-even point and cash flow calculation.
What are the particularities of an online marketplace business plan?
A marketplace business plan is different from a traditional business plan, because of the digital nature of the project. Running a marketplace involves a number of essential additional costs:
- Payment Service Provider (PSP): required to manage financial transactions, the PSP generally applies a fixed cost per order plus a variable cost based on your Gross Merchandise Volume (GMV).
- Customer relations: this expense item covers customer relations management and after-sales service. As an intermediary between sellers and customers, the marketplace operator must manage conflicts and provide tools to facilitate communication between the two parties. These after-sales costs average between 30 and 60 euro cents per order.
- IT operational costs: these costs include the hosting and licensing of the marketplace platform. They include an initial configuration cost for the launch and recurring costs in the form of an annual subscription.
Also, once you have determined the gross turnover of your marketplace, certain indicators need to be subtracted to calculate the net turnover:
- Cancellation rate: this indicator represents the percentage of orders cancelled by customers before they receive the products. It is generally calculated as a percentage of Gross Merchandise Volume (GMV) and is determined on the basis of market research.
- Product return rate: this measures the proportion of products that customers return after receiving them. It varies according to market, business sector and country.
How can you make sense of your figures? A few tips
Even with our action plan, does drawing up a marketplace business plan still seem complicated? That’s normal: it’s rare to have all the necessary skills (market specialist, lawyer, web expert and entrepreneur) to successfully complete such a project and take advantage of all the benefits of marketplaces. However, combined business and digital expertise is essential: if necessary, consult specialists to refine your scenarios and financial assumptions.
Make sense of your figures as much as possible: your marketplace business plan will be examined by a variety of people, who may not have the opportunity to meet you directly. It is therefore important to provide contextual information in addition to your financial forecasts. Context, players involved, future prospects: do everything you can to enrich your presentation and make the figures easier to understand. In this way, the stakeholders will have a better idea of the viability of your project and the estimated turnover.
