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Pros and cons of selling on online marketplaces

Online marketplaces are one of the best ways to start selling quickly. According to statistics, more than half of online purchases are made through marketplaces. The online platforms attract millions of potential buyers daily, and their clients have access to warm and hot audiences. What other advantages does business receive when working with a marketplace and are there any pitfalls in this business model?

Service and product platforms: what’s the difference?

A marketplace is an online shop window that offers many different products from many different sellers. For a certain price, the website owner displays its clients’ products to the buyers, stores and delivers them to customers. Global experience shows that cooperation with such platforms guarantees a huge inflow of customers and regular sales.

A service marketplace resembles a bulletin board and connects customers with contractors. Some platforms allow for taking only one role, but it’s not a problem: the account can be divided into two profiles. Platform clients upload a task or offer a service, and close deals. In both cases service providers work with warm and hot audiences that are already interested in purchasing.

Pros and cons of cooperating with marketplaces

One of the disadvantages of using online marketplaces is that there are always additional expenses. First, all clients have to pay a monthly fee. Second, the platform can charge commission on every sale of a product or service. The more sales, the more you will have to pay. And third, the access to the expanded functionality can only be received upon buying a premium account. Such marketplaces charge storage and delivery fees, as well as a fee for mediation for transaction, while you make visual and text materials at your own expense.

Another disadvantage is clients’ obligation to follow the platform requirements; otherwise, their position will drop to bottom lines on the delivery list and will not be displayed, or the account may be blocked and the client will have to start over.

As regards products, efforts will pay off in case you properly adjust price formation: you must produce or purchase products at a low price and then sell it at a marketplace with a margin starting at 150%. In this case, you can make about RUR 2–3 mio ($27K–41K) off a single product item monthly even by selling the most basic goods such as mops or underwear. Cooperation with Chinese manufacturers provides such opportunities: you can purchase or produce goods at factories based in China and then deliver them directly to the online marketplace.

As to services, the process is more complicated. If you aim at scale-up, a marketplace can be used initially as a launch platform to promote your business and then as a sales channel. This approach has several advantages: you get a fast start and instantly reach an expansive and prepared audience; you do not have to spend finances for promoting your products and attracting clients and can build your client base in a short period of time. Proper organization of work will allow you to achieve stable sales, with satisfied clients choosing your services over and over, leaving positive reviews, and recommending your company to their friends. Then you can involve other sales channels by launching your website and online shop as well as posting ads – that is, start to directly communicate with your clients, while the marketplace do not provide such an opportunity.

Who benefits most from service marketplaces?

Service marketplace clients can be loosely divided into two groups: those who use the platform as the main sales channel, and those who choose it to get started aiming at further scale-up. As regards the first group, the most in-demand professionals present at marketplaces include psychologists, copywriters, massage therapists, private tutors, cosmetologists, translators, sports coaches, and those providing personal services such as drivers, home care assistants, and others.  

Services provided by the second group include repair and finishing work, cleaning, dressmaking, design, marketing, business consulting and cargo transportation, as well as such popular services as accounting and legal aid. Entrepreneurs involved in these fields can boost their business in a short time and at lower costs through the use of marketplaces.  

However, before taking a final decision, you must look into certain important moments. First, examine sales traffic in your region to see whether your service is relevant and how often people seek and order it. Second, study marketplace marketing strategies to learn about ways the platform used to promote corresponding services. Assess the competition at the marketplace in your niche such as the scope of offers, discount policy and reviews, and decide on what you can use to stand out. And finally, carefully look into cooperation conditions and terms; you may find certain things unsuitable such as payment schemes, fee amount, penalty system, or the contract duration. This should be examined beforehand. 

You should also remember that online service marketplaces have an ever-increasing competition for clients, and your business marginality will eventually go down. This is the reason such platforms are not overly popular among entrepreneurs.

Pressing issue: how to handle client poaching

The major tool here is the quality of your services and your reputation. The main goal is gaining your client’s trust. Positive reviews serve as the key sales driver and the best protection. A marketplace is a sort of ‘platform of trust,’ where sellers with positive reviews and quality services achieve better results. Attention should be paid to contents, product card and your resources – namely, website and social networks. Proper presentation and a clear idea of the unique selling proposition will allow you to stand out from your competitors and prevent loss of clients.        

By Dmitry Kovpak, entrepreneur, author of books and programs on doing business with China, founder of DaTrade wholesale platform

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