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Starting an On-Demand Services Marketplace: Here’s Everything You Need to Know

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Ever get the feeling that every ‘next big idea’ has been thought of? 

Like there’s no way you’ll ever be able to come up with an original business idea? Fact is, every new successful startup isn’t necessarily a new idea. Some of the most successful startups are derivatives of an existing idea.

A marketplace isn’t a new subject. But a fresh perspective to this age-old concept could be the very untapped opportunity you’ve been searching for.

Let me explain.

An Unconventional Marketplace – Defining the Derivative

Every second piece of content about marketplaces will tell you that, 

An online marketplace is a type of eCommerce site where products or services are provided by multiple third parties, whereas transactions are processed by the marketplace operator.

I’d say, this definition barely scrapes the surface of a marketplace’s potential. I know it’s a bold claim to stake, but hear me out.

This definition is missing out on some key differentiating factors like:

#1 The Marketplace Model

B2B (Business to Business) B2C (Business to Consumer) C2C (Consumer to Consumer)
When a business sells to and buys from another business. When a business sells directly to the consumer.  When a consumer sells to another consumer.
For Example:

For Example:

For Example:

#2 The Offering

Physical Products Software Products Online Services Offline Services
For Example:

For Example:

For Example:

For Example:

#3 The Market Positioning

Vertical Market Horizontal Market Global Market
Only one type of product is sourced from different places and sold. Various types of products belonging to the same category are sourced and sold. Anything and everything sourced from anywhere in the world is sold.
For Example:

For Example:

For Example:

#4 The Channels of Business

Online to Online Online to Offline
The offering (product or service) is discovered online and delivered or implemented online. The offering (product or service) is discovered online but delivered or implemented offline.
For Example:

For Example:

See what I’m getting at?

A marketplace can literally be any number of permutations and combinations of all these different categories and sub-categories.

Now, to bring in a little more clarity, let’s fit an ‘on-demand services marketplace’ (or a service booking platform /service finder, depending on what you prefer to call it) into the above typology.

On-Demand Services Marketplace

The Seller-2-Buyer Model

C2C (Consumer To Consumer)

The Market Positioning

Horizontal Market

The Offering

Offline Services

The Channel of Business

Online to Offline

Demystifying Service Marketplaces

Now that we’ve derived the accurate definition of an on-demand services marketplace, let’s take a look at a few more important concepts.

The Marketplace Ecosystem

On the face of it, the cycle of a services marketplace is this simple:

  • The Sellers, ‘Vendors’ or ‘Service Providers’ have their services listed on the marketplace 
  • The Buyers or the ‘Consumers’ use the marketplace to discover these services
  • The marketplace acts as a medium between the two entities and enables them to provide and purchase the said services

When it comes to service finders, there’s one more important differentiator that we have to touch upon.

The Branding

Here’s an example.

In the case of a business like Uber, you’re hiring professionals that are vetted by the company and you call them your ‘Uber Drivers’. Your service provider essentially falls under the ‘Uber’ banner. However, in the case of a marketplace like Freelancer.com, the professionals that you hire aren’t really carrying the platform’s name with them. This company merely serves as a medium to help people discover freelancers or freelance jobs. 

Uber vs Freelancer 1 1 Services Marketplace, service marketplace

Both these marketplaces are actually offering the same things – the opportunity to provide services and the means to hire them. However, if you look closely, you’ll realize that both these businesses are positioned the way they are because of the difference in ‘what’ they’re offering.

I’ll make myself clear. 

In Uber’s case, they HAVE to vet the professionals they onboard because their services are directly tied to the safety of the users.

When it comes to Freelancer, we’re talking about services like web development, copywriting, and SEO Services, that don’t really need a critical analysis on the safety front. Now, that doesn’t mean freelancer.com compromises on quality. They thrive on the ratings and reviews of their community members.

reviews

In this example, it does seem like Uber didn’t really have a choice when it comes to assessing their ‘vendors’ and positioning the brand as they have. 

If you’re looking to start a ‘Home Services Marketplace’ or a ‘Sitter’s Marketplace’, I’m afraid, you’ll have no option but to ensure you conduct through profile assessments and quality checks too. However, there are some things you can still control; like, how you choose to monetize your business.

The Revenue Model

One of the main things you need to keep in mind is to make sure you zero in on a model that’s sustainable and helps your business scale in the long run. Let’s quickly walk you through your options:

#1 Transaction Model/ Commission Model

This one’s a pretty straightforward deal. You can basically take a cut (percentage commission) out of each transaction made via your platform. 

This cut doesn’t need to be the same on both ends. For example, if you’re charging the vendor a 9% commission, you could charge the consumer a 3% transaction fee.

#2 Lead-Based Model

Although the commission-based model seems like the obvious way to monetize a marketplace, it might not always be the right fit for every service-based business (especially if you have users like Sam and Dean). 

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Sam, a start-up founder, decided to hire a freelance graphic designer for a one-time logo design project from a website like Fiverr. He got in touch with Dean, they completed the transaction via the website and worked on the project over a span of two weeks. Sam was extremely happy with Dean’s work, and they parted ways on good terms.

A couple of months later, Sam realized he needed a better and more professional design for his website. This meant, he needed to collaborate with a designer again. 

Who’s the first designer that pops into his head?

That’s right. Dean.

As they’ve collaborated on a project earlier, they’ve naturally exchanged their phone numbers and other contact information. Sam trusts Dean’s work and knows for a fact that he can rely on him. 

What do you think he does next?

He picks up the phone and calls Dean up. 

Business Deal

Your platform isn’t given a second thought and the transaction fee isn’t in the picture anymore.  Besides, if Sam’s aware that he has to pay a commission to the website, that’s all the more reason for him to avoid using the platform altogether.

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How do you tackle such a situation? That’s where the lead-based or pay-per-quote model can help. 

Here’s how it works:

  • The consumer lists a job or project on your platform, for free.
  • The vendors send in quotes to the consumers (or place bids), for which you charge them.
  • The consumer chooses the most suitable service provider, and you get to bag the amount you make from each of the quotes sent.

Customer-based-pricing

The main reason this model works is that it attracts more consumers who get to choose from a pool of vendors for free; and the vendors want to be where the consumers are.

Your hidden benefit here is that the profit you make from the quotes sent for each project (by multiple vendors) is very likely to exceed the profit you make on a one-time transaction. Even if your users decide to take their communication offline in the future, you’re not relying on them to make transactions on your platform anyway.

#3 Subscription Model

Who doesn’t want a bite of the recurring revenue pie, right? You could charge a monthly or yearly premium depending on your value proposition. Although it may seem like an odd choice in most cases, there are ways to make it work for you. 

For example, a home services business like TaskRabbit could definitely lock in customers by allowing them to subscribe to some basic monthly or weekly services. 

The Subscription Model is one of the most powerful business models out there. 

Take a look at how this business tweaked the age-old idea a little bit, and conquered their market like never before.

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The Zomato Gold Concept 

Zomato Gold

Indian eCommerce companies are majorly driven by competitive prices, discounts, offers, and coupons. An average Indian customer always flocks to a platform with the best prices. And that meant, no genuine customer loyalty.

Zomato (a Restaurant Search and Discovery Service based in India) tackled this very problem by using the Subscription Model as a Loyalty Program in disguise

They Launched ‘Zomato Gold’ wherein they partnered with major restaurants in the city and offered them more visibility on the Zomato app, and an opportunity to attract more customers. All these restaurants have to do is to bear the cost of one dish/drink per Zomato gold customer, which is, in fact, a great deal if it helps with customer acquisition.

In exchange for an affordable yearly premium, the customers were offered :

  • Complementary Dishes or Drinks at every partner restaurant
  • Access to exclusive events at these Restaurants
  • A great way to explore and discover new places

That way, when Zomato Gold users are on the lookout for a good place to go grab a meal from, the first place they naturally turn to is a Zomato Gold restaurant so they can cash in on the free stuff.

Food for thought

If you pay attention, you’ll realize that Amazon Prime servers a similar.

Think about it…

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#4 Freemium Model

The Freemium model is a blend of ‘free’ and ‘premium’ services wherein you offer a range of basic services for free and charge a premium for additional value-added services. Skype and  Spotify are among the best of businesses using this model. 

Another great way to use the freemium model is to extend the subscription model to go the Netflix way. Offer a 3 month Free Trial period to introduce your services to your prospects and have a better chance at converting them.

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Pro-Tip

Your business might be different and it may have different goals and needs. But, little tweaks to this model can go a long way in creating great value. 

For eg: If offering free services to everyone isn’t feasible, or in case you want to lock-in your customers, you can offer a month or two of free services on the purchase of your annual plan.

And, if you have a monthly plan, the smartest way to implement this would be to offer free services on the 6th month or the 12th month. That way, your customers have a small incentive to stick around longer.

[/su_note]

#5 Listing Fees

You can basically charge the service provides a fee in exchange for listing their services on your marketplace.

This isn’t a great model to get started with though. Particularly because it’s extremely difficult to onboard vendors, considering the fact that a paid listing doesn’t guarantee profits or even sales.     

Eventually, when you manage to drive enough traffic to your website and have conversion data that backs you, offering a ‘featured listing’ on your platform could be a great additional monetization strategy.

#6 Advertisements

If you choose to go with enabling advertisements on your website, you’ll basically be providing a free-to-use platform to the vendors and buyers; Or you can choose to treat advertisements as a secondary source of income.

Now, you’ll come across two kinds of results when you google, “Should I put Ads on my website?”

Should I put ads on my website?

One set of people will tell you things like, “Ads help me set my revenue on auto-pilot.” or “Why not? Business giants like Forbes do it. Their credibility isn’t in question because of the ads on their site.” or “If your audience uses the web at all, they wouldn’t even flinch when an ad pops up on your site.”.

Another set of people will tell you, “Ads pay you peanuts.” or “They make you look sleazy and kill your conversions” or “Ads risk your reputation and undermine your offering.”.

Which of the above statements are true?

Well, all of them. 

They’re all absolutely right and valid in their own place. But, to give you the straightforward answer you’re looking for, don’t implement ads on your website. At least not right away. 

But if you want to get into the ‘why’ of it, here’s a snippet that’ll give you a fair idea of what we’re dealing with.

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Expert Insights

The best time to set up ads on your site isn’t when you’re just starting out and trying to build trust. 

You only have one shot at making a great first impression. The best time to set up ads on your site isn’t when you’re just starting out and trying to build trust. Your audience has a limited attention span, and you want them to focus on your offering and not someone else’s ad.

If you don’t have a significant amount of traffic on your site, you’ll barely make any money.

The average “click-through rate” (CTR) varies by industry; but, the average is around 0.1%. Let’s say the average cost-per-click (how much you earn when somebody clicks an ad) is $0.50. That means you would need around 1,000 unique visitors each day to get even one ad click and earn $0.50 for the day.

Ads slow down your site.

Getting the kind of traction you need during the early stages of the business is going to be an uphill battle for you. Now, you might do all the necessary work and optimize your website to rank and drive relevant traffic to it. Letting ads slow you down, isn’t the smartest way forward. Yes, there’s a workaround. You can buy expensive managed hosting and recover a couple of seconds, but is that really something you want to do at this point?

Ads are not for everyone.

Full-time bloggers and non-profit websites have no other source of income to rely on. In such cases where generating traffic is the main goal of a website, implementing ads is a great way to make money. You drive in traffic and make money on every click through. However, when you’re selling products or services, advertisements are most definitely not the best monetization strategy for your website.

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Parting Words

The best way to go about building a powerful business is to take inspiration from similar establishments, understand their strategies, strengths, and weaknesses. Once you’re through with an in-depth market analysis, you’ll be able to come up with an effective game-plan for your venture.

As far as the execution goes, WordPress is our personal favorite when it comes to choosing a reliable platform for building a website, especially for startups. It’s affordable, it’s easy to use even if you’re not tech-savvy, and is completely customizable since it’s an open-source platform.

If you want to dive deeper into this subject, here are a couple of resources that might come in handy.

Recommended Reading:

Drop me a line below and let me know what you think.

How would you get started? Which on-demand service have you used lately? Have you come across any awesome strategies used by a service marketplace? 

Let’s get the conversion started!

Shreya Reddy

Shreya Reddy

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