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11 minutes read

How to Create an Online Marketplace like Etsy

By Alvaro Insignares
By Alvaro Insignares
11 minutes read

Are you wondering how to create an online marketplace like Etsy? A marketplace business model is one of the most profitable forms of modern business despite the huge amount of competition. The online marketplace industry allows users to sell their products through an online storefront. In the case of Etsy, it’s a niche marketplace and users can only sell handmade or vintage goods. If you want to create a marketplace website of your own, you should try to focus on a niche market like vintage or handmade goods to help differentiate your business from the vast amount of competitors. 

Competition in the online marketplace industry is fierce, but Etsy proves that you can be successful too if you find your niche. The potential possibilities for your marketplace are endless. The first step to ideating a marketplace website is to figure out what makes you different from the competition. Why should people sell or buy anything on your website? Competing with major players like Amazon and eBay will be very difficult when you begin your business so try to focus on serving a niche market. 

I know that starting a business can seem overwhelming, but we are here to help. We’ll help you understand what core features you need to account for, how you can monetize your marketplace, and some of the challenges you are likely to face. 

What Core Features Do I Need to Account for in my eCommerce Marketplace?

Before we get into the details of what core features you’ll need to account for in your eCommerce marketplace, we need to first understand the different types of users that will be using your website. Your marketplace website will have three distinct users: admins, sellers, and buyers. The needs for each of these users will vary and in some cases also overlap. Delivering a great User Experience is a huge part of the reason online marketplaces like Etsy are so successful. Let’s take a closer look at the key features you will need to ensure each of your different users encounters a great User Experience. 


Your admin users will need to have the highest level of access in the marketplace. Your admins will be the ones helping assist sellers and buyers with each of their distinct issues and concerns. Basic features that you need to ensure that your admins have include: a dashboard for real-time updates, access to reports and website analytics, tax management, commission management with the ability to adjust fees, and management control over customers, stock, and all invoices. 

These features are just the basic ones that admins will require to successfully manage your online marketplace. The admins of the website will be responsible for maintaining order in your marketplace. This is a big job. The importance of your admin users cannot be overstated. When you are creating a marketplace website of your own you need to think of these users first. 


For your eCommerce marketplace to be successful, you also need to attract sellers to your website. The tools and features that your sellers are going to require will be similar to those of your admins but with a smaller scope, focused on their specific vendor marketplace pages rather than on the marketplace as a whole. 

Your sellers will need key features that include: the ability to create their own vendor marketplace pages with specific URLs, order and stock management, a chat window to discuss details with potential buyers and customers, reports and analytics, and transaction management tools to track current orders, see past order history, and apply discounts. 

The User Experience of your sellers is just as important as the User Experience of your buyers. Your marketplace website will need to attract sellers for your website to attract buyers. You will not be able to do this if your sellers have a poor experience while using your website. In many respects, your sellers are just as much your customers as your buyers are, and you need to focus on creating a great User Experience for them too. 


Finally, you need to ensure that there are key features present for your buyers. Buyers will make up the greatest percentage of your users. The long-term success of your eCommerce marketplace depends on delivering a great User Experience for your buyers. This can include providing your buyers with a mobile app version of your marketplace amongst other things.  

The key features that your buyers are going to expect from your marketplace include the ability to perform a product search, browse a shopping cart for their items, a personal profile, the ability to chat with vendors about their products, manage their payment methods, view order history, and to be able to leave reviews on products and vendors. 

These basic buyer features are present on every marketplace website. If you don’t include these key features for your buyers they will have a poor User Experience and it will be hard for you to grow and attract new buyers.

How Can I Monetize my eCommerce Marketplace?

Now that you have a better understanding of the core features you will need to provide your users, let’s take a look at monetization. Making money is an important part of owning a business like an online marketplace. If you’re not selling anything, and buyers aren’t buying anything from you, how do you make money? There are several different ways in which marketplace websites like Etsy make money. Let’s go over some of the ways you can monetize your marketplace.

Sales Fees

Marketplace websites like Etsy charge sellers a commission fee for every sale they make on their website. In Etsy’s case, they charge sellers a five percent commission on each total sale they make. The amount you decide to charge in commission fees can help you stand out in a crowded marketplace and attract more sellers to your website. 

Listing Fees

You can also monetize your website by charging your sellers a listing fee for the items they list on your website. Etsy, for example, charges sellers a .20 cent fee for every product they list on their website for a four-month period. Once again, you can determine how much to charge in listing fees and use this to be more competitive and attract sellers to your website. 

Payment Processing Fees

Payment processing fees are another way you can monetize your marketplace. Etsy charges sellers a flat payment processing fee based on the bank that they use and their location. Understand how much it will cost you to process payments and adjust your fees accordingly. 


Advertising is one of the most common ways websites monetize their services. There are a couple of different ways you can approach advertising. You can sell space on your website to other advertisers to use, and you can also sell advertising to your sellers. Etsy sells their sellers featured listings that allow them to show their products to more interested buyers for a longer period of time. This arrangement can help sellers sell more products, and it can also help you bring in more money. 

You can also sell Google Ads. For example, Etsy submits products to Google Shopping allowing seller’s ads for products to appear on other websites too. 

These are the ways that Etsy monetizes their website, but that doesn’t mean these are all the potential ways you can make money on your website. Depending on your target audience, the niche you are serving, and other considerations, you may want to consider charging membership fees for access to your marketplace website. 

What Challenges Will I Face When Creating an eCommerce Marketplace?

I want to take some time to explore some of the most common challenges facing online marketplaces. The idea behind this section is not to scare you away from creating your own marketplace. Rather, I want to educate you on some of the most common challenges new marketplace websites face. 

Hopefully, you can use this information while you are still in the creation process to address some of these challenges before they overwhelm you. Let’s take a closer look at the challenges of creating a marketplace website. 

The Competition

It is very difficult to compete with online giants like Amazon, eBay, or even Etsy, but it is possible. Look at the example of Etsy. This marketplace started small, but over time it grew thanks in large part to a large community of sellers with interesting products buyers want to buy. As I have already mentioned, the competition for online marketplaces is very stiff. If you want to be successful, you need to differentiate yourself from the competition.

Etsy immediately differentiated itself from other major marketplaces by only selling handmade and vintage products. Before Etsy, there wasn’t a comprehensive online marketplace that featured handmade products. Etsy was able to fill a niche and then establish its brand through quality products and a great User Experience. 

Etsy still faces competition from companies like Amazon. After their success and the consumer demand for handmade products became apparent, Amazon created Amazon Handmade to compete with Etsy. Don’t let the competition overwhelm you. Use the competition to find the soft spots in the industry and fill them with a quality product. 

Buyers or Sellers?

Both of these users are essential to the success of your business. A lot of eCommerce marketplaces struggle to find the balance between engaging and supporting both their buyers and sellers. The key difficulty is ensuring that you actively engage both and ensure their continued use of your marketplace. 

If you want to take inspiration from Etsy, the way they managed the delicate balancing act between buyers and sellers was to share their user data with their sellers. Here is how it works. Etsy knew what people were searching for on their website. They used this information to give sellers a nudge in the right direction. Sellers were able to use what people were searching for to offer more products that catered to what was in demand. 

This is a brilliant way to engage and support sellers while also working to attract more buyers. Buyers can find what they are searching for, and sellers feel supported by the marketplace thanks to the information they receive that allows them to make more sales. In this scenario, everyone wins! 

When your marketplace goes online, you need to find a way to support your sellers and help them make as many sales as possible while also providing your buyers with high-quality products that meet their search criteria. Many marketplaces find this balance challenging to maintain. 

Product Quality

One of the biggest challenges marketplaces face is poor product quality. Whether it be fake goods, poor products, or even counterfeit products, online marketplaces have to be proactive when it comes to reporting and removing poor-quality products from their listings. This is why key user features like ratings and reviews are important, because they give buyers and other sellers the chance to report bad products and warn other customers about buying them. 

Poor products can ruin the reputation of your marketplace website, so it is crucial that you take an active interest in moderating what is listed on your website. Allowing users to report bad products can also make your job of product moderation easier and help you build an active community of users. 

Final Thoughts

A big part of Etsy’s success can be attributed to its high-quality User Experience for both sellers and buyers. Etsy also had a great idea for a niche marketplace and they were able to capitalize on consumers’ desires to buy handmade products from smaller sellers versus corporations. 

To build a successful marketplace website, you need to deliver on User Experience, but you also need to find that consumer desire that will help you be a first mover and create a product that stands out from the competition

If you think you have a good idea, don’t wait too long to take it to market. Use consumer feedback to make improvements as you go. After all, Rome wasn’t built in a day. Stay realistic. Online marketplaces are great businesses to start but don’t expect to turn into Etsy overnight. 

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