Building a successful marketplace business is not the same as building a successful product. You can have a beautiful platform with great features that nobody uses — because a marketplace without both buyers and sellers is just an empty room.
The difference between the marketplace businesses that make it and the ones that don’t usually isn’t the technology, the design, or even the idea. It’s the execution of a specific playbook: solve the coordination problem first, achieve liquidity in a focused market, then expand methodically while keeping both sides healthy.
This guide walks through each stage of building a marketplace business — from the earliest validation to sustainable growth.
Stage 1: Find a Market Worth Building For
Every successful marketplace business starts with a fragmented market where transactions are happening inefficiently. People are already buying and selling — they’re just doing it through terrible channels.
Before Airbnb, travelers booked through hotel chains or navigated sketchy Craigslist listings. Before Uber, getting a ride meant calling a cab company and hoping someone showed up. Before Upwork, hiring a freelancer meant asking around or scrolling through LinkedIn.
The pattern: existing demand, terrible supply discovery, high friction, low trust.
To find your market, look for:
- Fragmented supply. Many small providers, not a few dominant ones. If three companies control 80% of the supply, there’s no room for a marketplace to aggregate.
- Search costs. Buyers spend significant time or effort finding what they need. The harder it is to find the right seller, the more valuable a marketplace becomes.
- Trust gaps. Transactions involve uncertainty — about quality, reliability, or safety. Marketplaces that solve trust problems (through reviews, verification, guarantees) unlock transactions that wouldn’t happen otherwise.
- Recurring need. One-time transactions can build a marketplace, but recurring transactions build a marketplace business. Look for categories where buyers come back.
Talk to potential users on both sides. Don’t build surveys — have conversations. Ask 20 potential sellers how they find customers today and what’s frustrating about it. Ask 20 potential buyers how they find sellers and what would make them switch to a better option.
Stage 2: Solve the Chicken-and-Egg Problem
The defining challenge of every marketplace business is the chicken-and-egg problem: you need supply to attract demand, but you need demand to attract supply.
The founders who solve this treat it not as a paradox but as a sequencing problem. You don’t need both sides at once — you need the right side first.
Start with supply. In most marketplace businesses, supply comes first. Sellers are motivated to find new distribution channels. Buyers will only show up if there’s something worth browsing.
Recruit your first sellers manually. Go to where they already are — forums, social media groups, industry events, competitor platforms — and give them a reason to join. That reason might be free exposure, a guaranteed number of introductions, a better tool for managing their business, or simply the promise of early access to a growing customer base.
Constrain the market. Don’t try to serve everyone everywhere on day one. Airbnb started in New York. Uber started in San Francisco. TaskRabbit started in Boston.
Geographic or categorical focus lets you build density — which is the prerequisite for liquidity. A marketplace with 50 sellers and 50 buyers in one city is infinitely more useful than a marketplace with 500 sellers and 500 buyers spread across the entire country.
Do things that don’t scale. In the early days, you are the marketplace. Manually match buyers with sellers. Personally onboard every new user. Call sellers to make sure their listings look good. Call buyers to make sure they found what they needed. This hands-on approach doesn’t scale, but it teaches you things that no amount of data analysis can.
Stage 3: Achieve Liquidity
Liquidity is the single most important concept in building a marketplace business. It measures the probability that a participant on the platform finds what they’re looking for and completes a transaction.
A liquid marketplace is one where:
- Buyers consistently find suitable sellers
- Sellers consistently receive orders
- Transactions happen within a reasonable timeframe
An illiquid marketplace is a ghost town — listings sit unsold, buyers leave empty-handed, and both sides churn.
Achieving liquidity is the inflection point. Before liquidity, growth feels like pushing a boulder uphill. After liquidity, the marketplace starts to grow under its own momentum as satisfied users come back and tell others.
How to measure it:
- Search-to-fill rate: What percentage of searches result in a transaction?
- Time to transaction: How long does it take from a buyer’s first search to their first purchase?
- Seller utilization: What percentage of active sellers completed at least one transaction this month?
- Repeat purchase ratio: Are buyers coming back for second and third transactions?
If these numbers are improving, you’re building toward liquidity. If they’re flat or declining, something is broken — and you need to diagnose whether it’s a supply problem, a demand problem, or a matching problem.
Stage 4: Build Your Revenue Engine
Once transactions are flowing, it’s time to build a sustainable revenue model. The most common approach for a marketplace business is the commission — the take rate — where the platform keeps a percentage of each transaction.
Typical take rates vary widely by category:
- Light-touch marketplaces (classified-style, minimal platform involvement): 5-10%
- Standard marketplaces (payments, reviews, messaging, basic trust): 10-20%
- Managed marketplaces (curated supply, quality guarantees, hands-on operations): 20-35%
The right take rate balances three things:
- Enough revenue to sustain the business. Your take rate minus payment processing costs (see Stripe Connect pricing) minus operating costs needs to leave a positive margin.
- Not so high that sellers leave. If sellers feel they’re paying too much for the value they receive, they’ll find ways to transact off-platform.
- Aligned with the value you provide. The more the platform does — vetting, quality assurance, customer support, marketing — the more it can justify charging.
Don’t agonize over the perfect take rate at launch. Pick something reasonable, communicate it clearly, and iterate based on data. You can always adjust as you learn what your market will bear.
Stage 5: Retain Both Sides
Acquiring users gets a marketplace business started. Retaining them makes it successful.
Retention in a marketplace is more complex than in SaaS because you’re managing two distinct user groups with different motivations:
Seller retention depends on:
- Consistent order flow (are they making money?)
- Fair commission rates (is the value exchange reasonable?)
- Good tools (does the platform make their life easier?)
- Support when things go wrong (dispute resolution, customer service)
Buyer retention depends on:
- Selection quality (can they find what they need?)
- Transaction reliability (do sellers deliver as promised?)
- Competitive pricing (is the marketplace price-competitive with alternatives?)
- Trust (do they feel safe transacting with strangers?)
The dangerous trap is over-investing in one side at the expense of the other. A marketplace that obsesses over buyer acquisition while neglecting seller experience will see its best sellers leave — which degrades the buyer experience — which creates a death spiral.
Monitor retention by cohort and by side. If your month-3 seller retention is dropping, investigate why before it cascades into a buyer retention problem.
Stage 6: Scale Thoughtfully
With liquidity achieved and retention healthy in your initial market, it’s time to expand. But how you scale matters enormously.
Expand adjacent. Move to the next city, the next category, or the next customer segment that’s most similar to your current one. Adjacency means you can reuse your playbook with minimal adaptation.
Replicate the playbook. Each new market needs its own chicken-and-egg solution. Don’t assume that what worked in San Francisco will work identically in Chicago. The strategy may be the same, but the tactics — which communities to target, which sellers to recruit first — will differ.
Don’t scale too early. Expanding to new markets before your first market is truly liquid and retaining well is one of the most common mistakes in marketplace businesses. It feels like growth, but it’s actually dilution. You end up with multiple weak markets instead of one strong one.
Invest in SEO. Marketplaces have a structural SEO advantage: every listing, every profile, and every transaction creates indexable content. A well-executed marketplace SEO strategy compounds over time and becomes one of your most capital-efficient growth channels.
Stage 7: Build Your Data Advantage
As your marketplace business matures, data becomes your most defensible asset. Every transaction, every search, every review generates insights that improve the platform:
- Better matching: Understanding which buyers prefer which sellers lets you improve recommendations and search ranking.
- Pricing intelligence: Transaction data reveals what the market will bear, helping sellers price competitively and helping you optimize your take rate.
- Supply planning: Knowing which categories or geographies are undersupplied lets you target recruitment.
- Fraud detection: Patterns in transaction data help identify and prevent fraudulent activity.
The marketplace businesses that become category leaders are invariably the ones that invest in understanding their data. They don’t just count transactions — they analyze liquidity trends, monitor cohort retention, track unit economics, and use those insights to make decisions.
This requires marketplace-specific analytics — not general-purpose tools, but systems designed to measure the two-sided dynamics that define your business.
How Twosided Supports Your Marketplace Business
Every stage of building a successful marketplace business — from validating liquidity to scaling retention — requires understanding your data. But most marketplace founders either fly blind or spend months building custom dashboards.
Twosided is the analytics OS built for marketplace businesses. Connect your Stripe Connect or Sharetribe data in five minutes and get instant access to 150+ metrics that map to each stage of growth:
- Liquidity dashboards to know when your marketplace is healthy enough to scale
- Cohort analysis to track retention for buyers and sellers separately
- Take rate and GMV tracking to monitor your revenue engine
- Champion identification to find and nurture your best suppliers
- AI-powered assistant to ask questions about your marketplace data in plain language
Don’t build a successful marketplace blind. Get started with Twosided for free.