These days, multi-vendor stores are all over the internet. When you are shopping, you may not even realize that you are buying from multiple vendors at the same time. Sites like Shutterstock for stock photos, Themeforest for WordPress themes, or even Etsy for unique handmade products are all perfect examples of a multi-vendor store. Seamless shopping experiences are provided to the customer so that they don’t even know that multiple vendors are involved. There isn’t a magic wand for managing a multi-vendor store that is waved over a site to make everything magically work the way it’s supposed to. It takes some planning and skills to keep everything running smoothly.
This post is aimed towards store managers who run a multi-vendor store. It will help you understand the basics of multi-vendor management so your customers will experience the same pleasant shopping experience as they do on the sites mentioned above.
Pros and Cons of Managing a Multi-Vendor Store
Upsides of managing a multi-vendor store
Multi-vendor stores open the door to opportunities for store managers that don’t exist with single vendor stores. When you open up to other vendors you’re able to offer products that you otherwise wouldn’t be able to sell. The products on a site like Shutterstock are copyrighted by the photographer who took the photo. Without a multi-vendor agreement, Shutterstock would never be able to sell the products it sells without purchasing the photo outright. This allows a multi-vendor store to sell many products without any initial cash outlay.
Another benefit is that the more vendors you have, the more people who are driving traffic to your website. Vendors want people to purchase their products and will direct their potential customers to your website. With a niche site, customers of one vendor will be interested in the products of other vendors.Vendors want people to purchase their products and will direct customers to your website. Click To Tweet
As a multi-vendor store owner, you also can charge vendors for the ability to sell on your site.
For sellers, there is the benefit of “hitting the ground running”. On day one, they are selling on a site that has established traffic and customers. They don’t need to do a whole lot of publicity and advertising in order to get people to see their products. Selling on a multi-vendor store is a great way to reach a large audience when you are just starting out as a seller.
Downsides of managing a multi-vendor store
If your multi-vendor store sells physical products you need processes that ensure vendors are keeping up their end of the bargain. Vendors will be responsible for shipping, inventory management, and possibly returns. If they aren’t shipping on time, or run out of inventory it can make your store look bad.
Vendors are also responsible for the sales copy for their products. This includes the text that is on their page, as well as the product images that accompany that text. Poorly written sales copy (grammatical or spelling errors) will make the site look bad. Blurry images or images with bad lighting also make the site look bad.
Side note: Here’s a good guide for product photography.
Managing the Downsides
There are some strategies you can use to manage the downsides of running a multi-vendor store.
First, let’s establish why vendors want to sell on your store.
Money. Period. It’s pretty simple. The motivation to sell on any platform is usually financial.
Focus on what makes them money. Reward those vendors who go the extra mile to make their listings look good. Give the vendors who ship products on time, and can manage their inventory well a reward.
Reward through ratings
Ask the customer to review their purchase through an automated email a week or so after the sale. Then, sort the products for sale on your multi-vendor store by rating. This makes the higher rated products show up first, while the lower rated products will show up somewhere towards the end.
When a product falls below a certain rating you will remove it from the shop.
You will enhance the quality of your multi-vendor store’s vendors and products by weeding out the bad products and vendors. Customers will build their trust in your store, knowing that you only offer the very best products from the best vendors.
Charge vendors variable listing fees
A common way to provide incentives to the best vendors is to offer tiered commission fees. The multi-vendor store manager will get a percentage of each sale. Offer tiered fees that reduce the percent you take from each sale as an incentive.
Envato, the company behind ThemeForest, offers two types of author fees. For non-exclusive authors (i.e. those who also sell their products elsewhere), the fee is a flat 55%. For exclusive authors (i.e. those who only sell on Envato), the fee ranges between 12.5%-37.5%. Someone starting out on Envato is charged 37.5% for each sale until they reach $3,750 in sales. The fee then drops to 36.25%, and so on until they reach 12.5% at $75,000 in sales.
Types of Products Sold in a Multi-Vendor Marketplace
There are two types of products that a multi-vendor store can sell. Physical and digital products.
Physical products are products that you can touch, feel or smell. These require shipping, inventory, and care while handling to avoid damage. The vendor handles packing and shipping directly.
Digital products are products that are intangible. These tend to be files that are stored on a computer. Examples include:
- Digital photographs
- Clipart or graphics
- Video tutorials
- Downloadable music
- PDF documents or e-books
- WordPress plugins or themes
- Desktop software
- Mobile apps
Shipping is not required for digital products and they can be sent to customers an infinite number of times. The product is usually distributed to the customer via email or through a link in the customer’s account.
Out of the two types of products, digital products are typically easier to manage in a multi-vendor marketplace because you don’t need to follow up with the vendor for shipping statuses, inventory levels, etc. However, your vendor may want to update their digital product, which requires that there is a way for them to upload a new version. Automate this through special e-commerce software or you may require manual steps by the store manager.
As the store manager, you may also want to approve any updates before they become available for sale.
Shipping and Delivery of Products
With physical products, vendors will need to be notified of new orders so that they can ship the products in a timely manner. Store owners will want to give the vendor a way to enter shipping information for each order. This provides the customer with shipping information such as the tracking number and estimated delivery date.
You will use email, or links in a customer’s account to distribute digital products to your customers. This will provide the customer with one location that either has their downloadable files regardless of which vendor the product came from. When a customer makes a purchase from multiple vendors, their order will still appear as if it is coming from one source – your store.
An added layer of complexity is managing payouts to vendors. The store manager’s account is where the customer’s order total is deposited. The manager will then issue a payment to the vendors for the amounts they have earned.
There is a fine balance between paying vendors promptly and not spending all of your time processing payments. Each store has different options, but some examples include:
- On a certain day, but only after the vendor’s account balance exceeds a certain amount ($50, $100, etc.).
- Payment schedule (once monthly on a certain date, every other week, weekly on Fridays, etc.).
- On a certain day, but only if the sale is older than a certain number of days. This is a great way to handle issuing payments that may need to be refunded.
Vendors can be paid manually, by check, or automated through PayPal. PayPal only requires an email address from the vendor for the store manager to issue payment.
Managing a Multi-Vendor Store Taxes
In addition to sales taxes that may need to be collected on the products you are selling, you may also be responsible for issuing a 1099-MISC to each vendor.Multi-vendor marketplace owners often fail to realize the taxes they are responsible for. Click To Tweet
When you make royalty payments of $10 or more to a vendor during the year you will issue them a 1099-MISC.
Payments are considered royalties when you are paying for the ability to sell the vendor’s copyrighted piece of work. This includes things like software, photographs, music, and many of the other digital products mentioned earlier. Royalties can also be for physical products that you are licensing the right to use a trade name or other similar marks.
WP1099 provides multi-vendor store managers an easy way to issue 1099-MISC to vendors. If you are managing a multi-vendor store, check out our compatible plugins to see if we can help ease the burden of tax reporting for your multi-vendor store.
Without a roadmap, it’s hard to reach your destination. Hopefully, this guide will help identify any issues you might face when managing a multi-vendor store.
Do you operate a multi-vendor store? Share a link in the comments. We would love to see what you’re selling!