This article defines Etsy business model and how it makes money.
There are many e-commerce sites enabling businesses and huge manufacturers to sell their items, but only a few allow independent sellers to sell their distinctive and one-of-a-kind — mostly handmade — goods online.
The preferred platform for artists from all over the world, Etsy is one of the few to have achieved success in the online market after 14 years.
Etsy in a nutshell
Home to products such as figurines and handwritten recipes, Etsy is an e-commerce marketplace focused on selling unique handmade or vintage items and crafts from individuals. While sites like Amazon and Alibaba have largely managed to fill in as marketplaces for manufactured goods and resellers, Etsy found its niche by serving the handmade and antiques market.
Rob Kalin, Chris Maguire and Haim Schopick founded Etsy from an apartment in 2005 to serve as a marketplace for arts and crafts and handmade goods. As of this writing 75% of the 60 million items posted on Etsy are handcrafted and thus unique.
The Business Model Etsy
Etsy’s business model is similar to that of other e-commerce counterparts such as Amazon, where it provides an online platform to buy and sell goods – an online marketplace for unique and creative goods to be exact.
Where Etsy differs from the rest is in the fact that it has a vertical approach to its e-commerce business model — Etsy is primarily focused on selling craft items in very specific categories. In its own words – Etsy is home to a universe of special, extraordinary items, from unique handcrafted pieces to vintage treasures.
On the other hand, sites like Amazon and Flipkart tend to have more of a horizontal approach where they sell almost everything.
How does Etsy work?
Since it’s a marketplace that attracts sellers of specialty items to connect with interested buyers, it’s clear that Etsy caters to two distinct customer segments — buyers and sellers. It’s more shared success – more sellers bring in more buyers which helps Etsy to earn more.
Key Partners of Etsy
- Sellers tend to be artists and small industries that own handmade or antiques and vintages. Etsy caters to those looking to tap into the online market to sell their crafts.
- Buyers are those who want to buy handmade, one-time and unique products not only from physical stores but also online. They are also interested in antiques and vintage goods.
How does Etsy make money? Etsy Revenue Model
The Etsy revenue model is similar to that of the Amazon Marketplace. It earns money from various different charges that it charges the users of its site.
Listing fee
Sellers must pay at least $0.20 to list their products on Etsy. While $0.20 may seem small, it quickly adds up when you consider the fact that there are thousands of products listed on Etsy.
The listing is set to expire after four months. Pattern-only listings do not expire. If you list multiple quantities of the same item, the initial listing fee will be $0.20, and the listing will automatically renew at $0.20 after each item sells.
Sales Commissions
In addition to the listing fee, Etsy also charges sellers a commission for each sale—called a transaction fee. Etsy charges a transaction fee of 3.5% of the total amount for each sale. Etsy takes a deduction from the product price you set.
Advertisements
Etsy allows sellers to advertise their products and make purchases on its platform for a fixed fee.
Etsy offers several methods of advertising:
- Paid Ads – Ads that are charged on a cost-per-click (CPC) basis that list a seller’s products.
- Shopping Engine Ads – Etsy pays for the seller’s products to be listed on other shopping platforms such as Google Shopping, Bing, and Facebook.
- Shop-specific promotions
Among them, paid advertising is the one that gives Etsy a lot of revenue. Advertisements help in bringing in more customers and hence more sales to the sellers.
Membership & Subscriptions
Etsy offers a free suite of tools – known as Etsy Standard – to help sellers manage their stores and products. In addition, it also offers Etsy Plus, a subscription service that offers sellers additional tools they offer for free for a fee.
An Etsy Plus subscription costs $10 per month and provides sellers with the following features and perks:
“Pattern” Tool Fees
Etsy offers its users “Pattern” – a website-building tool that allows Etsy users to create a personal website not only to sell their products but also outside the Etsy marketplace.
While Pattern Shop is free for the first month (30-day), it costs $15 per month after the trial period ends. It helps many businesses grow and Etsy doesn’t stop at online marketplaces alone.
Payment Process
Etsy allows “eligible” sellers to be able to use Etsy Payments for the convenience of buyers using a variety of payment methods – credit cards, debit cards, gift cards, coupons, online wallets – from within the Etsy site. Is.
For all transactions that happen through Etsy, it charges a fee to process the transaction. Etsy sets fees based on the total amount of the sale and the country in which it was held. Each country has a different payment fee and the fee is deducted from the seller’s payment account.
Currency Conversion
Etsy charges 2.5% of the total amount as a currency conversion fee, while converting it to the seller’s preferred currency.
Let’s say the seller’s payment account has USD as the preferred currency. When a buyer pays for a product in Euros, it is converted into USD (according to market rates at the time) and added to the seller’s payment account. Etsy deducts 2.5% of the entire product amount as a conversion fee.
This is handled by Etsy’s payment processing service and is described further in the Etsy Payment Policy. Etsy advises sellers to list the price of their items in the same currency as their payment account; currency so as to avoid levying foreign exchange charges on them.
In-person selling
Etsy allows sellers to list their product on their platform on Etsy’s site, but process the payment in person if online payment is not possible or set-up. Etsy offers the convenience of receiving payments in person using Square Reader — a credit-card reader — for a $0.20 fee — similar to the listing fee for each item sold.
Etsy’s Revenue and Net Worth
According to Fortune, Etsy had a market cap of $7.8 billion in mid-July of 2019, which puts them well above established retailers like Macy’s and Gap.
According to Etsy’s press release for the third quarter of 2019, their platform has more than 2.5 million sellers and over 42 million buyers worldwide as of the third quarter of 2019.
Etsy made about $3.3 billion in gross merchandise sales as of September 2019 alone, up 23.6% from the previous year’s $2.7 billion.
Etsy reported revenue of $548 million as of September 2019, up 35.9% from the previous year’s $400 million.
When we compare other revenue segments, we see a similar trend where Etsy has grown by a considerable margin.
Etsy’s marketplace revenue rose 38.4% to $400 million from last year’s $290 million, and its services revenue jumped 31% to $144 million from last year’s $110 million.
All of this gave Etsy net income of $64 million for the year 2019 — 78.3% more than last year’s $36 million.
This shows that ETC has managed to rise steadily year-on-year after being largely stable over the past few years.
In Conclusion
This is an explanation of etsy’s business model in a simple way, we can make it even longer but our point is to define how etsy makes money. If we’ve missed something about the Etsy business model, please let us know by commenting below!
