Etsy Business Model | How Does Etsy Make Money?

Etsy is an online marketplace for artists to sell handmade, one-of-a-kind products to interested purchasers worldwide.

Etsy business model is comparable to Amazon or eBay, except Etsy gives an incredible value to shoppers and merchants.

The Etsy marketplace is a means for sellers and customers to make a living by selling their handmade creations. 

The rapid growth of Etsy can be attributed to this factor. The company began as a small website in 2005 and is now a publicly traded corporation with more than $360 million in the capital.

Etsy operates on a vertical model, selling only handmade goods in various categories instead of Amazon and eBay, which are horizontally oriented.

What is Etsy?

Etsy is an online marketplace that sells handmade, vintage, and artisanal items from independent sellers worldwide. Customers can shop from various categories, such as Clothing & Shoes, Home & Living, etc.

Etsy’s business model involves charging sellers a fee for listing products and taking a commission on each successful sale.

Etsy Business Model

There are also website builder tools, Etsy Plus, product advertising, and payment processing features available.

The company, founded in 2005 and headquartered in Brooklyn, has been enormously successful globally. Etsy went public in 2015.

Currently, Etsy generates approximately $1.7 billion in annual revenue and is profitable.

How Does Etsy Work?

Etsy is a global marketplace that connects buyers and sellers. Etsy’s main selling point is its wide variety of handcrafted, unbranded, and unique goods that can be found only on the site.

Customers can browse products in the following categories:

… As well as many others. A merchant’s registration is relatively simple, facilitating the platform’s growth in terms of vendors and products.

Etsy Business Model

Etsy also offers sellers the option to have their products paid for, stored, and shipped for them. Etsy is, therefore, able to compete with similar online markets like eBay, Poshmark, or Vinted.

A forum and Etsy Teams are other benefits that sellers receive, allowing them to connect with local sellers and develop strategies to increase sales.

Etsy’s marketplace is available on the company’s website or as a downloadable app in the Apple App Store and Google Play Store.

Etsy Business Model

Etsy Business Model is a multifaceted marketplace specializing in handcrafted products. Since Etsy was launched in 2000, it has grown into a global and massive marketplace for sellers. 

The store now hosts around 2 million sellers worldwide (though nearly two-thirds are based in the US). Etsy is unique because it is a niche marketplace – and a particular one at that.

“Etsy is a global marketplace for unique and creative goods. It is home to one-of-a-kind objects ranging from vintage pieces to handcrafted pieces.” According to the About Us page.

Etsy connects artisans to customers around the world who create handmade goods. Etsy allows users to sell and purchase custom-made items such as accessories, clothing, shoes, toys, and home decor, as well as vintage items and crafting materials.

Etsy’s goal is to enable artists to grow their businesses by selling unique items with a personal touch, a kind of “something special with a personal touch.”

‘Etsy-like’ in the sense that it puts artists in touch with persons who are seeking unique products, like Amazon or eBay.

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How Does Etsy Make Money?

Etsy makes money through transaction fees, subscription fees, listing fees, promotional advertisements, and payment processing fees. Etsy is a marketplace-based business.

Etsy Business Model

Etsy’s business strategy has evolved from simple listing and commission fees to a platform approach that allows the company to monetize at many stages throughout the buyer journey.

Here we will examine each income stream in more detail.

Listing Fees

Etsy charges sellers $0.20 for each item they list. However, you do not have to pay to post Patterns or Private (more on that later).

Renewal of a listing also entails fees. The listing fee is non-refundable regardless of how successful the sale is.

Typically, offers are uploaded every four months, and they’re automatically renewed when that period expires. Sellers can, however, disable automatic renewals.

Promotional and Advertisement Fees

Etsy’s merchants can take advantage of various promotional services to assist them in growing their businesses. Etsy advertisements and offsite advertisements fall into this category.

Etsy Ads appear throughout the website, including search results, category pages, and market pages. Advertisers are only paid when users click on their advertisements. 

Cost-per-click (CPC) rates may differ across advertising spots, categories, and countries.

Offsite ads, as the name implies, are displayed outside the business’s website. Etsy usually buys advertising space on third-party platforms, such as social media networks and search engines. 

An advertiser is only charged for off-site advertising when an offer is clicked on by a user, and a purchase is completed within 30 days of the click.

A merchant pays 12 to 15% as a commission when an off-site sale is made. Sales history plays a role in determining the fee charged.

Pattern

Merchants can make their stores independently of the Etsy platform by using Pattern, a website builder.

Etsy charges a $15 monthly subscription fee. However, Etsy’s core platform does not charge listing or transaction fees for sales conducted on Pattern-created websites.

The tool offers various benefits, including the ability to build an unlimited number of listings, web analytics, blog, social media sharing, and email marketing (in cooperation with MailChimp).

The first 30 days of Pattern are entirely free. The service is, therefore, able to attract additional users.

Transaction Fees

Etsy charges 5% commissions on all successful sales made through its site. A merchant may also charge for shipping and gift wrapping.

The corporation maintained its 3.5 percent commission rate for over 13 years, altering it only in 2018. Etsy’s announcement of commission increases disappointed many sellers, but the platform remains one of the most affordable options for sellers.

eBay, for example, retains 10% of every sale it makes on its platform. Amazon charges between 8% and 15% commission.

Subscriptions

Etsy Plus is a bundle that includes several sales-boosting features for premium merchants on the platform. Etsy charges $10 per month for its subscription service.

Etsy Plus features include:

  • The advanced customization of your shop
  • You can get discounts or perks, like custom shipping boxes or business cards.
  • Using the Restock Requests feature (shopping customers are notified when a merchant’s products are back in stock)
  • Credits for 15 listings
  • Etsy Credit of $5

Furthermore, Etsy Plus subscribers receive free .store domains and a 50% discount on domain registrations such as.com and.net. In addition, a 30-percent discount is available to first-time registrants and is made possible by Etsy’s partner, Hover.

Payments Processing

Etsy Payments provides sellers with an array of payment methods in their native currencies.

You can pay with a credit card, debit card, gift card, or Etsy Credit at Etsy Payments merchants. You may also use third-party systems such as PayPal, certain bank transfer services, Apple Pay, and Google Pay.

Etsy charges a flat fee plus a percentage for facilitating payments. A percentage fee ranges typically from 3 to 6 percent, while fixed fees typically are in the neighborhood of $0.30. Of course, the exact amount depends on the country where the seller has his bank account.

Online sales incur the costs listed above. Merchants with physical stores can use Square’s card readers to process in-person sales.

Physical sales are subject to Square’s payment processing fees. Etsy may be receiving a portion of that amount in exchange for facilitating the transaction and advertising Square’s card reader.

All of Etsy’s advertising, pattern sellers, and payment processors fall under the category of “Services.”

Etsy’s revenue from services makes up almost a quarter of its total revenue. This illustrates how established marketplaces benefit not only from commissions but also from their sellers’ keen competition.

A marketplace that attracts many consumers will be more likely to charge sellers for additional services.

Why is Etsy Successful?

Etsy’s success can be attributed to several factors. You may find these helpful in your startup journey as well.

Niche Platform

Etsy serves as a marketplace for makers and buyers of crafts and unique products since it was founded. 

Consequently, Etsy has cultivated a devoted community of users who have remained loyal to date and actively share the word about the site with other like-minded individuals.

The popularity of Etsy grew exponentially within two years as a result of word-of-mouth recommendations.

Etsy’s focused search results provide precisely what you’re interested in – not just matching search terms.

However –

The problem has only recently been addressed, and it has not always existed.

Etsy’s search results were previously dismal. When it comes to custom-made and vintage products, which can be one-of-a-kind and unique, it is exceedingly difficult to organize them instead of mass-produced products with similar distinguishing characteristics. However, they’ve succeeded in doing a great job, resulting in their recent success.

You will find unique handmade products tailored to your specifications when you search for “Personalised Gifts.”

The exact search on Amazon returns resellers, who may or may not customize an already created product to your specifications.

Supporting Their Sellers

Etsy has always placed a high priority on assisting its merchants in any way they can. This helped them grow even further by increasing word-of-mouth publicity. 

Etsy provides support specialists and materials for merchants to learn how to run a good shop.

APIs

The future belongs to APIs. For example, the consider-hailing app Lyft in the United States is almost entirely based on APIs. 

APIs are helpful because they let users access your services while also allowing you to grow your business by allowing multiple applications to interact.

The Etsy API allows users to integrate Etsy-powered applications into their websites, computers, and smartphones. 

The flexibility of Etsy’s platform attracted many new users since it allowed them to create their websites, shops, and apps while leaving the backend to Etsy.

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Etsy Business Model Canvas

Value Proposition of Etsy

Buyers and merchants benefit from Etsy’s value-added services. The primary value proposition of Etsy is being able to browse unique things created by artists worldwide and unusual vintage items while having their purchases delivered to their homes, regardless of where they live, since Etsy offers international shipping.

Etsy allows sellers to showcase their products to the world while setting the selling price they determine. Sellers can also create stores filled with as many items as they choose, and they can even assign tags to their products so that they can be searched more easily.

Customer Segments of Etsy

Etsy’s business model resembles a two-sided marketplace with different buyer and seller divisions.

The platform allows individuals to purchase one-of-a-kind products, whether they are handmade or vintage.

An individual or a small business that sells handmade items is a seller. There are two reasons they want to sell their stuff on the internet: either they’d like to start an online store or earn money.

Key Partners of Etsy

Etsy’s partners are the same as its customers: buyers and sellers. A marketplace only makes sense if users trust its structure and rely on it to sell their goods.

However, if the website isn’t engaging buyers and vendors with the products, the marketplace is less appealing to retailers. The two sides of the business are its primary partners when the platform has two sides.

Distribution Channels of Etsy

Etsy’s distribution channels include:

  • Etsy as a platform;
  • A social media platform;
  • Events and workshops on Etsy;
  • Developing partner programs;
  • Advertising online and offline;
  • The word of mouth method.

Value Proposition of Etsy

Etsy offers value to both its merchants and buyers. Customers who purchase from Etsy can browse unique items created by artists from around the world, as well as unusual vintage items, and have them delivered to their door, regardless of where they live.

Etsy allows sellers to showcase their products to the world while setting the selling price they determine. 

Sellers can also create stores filled with as many items as they choose, and they can even assign tags to their products so that they can be searched more easily.

Key Activities of Etsy

Etsy’s core operations include, most importantly, its development and maintenance, including all of its tools, procedures, and features, such as payment and shipping.

The main task of the marketplace is to develop a community of buyers and sellers that enables it to function efficiently. Two-sided platforms can serve no purpose if one or both sides lack interest.

Key Partners of Etsy

The primary partners of Etsy are similar to its customers: sellers and buyers. A marketplace only makes sense if users trust its structure and rely on it to sell their goods.

The same is also true if consumers don’t find the products exciting or rely on the marketplace to make purchases. A platform with two sides is, in fact, a business’s primary partner.

Customer Relationship of Etsy

Etsy’s commitment to building an online community supporting the marketplace’s two-way nature is pivotal to the customer relationship. The organization helps sellers by offering them customer service and hosting events where information can be exchanged, and local commerce can be boosted.

Key Resources of Etsy

Etsy’s critical resources enable the company to perform the critical functions necessary to meet its value promise. There are three of them: the e-commerce platform, which processes all transactions, the payment and shipping systems and processes, and the community of buyers and sellers, which enhances the marketplace experience.

Cost Structure of Etsy

Etsy’s cost structure consists of:

  • Development and maintenance of platforms;
  • Customer service;
  • Shipment;
  • Advertising and marketing;
  • Salary of staff;
  • Educating sellers.

Revenue Streams of Etsy

Etsy’s revenue model is very similar to that of other marketplaces, such as Amazon. It makes money by charging different fees for different kinds of features.

The revenue streams of Etsy are various fees such as Commission fees, Listing fees, Subscription fees, Advertisement charges, Pattern Subscription, Currency conversion fees, and Payment processing fees.

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What is the Funding and Valuation of Etsy?

Crunchbase reports that Etsy has raised a total of $97.3 million in venture capital funding throughout its private company existence.

Some notable investors in Etsy include Accel, Index Ventures, and Union Square Ventures.

At its initial public offering (IPO) on April 1, 2015, the company raised an additional $266.7 million. (this is not an April Fool’s joke).

What is the Revenue of Etsy?

Etsy was valued at $1.8 billion at the time of the IPO (at a share price of $16). Etsy’s share price currently hovers around the $200 mark, valuing the company at roughly $24 billion.

Etsy reported business revenue of $1.7 billion for the fiscal year 2020, an increase of 100% compared to the fiscal year 2019 ($818 million). The corporation made $349 million in earnings during the same time frame.

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