Fiverr Business Model | How Does Fiverr Make Money?

Micha Kaufman and Shai Wininger, two Israeli entrepreneurs, had the idea to create a two-sided internet marketplace that benefited both freelancers and SMBs. 

The freelancer marketplace Fiverr was founded in 2010 as a platform for freelancers. The platform offers a variety of services, including programming, design, video framing, and translation.

Fiverr earns the majority of its revenue from transaction and service fees. Fiverr business model operates on a two-sided digital marketplace, in which it must attract both buyers (SME enterprises) and sellers (freelancers) to build the platform. 

The organization measures its growth over time by measuring repeat buyers and average spending per buyer.

The website was created in 2010, and within two years of its introduction, it had amassed over 1.3 million gigabytes of storage. Adults primarily use the platform for full-time or part-time work. 

Fiverr’s mission statement states, “Our purpose is to transform the way the world works together.” 

Fiverr is built on the premise that digital services should function similarly to the way items are purchased and sold digitally via eCommerce websites.

Fiverr is an online marketplace where experienced freelancers may list and sell their skills to businesses. 

It’s a place where marketers, technologists, content strategists, and even artists such as songwriters may publish their offering as a Gig and interact with potential purchasers without encountering any additional friction.

Fiverr has grown to be a key participant in the freelancing business, with offices in New York, San Francisco, Orlando, Phoenix, London, and Berlin and a Tel Aviv headquarters.

Fiverr went public in 2019 for $21 per share, raising around $111 million in one day.

What is Fiverr?

Fiverr is a freelance marketplace. According to the business, it is the “world’s largest marketplace for digital services.” 

Buyers interested in purchasing services can do so for as little as $5 in categories such as programming, graphic design, and video editing.

Fiverr Business Model

The Fiverr business model collects a flat charge (20%) for each successful transaction conducted through its network.

Tel Aviv-based company founded in 2010 has quickly made an impact with both buyers and sellers. 

The company’s sustained expansion resulted in its initial public offering (IPO) in 2019. Since the company’s start, it has processed over 50 million transactions.

Company NameFiverr
Company TypePublic
FoundersMicha Kaufman, Shai Wininger
ProductFiverr.com
Founded Date2010
HeadquarterTel Aviv-Yafo, Israel
Location ServedWorldwide
Websitehttps://www.fiverr.com

How Does Fiverr Work?

Fiverr is an online marketplace for freelancers to promote their skills to prospective clients. According to the business, it is the “world’s largest marketplace for digital services.”

Fiverr refers to services as Gigs. The seller sets the price for a Gig. Merchants can also offer what is known as Gig Packages, which provide several levels of service at varying prices.

Fiverr freelancers provide a range of services, including the following:

  • Graphic Design
  • Programming
  • Editing Video
  • Writing & Translation 

… and plenty others. A customer can browse a seller’s profile before purchasing a service to find out what services they offer, what prices they charge, what examples of their work they have provided, and how many projects they’re in the queue for.

Users can contact service providers if they have any unanswered questions. Fiverr will be the marketplace’s operator and will manage the payment process and ensure that only the best providers are displayed for any given search query.

Buyers may choose Top Pro Services if they require a greater level of assistance. Fiverr verifies professional vendors by evaluating factors such as education, experience, and previous jobs.

Fiverr Business Model

Fiverr operates on a two-sided marketplace concept, bringing freelancers (service providers) and businesses (service consumers) to engage and transact business.

Its services are centered on digital services that may be given remotely, and it earns revenue through successful platform transactions.

Before we go into the details of Fiverr’s operation, let us define a few concepts.

1. Seller: A seller is a registered user who gives services to those who submit projects on the marketplace. Sellers might be independent contractors or businesses that supply the essential services. 

They can look for jobs that match their skill set on the platform, finish them and earn ratings and money.

2. Buyer: The buyer is the user who posts the project, i.e., the individual or business that seeks services. They can speak with a variety of service providers and then choose one. 

They must pay freelancers or corporations to execute the work. They are critical to the platform’s operation, as, without them, there would be no work on the platform.

3. Submit a Request: A registered user may submit a request, essentially the same as submitting a project. He/she would include specifics regarding the project to be accomplished in this request. 

For instance, if a person wishes to have his company logo developed, he would post something along the lines of “Design a logo for a clothes brand.”

4. Gig: A gig is a small job that a service provider performs.

5. Gig Extras: As the name implies, Gig Extras are the additional funds that a seller or buyer pays to have additional labor completed. 

For instance, if a customer pays $20 for 500 words of material, he must pay an additional $20 to the seller to obtain a total of 1000 words.

6. Gig multiples: This refers to the ability to re-order your gig multiple times. The number of Gig Multiples increases as the seller’s level increases.

How Does Fiverr Make Money?

Fiverr earns money by charging merchants a percentage charge for each successful transaction performed via its site. Sellers will be required to pay a fixed fee of 20%.

Fiverr’s principal revenue stream comes from the fees it charges its sellers for each transaction conducted on the platform. To be accurate, it charges a flat 20% commission to the seller for facilitating the transaction with the buyer.

For example, if a consumer pays $50 for a logo design service, $10 will go to Fiverr, and the remainder will go to the vendor (less a maximum $1 payment processing cost).

Fiverr also earns money by selling professional courses on its website, Learn From Fiverr.

Fiverr Business Model

Like other online marketplaces (including its competitor Upwork), Fiverr aims to expose the finest available services based on your search query. 

The result is that in every two-sided marketplace (in this case, a market containing buyers and sellers), there must be sufficient supply (in this case, services offered) to meet a buyer’s needs.

Fiverr also reduces the friction associated with employing freelance workers by handling both payment and promotion.

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A potential buyer can research how well-rated the service is, what type of services are available, and when they can expect them. It eliminates a great deal of the uncertainty associated with hiring a freelancer online.

The million-strong buyer pool will allow sellers to access a lucrative market without worrying about their incoming payments (since Fiverr services must be paid upfront). 

Fiverr’s other perks include dedicated support, automated billing, and revenue tracking dashboards.

What is the Funding and Valuation of Fiverr?

Crunchbase reports that Fiverr has raised more than $111 million in venture capital funding in six rounds. Bessemer Venture Partners, Accel, GC Capital, and Qumra Capital are among the company’s investors.

Following Fiverr’s initial public offering in June 2019, the company earned an additional $110 million. A share price of $21 was set by the corporation. Yahoo Finance reports Fiverr shares are now valued at close to $60. Fiverr is now valued at almost $1.9 billion.

What is the Revenue of Fiverr?

Fiverr announced sales of $107.1 million for 2019, up 42% from the prior year. Meanwhile, the company continues to incur losses, reporting a GAAP net loss of ($33.5) million (non-GAAP loss of ($16.8) million). Additionally, customers spend an average of $170 on the platform’s numerous services.

Success Story of Fiverr

Micha Kaufman and Shai Wininger established Fiverr in 2010 in Tel Aviv, Israel. Before launching Fiverr, the couple had successful online businesses.

Fiverr was founded as a result of the founders’ observations in the e-commerce market. While Amazon and eBay were gaining global traction, marketplaces for professional services remained a rarity.

Additionally, the financial crisis’s impacts were pushing a large number of individuals into unemployment. The team recognized an inherent need for people to be more adaptable in their employment.

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They created a very basic version of what would become Fiverr overnight. Rather than presenting the product to investors or the press, Kaufman and Wininger concentrated their efforts on promoting it inside their immediate circle.

The platform soon gained popularity, mostly through word of mouth. One of the site’s most compelling features was its cheap price point — clients could purchase services for as little as $5. And, if you haven’t realized by now, this is the model around which Fiverr is built.

Fiverr Business Model

While the cheap price point initially proved to be an effective and rapid method of attracting and growing its user base, it became clear later that it was not necessarily sustainable.

Fiverr abolished the $5 price cap and allowed vendors to set their prices after widespread backlash from freelancers and the media.

Fiverr swiftly turned into one of the leading platforms for hiring freelancers globally due to the extra price freedom. By 2014, the company’s platform had accumulated millions of users.

However, a year later, they were confronted with another setback. Wininger, who served as CTO of Fiverr, departed to pursue a new endeavor and found Lemonade Insurance.

However, even without Wininger, the corporation continued to grow. This included additional services such as gig packages and Fiverr Pro and expanding into new countries to serve local markets.

The company’s ongoing expansion led to its initial public offering (IPO) in June 2019. Today Fiverr employs over 800,000 freelancers in more than 160 countries.

Key Takeaways From Fiverr Business Model

Fiverr operates on a two-tiered digital marketplace approach. It began with a simple concept: make it possible to purchase any digital service or item the same way we do with physical goods.

It grows as a marketplace as a result of network effects. These network effects can be manipulated to generate a flywheel or virtuous growth cycle.

Marketplaces typically rely on an infinite number of value propositions, equal to the number of essential actors interacting on the platform. 

Fiverr, as a two-sided marketplace, must provide an enticing value proposition to both customers and sellers.

The company has no direct sales team, so it devotes most of its resources to obtaining customers through digital acquisition channels such as search engine optimization, search engine marketing, and social media.

The corporation operates at a loss, which means its business model is devoid of a profit formula.

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Any business must have a few essential measures for determining its success over time. Fiverr, in particular, places a premium on recurring customers and spend per buyer.

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