Business

OfferUp Business Model | How Does OfferUp Make Money?

We are all aware that the digital commerce marketplace has become increasingly crowded over the last few years. However, how did OfferUp establish its position? Through its straightforward and user-friendly mobile interface.

OfferUp is a consumer-to-consumer (C2C) marketplace focused on mobile that enables consumers to sell used goods. It earns money by charging a minimum fee of $1.99 or 12.9 percent of the sale price of sellers.

If you’re looking to buy or sell anything, OfferUp is your best option. The app has grown to be one of the most popular digital platforms for purchasing and selling goods via smartphones.

Additionally, it generates revenue through promoted listings for sellers and a Verified Dealer Program that enables automobile dealerships to sell on the platform.

It has surpassed several competitors, including Letgo, Swapit, and Carrousel, by focusing exclusively on mobile-based technology.

What is OfferUp?

OfferUp is a mobile-first business-to-business (B2B) marketplace where users can buy and sell items. Clothing, furniture, and automobiles are just a few of the categories available.

OfferUp’s business model is based on charging sellers a fee for each sale and shipment made via its platform.

How Does OfferUp Make Money?

Additionally, the company earns money through promotional listings and a program exclusively for car dealerships.

OfferUp, founded in 2011 and headquartered in Bellevue, Washington, has quickly grown to become one of the largest marketplaces in North America.

The company raised a total of $381 million in venture capital and amassed nearly 100 million app downloads.

How Does OfferUp work?

OfferUp is a peer-to-peer (C2C) platform where users can both buy and sell goods.

As a mobile-first company, most users access the service via the company’s Android and iOS apps.

Customers can browse and purchase products in various categories, including furniture, clothing, sporting goods, and toys.

OfferUp places a premium on face-to-face interaction between buyers and sellers.

Products displays on the feed of buyers based on their location. It promotes face-to-face interaction between both parties and contributes to developing a sense of community in the surrounding area.

Buyers can use the app’s chat feature to ask questions about a product or to arrange a meeting with the seller to inspect the potential purchase in greater detail.

OfferUp Business Model | How Does OfferUp Make Money? 1

For sellers, products are immediately listed for sale following upload. The seller can then prioritize inquiries based on the highest bid and schedule a time and location for the successful individual to meet.

As the company’s name implies, buyers can make offers on items they wish to purchase.

After that, the buyer and seller can negotiate the final price.

Buyers have two days to inspect and complete the purchasing process after the item is successfully delivered.

Following that, buyers can leave feedback on both the seller and the product.

Sellers have profiles on OfferUp’s platform, including their rating, number of reviews, location, and, in some cases, photos, to build trust and thus sales.

To date, OfferUp’s mobile applications have been downloaded over 90 million times. Each year, its users complete over 55 million transactions.

How Does OfferUp Make Money?

OfferUp earns money from the different products and services it offers to sellers, like any other marketplace.

The platform for any buyer using it is, therefore, free of charge.

OfferUp did not monetize its seller base for its first five years of activity.

The basic aim was to develop the supply side of its marketplace, which attracts more customers in turn.

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OfferUp was free for the seller for the first five years of operation.

This decision has several reasons. There are several. 

First, company founders wanted this platform, which doesn’t charge sellers to list, to compete with Craigslist and Facebook Marketplace.

The founders also wanted to attract buyers, and only once they had created sufficient supply to attract them could this occur.

OfferUp started charging vendors for their service in 2016.

Let’s now take a closer look at the business model OfferUp. How are they gaining money?

It also helped them compete with Craigslist and Facebook’s Marketplace platform, which their sellers don’t charge until that day.

Only after 2016 did OfferUp begin to monetize its sellers. Let’s look at each revenue stream it’s been building since then.

Promoted Listings

Sellers can promote their listings on Offerup using the Promote and Promote Plus features.

Sellers can use OfferUp’s Promote and Promote Plus features to promote their listings.

These features enable the seller’s product to be displayed in the top 50 listings in their area. For those looking to jump straight to the top, OfferUp offers a service called “Bump.”

Promoting an item increases its visibility to the top 50 listings in browse, category, and search results.

OfferUp Business Model | How Does OfferUp Make Money? 3

Users can purchase promotions for a specified duration, such as two or seven days.

Alternatively, sellers can purchase known as Bumps, which elevate an item to the top of a feed.

The listing will move down the feed as other sellers make new Bump purchases.

Sellers can opt into Promote Plus for longer-lasting or ongoing promotions.

Sellers can purchase a Promote Plus subscription service that allows them to promote their listings continuously.

OfferUp is divided into two tiers: Plus-1 and Plus-5. Sellers may promote one of five products concurrently for an unlimited time.

Monthly pricing for the Promote Plus plan begins at $19.99. Sellers may cancel at any time via the app or through the Google Play and iOS App Stores.

Seller Fees

When sellers on OfferUp sell an item that requires shipping, they are charged a service fee. Fees begin at $1.99 per sale or 12.9% of the sale price.

Through its partnership with the US Postal Service, OfferUp enables sellers to ship their items to all 48 states in the United States.

Although the company partners with the United States Postal Service, it also charges a service or shipping fee based on its being shipped.

Additionally, OfferUp charges a small service fee for the shipment’s execution, which varies by state.

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When buyers discover an item they like, they can opt-in for Ship To Me, make an offer, and pay directly through the app if the seller accepts their bid.

It’s critical to keep in mind that the item in question must adhere to a strict set of criteria to qualify for OfferUp shipping. As previously stated, the company prefers that the transaction take place in person.

Only when the following conditions are met can items be shipped:

  • Under the weight of twenty pounds.
  • Not more than 18 inches in length.
  • Fit into the pre-defined box size for OfferUp.
  • Between $2 and $750 in price.
  • Immediately available for shipment.

For items that do not meet these criteria, the buyer and seller can arrange to meet in person to complete the transaction and hand over the item.

For in-person transactions, OfferUp does not charge a fee.

Verified Dealer Program

According to OfferUp, the company’s marketplace now accounts for more than 10% of all used car sales in the United States.

OfferUp has also benefited from the shift toward online car sales.

That is why, in June 2018, the company launched its Verified Dealer Program. It aims to increase the visibility of any car dealership that sells on OfferUp.

The OfferUp Verified Dealer Program enables automobile dealerships to sell on the platform using AI-powered top lead indicators, automatic DMS importation, and a click-to-call button.

The program provides dealerships with various advertising tools to increase sales, such as an AI-powered top lead indicator, a click-to-call button, and automatic DMS importation.

Pricing is available upon request and is determined by the dealership’s size and the number of premium features utilized.

Is OfferUp Safe?

Yes, the service is usually secure to use and is comparable to Craigslist, eBay, Etsy, and the Facebook Marketplace in terms of security.

While OfferUp does not conduct background checks on its users, it does so through other means.

A user can review a seller based on their interaction with the seller. The seller reviews help in the social validation as it indicates how trust worthy a seller is.

The higher positive reviews a seller has, the more trustworthy he or she is.

Additionally, OfferUp displays a seller’s average response time, which serves as a barometer of how active its users are.

Second, the company has implemented a feature called TruYou that verifies users.

Users must provide their phone numbers, upload a scanned copy of their identification card, and take a selfie to verify their identity.

Users receive a batch once confirmation is received.

Thirdly, users can report and block sellers who they believe are violating OfferUp’s terms of service.

Fourth, the company has designated pick-up locations where users can meet and exchange goods.

Police stations and supermarkets are two examples of locations.

Finally, OfferUp withholds payment from the seller until the user confirms the product was delivered correctly.

Buyers may return an item if it is defective or significantly different from the description.

The funds would then be re-deposited into their account.

Success Story of OfferUp

OfferUp was founded in 2011 by Nick Huzar (CEO) and Arean van Veelen in Bellevue, Washington.

Huzar, a native of Seattle, spent the first half of his career as an employee and founder building products.

After working as a product manager at both Microsoft and T-Mobile, he founded Konnects Inc. This SaaS company enabled traditional media companies to target and monetize their audiences more effectively.

He then founded DealSpringer in March 2010, capitalizing on the rapidly growing smartphone user base.

The concept was straightforward: users would take a photo with their phone, upload it to the app, and automatically share it with anyone within proximity.

The app would then share the content with other mobile devices and social media platforms such as Facebook, Twitter, email, and various search engines.

How Does OfferUp Make Money?

However, as these things go, Huzar’s endeavor ended up being a little different than anticipated. Customers were utilizing the DealSpringer app in some novel ways.

Instead of photographing deals, they were photographing items they intended to sell on the app.

Meanwhile, Huzar experienced another epiphany. His wife was expecting their first child in a few months, and he immediately went into what he called ‘dad-mode,’ selling some unused items to make room for the baby.

Unfortunately, existing classifieds platforms such as Craigslist provided a subpar experience at best.

Uploading a listing took over 30 minutes, the design was unintuitive, there was no app, and the experience could occasionally be dangerous.

Finally, DealSpringer was essentially competing with Groupon, which was the darling of the startup industry at the time – which made it more difficult for them to raise money.

As a result, the team pivoted a year later and began working on what would eventually become OfferUp. 

Finally, the OfferUp app was launched in June 2012 with an aim to reduce Craigslist’s profits. 

OfferUp has always positioned itself as a more convenient and secure platform.

Rather than filling pages upon pages with ads (as is the case on Craigslist), users would simply snap a photo, add a brief description, and the item would be listed for sale.

Additionally, its TruYou program (highlighted above) provided a necessary layer of security that Craigslist lacked.

Additionally, listing and selling items on OfferUp was free. This enabled them to expand their marketplace’s liquidity rapidly.

OfferUp continued to grow its business in the years that followed, adding features, users, and funding.

By 2015, the app remained free to use but had amassed over $90 million in venture capital funding, $2.9 billion in sales in 2015 alone, and over 12 million app downloads.

Customers spent an average of more than 20 minutes per day browsing the app’s product feed due to the app’s Pinterest-like user experience.

OfferUp reached $14 billion in gross merchandise volume in 2016, just four years after its launch (GMV). To put that figure into context, eBay reached that milestone only after its eighth year of operation.

OfferUp immediately tapped into the rapidly growing industry of mobile-first marketplaces. Poshmark, Etsy, and Vinted had raised millions of dollars by focusing on visual commerce and social validation.

Regrettably, not everything went according to plan. The app’s users have encountered numerous attempted robberies over the years.

The plot would typically unfold as follows: the buyer and seller would meet at a pre-arranged location, where either party would arrive armed in an attempt to steal the other’s valuables.

OfferUp launched MeetUp in 2017 to address safety concerns.

It would establish designated meeting locations, such as supermarkets or police stations, for buyers and sellers to meet and complete the transaction.

MeetUp has now expanded to over 1,000 locations throughout the United States and Canada.

Today, OfferUp has grown to become one of the largest e-commerce marketplaces in North America. In 2020, it decided to merge with LetGo, one of its biggest rivals, to increase its market share further.

The total investment of $120 million was raised with the led being OLX Group and acquired 40% of the combined business, becoming a significant shareholder in OfferUp.

The newly formed entity will have a combined monthly active user base of over 20 million across the United States.

The move was critical for OfferUp, which had struggled to grow its user base in recent years, falling from 42 million in 2018 to 44 million in 2019.

LetGo, which has historically been strong in the Midwest, and OfferUp, which is more prevalent in urban areas, would provide the necessary user base for OfferUp to continue competing with Craigslist.

What can You Post on OfferUp?

OfferUp enables you to publish classified ads in the following categories and many more.

  • Household items
  • Clothing
  • Jewelry
  • Toys
  • Musical instruments
  • Electronics
  • Tickets
  • Antiques
  • Vehicles
  • Tools and machinery

What types of listings are not permitted on OfferUp?

The items listed below are not permitted on OfferUp.

  • Adult & mature content
  • Alcohol, drugs & tobacco
  • Wildlife products
  • Animals
  • Dangerous items
  • Counterfeit and replica items
  • Food items
  • Recalled items
  • Illegal items or encouraging illegal activity
  • Gift cards
  • Medical & healthcare items
  • Intangible items
  • Offensive materials

How to use OfferUp to earn money?

It’s incredibly simple to post on OfferUp. OfferUp is one of the best apps for decluttering your home and earning money online or via the mobile app.

When people are looking for side income opportunities from home, OfferUp is an easy-to-use, legitimate way to earn extra cash. The following are the steps you must take.

  • Install the OfferUp app and create an OfferUp profile with your name, location, email address, profile picture, and phone number.
  • Select the option “Post.”
  • Take a few photographs of your item.
  • Give your item a title and specify the category and condition.
  • Enter a brief description of the product that is succinct.
  • Indicate the item’s price and whether it is negotiable or not.
  • Select a shipping method for your item. Again, this depends on your willingness to pay service fees or your preference to conduct business locally.

How can I make my Listing Stand Out in OfferUp?

There are numerous ways to make your listing stand out on the OfferUp app.”

  • When you’re ready to post your item, could you take photographs of it in natural light? Photographs taken in natural light are well-known for their ability to stand out among other images.
  • Promote your item using OfferUp’s bump feature.
  • Share your listing on other social media platforms to increase traffic to it.

How to delete your OfferUp account?

OfferUp allows you to deactivate but not delete your account. You can contact customer service and ask them to delete your account permanently.

How Much Funding OfferUp Raised?

A total of $381 million was raised by OfferUp in venture capital funding through nine rounds, according to Crunchbase.

Andreessen Horowitz, GGV Capital, Warburg Pincus, and others are among the prominent investors in the startup.

Also read, How Does TikTok Make Money?

What is the Valuation and Revenue of OfferUp?

OfferUp’s most recent public valuation occurred during its 2018 funding round when the marketplace was valued at $1.4 billion.

In March 2020, the company raised an additional round of funding but declined to disclose its valuation.

As with any other fast-growing startup, OfferUp does not disclose its revenue figures to the public. 

Almost certainly, the company will continue to lose money as it attempts to expand into new verticals and markets.

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About the author

Madhav

Hey Folks, I am Madhav! I lead a team of Marketers at Tech Startup based in Australia. In my free time, I dissect the business models of various businesses. And if there's any free time, I cook some new Dish!