Etsy Business Model | How Does Etsy Make Money?

Technological advancements, increased adoption of mobile devices, globalization, better and cheaper internet connection, and safe payment gateways are driving the growth of online marketplaces like Etsy. But what is Etsy, and how does it generate revenue? Let’s find out.

What is Etsy?

Founded by Rob Kalin, Haim Schoppik, and Chris Maguire in 2005, Etsy is a C2C (consumer-to-consumer) online marketplace for buying and selling unique products.

With its aim to keep humans at the center of its operations, Etsy’s wide range of products, from handcrafted marvels to vintage supplies, attracts over 447 million visitors monthly, cementing its position as one of the most visited online marketplaces.

Etsy Customer Segmentation

Etsy primarily caters to two types of customer segments::

Buyers: Etsy draws in nearly 92 million active buyers annually with its unique range of products and powerful search tool.
Sellers: Etsy supports approximately 7.47 million sellers and empowers them to sell their creative goods and generate revenue.

Etsy is a global online marketplace trusted by millions of individual buyers and sellers, but why do they trust Etsy?

Etsy’s Value Propositions

Etsy’s unique value propositions include the following:

1. Wide range of products

Etsy’s biggest USP is its wide range of products. This e-commerce giant’s vast collection includes items across several categories like jewelry and accessories, clothing and shoes, home and living, wedding and party, toys and entertainment, art and collectibles, vintage treasures, and craft goods.

2. Search feature

Etsy’s powerful search feature lets buyers quickly look up items they need. It also adds to their ease of shopping and saves time. Moreover, the related search section lets customers look for items related to their search query.

3. Ease of selling

Anyone can begin selling their creations or vintage goods through Etsy with only a few clicks. They can get started with an initial investment of $0.20 (listing fee) and worry about payment processing, transaction, and offsite advertising charges only after they sell a listed item.

4. Tools and support system for sellers

Etsy gives its sellers global exposure and provides them with adequate tools to build and grow their Etsy shops. Its onsite and offsite advertising tools help sellers grab eyeballs and gain new customers. Further, its dedicated support system ensures sellers get all the help they need when they need it.

5. Custom API

Etsy’s native API allows sellers to create and integrate their Etsy marketplace shop into their devices and websites. It allows sellers to focus on their business while handling the technical details.

Who are the Key Partners of Etsy?

Etsy’s partners have helped the company become a household name and gain customers from every corner of the world. Its key partners include:

Sellers: Etsy’s entire business model hinges on its sellers. The artists allow the e-commerce marketplace to follow through on its human connection mission statement. They’re also crucial in helping Etsy gain goodwill in the market.
Buyers: The company proudly delivers products to customers around the world and generates billions as a result.
Payment gateways: Partnerships with secure payment gateways let Etsy process payments in addition to Etsy Payments.

What are Etsy’s Key Resources?

Etsy’s key resources include:

Etsy’s user-friendly website and app are its biggest resources.
Profitable partnerships with sellers and wide distribution networks.
Etsy’s ecosystem has over 2,400 employees and other human resources across the world.
An enviable listing of over 120 million products to fulfill buyers’ search queries.
A dedicated algorithm and system to predict consumer buying patterns and monitor habits.
Headquarters in DUMBO, Brooklyn, with offices in Chicago, New Delhi, Dublin, London, and Mexico City.
Excellent brand image in the online marketplace segment.

What are Etsy’s Channels?

Shoppers can buy, and sellers can sell products through Etsy’s website. Moreover, it has separate apps for its buyers and sellers to optimize the experience of each segment.

Android and iOS customers can download the Etsy app on Google Play and App Store to fulfill their shopping needs. On the other hand, buyers can get the Etsy Seller app from Google Play and the App Store to manage their business wherever they are.

Additionally, the company is active on multiple social channels—Facebook, Pinterest, X (formerly Twitter), Instagram, and YouTube—and leverages it to connect with buyers and sellers globally.

How does Etsy Maintain Customer Relationships?

Etsy buyers can access self-service tools and visit the Etsy Help page for order queries, return requests, shopping and gifting questions, searching for items, and tips on purchasing safely through the e-commerce platform. They can also resolve their payment- and account-related queries through this page.

Similarly, Etsy sellers can visit the Seller Etsy Help page for queries related to shop management tools, creating product listings, shipping prices, taxes on sales and imports, discounts and promotions, stats and analytics, and getting paid. Etsy shop basics and account-related questions can also be handled through this page.

However, if the support pages don’t answer the queries sufficiently, both the sellers and buyers can log in to their Etsy accounts and contact the support team.

What is Etsy’s Cost Structure?

Etsy incurred an expenditure of $744.6 million as a cost of revenue for the fiscal year ended December 31, 2022. Further, it spent nearly $2.5 billion on operating expenses, including marketing, product development, general and administrative, and goodwill impairment.

How Does Etsy Make Money?

Etsy’s revenue for the fiscal year ended December 31, 2022, was around $2.56 billion. But how does this marketplace make money?

Etsy’s revenue streams can be categorized into five sections:

1. Listing fees

Etsy charges a listing fee of $0.20 for each product a seller lists on the platform. This listing is valid for four months or until the item is sold. Considering this company has over 7 million active sellers with over 120 million product listings, it’s a primary source of income for this e-commerce company.

2. Transaction and payment processing fees

Etsy levies a transaction fee of 6.5% on its sellers. It also levies a payment processing fee of 3% + $0.25 for every transaction made through Etsy Payments.

3. Advertisement fees

Etsy employs two ways to earn money through advertisements: the Etsy platform advertisement fees and offsite add fees.

Sellers might opt to pay Etsy money to advertise their products directly on the platform to attract more customers and improve sales.

Alternatively, Etsy pays for offsite ads and charges the seller a fee of 15% when they make a sale through one of these ads.

4. Subscription fees

The company offers an Etsy Plus feature wherein sellers are charged $10 monthly in exchange for premium tools, 15 listing credits and $5 Etsy Ads credit, shop customization options, discounts on shipping, a 30% discount on Moo—an online print and design company—and gives them access to a personalized web address.

5. Pattern

Etsy’s Pattern allows sellers to custom-build a website within minutes and expand their e-commerce business beyond this C2C platform. It’s free for the first 30 days, after which there’s a monthly fee of $15.

6. Currency conversion fees

Etsy converts the sales amounts for its sellers for a fee of 2.5% currency conversion fee on the sale amount.

The Bottom Line: Etsy is redefining online marketplaces

Etsy is redefining online marketplaces and helping niche sellers grow their businesses. It’s also the ideal platform for sellers to score handcrafted, unique, and vintage items they can’t get anywhere else.

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