Etsy Business Model: How Etsy Works?

There are many eCommerce sites and manufacturers that sell online. Estay is one among them. It is one of the big online platforms that sell unique products. It is a two-sided marketplace for creative and unique goods. As a marketplace, it generates revenue through transaction fees on the items sold on the platform. Explore this blog to have a look at the Etsy business model and know how Etsy works and generates money.

Etsy has great growth opportunities, but many times vendors are unlicensed, and economic softness results in risks. In 2022, the platform is the largest contributor with gross merchandise sales (GMS). Whereas Reverb had $943 million GMS and Depop had $552 million GMS in the same year.

The number one category of the company is home furnishings, which tend to be economically sensible. Those sellers who sold their products on ETSY also got a boost during the pandemic spread, which by last year experienced a -4% decrease in Q4 GMS and -1.3% from 2022.

Etsy partners comprise sellers who provide unique listings and great reach across different marketing channels. In 2021, the platform generated around $2.3 billion in revenue. As of 2022, Etsy accounts for approximately 88 million buyers, and 5.3 million active sellers.

It’s not just an eCommerce platform, however, it’s a community that helps artists earn great amounts for their work. Etsy is doing a profitable business. If you are thinking of starting a business similar to Etsy, you can explore the Etsy business model and its overall working strategy to know how it works and make money.

What is Etsy?

Etsy is an American eCommerce company founded in 2005. The site focuses on craft supplies and vintage or handmade items. Etsy was launched by iospace, a small company composed of Haim Schoppik, Robert Kalin, and Chris Maguire. The items fall under a wider range of categories, including bags, jewelry, home decor, clothing, toys, art, furniture, and other tools.

Items characterized as vintage should be at least 20 years old. The platform follows the tradition of open craft fairs, providing seller’s opportunity to display their products in their personal storefront. They just need to pay US$0.20 per item.

Overview of Etsy Success Story

As of December 2022, Etsy has more than 100 million items in its marketplace. The online marketplace for handmade goods connects more than 7 million sellers with 95 million buyers. At the end of 2022, Etsy had more than 2,790 employees. By 2022 end the company had total sales and GMS (Gross Merchandise Sales) of US$13.3 billion. Let’s check Etsy’s success story to know everything about it.

Etsy revenue is expected to grow by 67% CAGR by 2019 and 2021. This has made it the fastest-growing online marketplace worldwide. The company has successfully capitalized on mobile shopping usage. The mobile app is the most popular shopping app in the US, Esty has more than one million in 2021.

The Etsy app is the most downloaded app on iOS devices. The mobile accounts for two-thirds of the company’s gross merchandise volume. If you want to build and start a platform similar to Etsy then it’s a smart choice to make. We at White Label Fox can help you take your business online. Have a quick look over our services, platform development, and more. Our professional developers specialize in delivery anything app development helping you to start and operate your business successfully.

Etsy Business Model: How the Marketplace Business Works?

The Etsy two-sided marketplace business is unique and creative goods. As a leading marketplace business, the company makes money through transaction fees on the items sold on the platform. The company’s key partner comprises sellers who offer unique listings and also provide organic reach through lots of marketing channels.

In 2021, Etsy generated around $2 billion in revenue. As of 2022, it counts almost 88 million active buyers, and 5 million active sellers. An Etsy business model is similar to eCommerce players like Amazon, eBay, etc, where it provides an on-demand platform for the selling and buying of goods. An online marketplace for creative and unique goods to be exact.

Etsy differs from the rest, it has a vertical approach to the company’s eCommerce business model. The company focuses on selling craft items in specific categories. Etsy is home to a universe of extraordinary items from vintage treasures to unique handcrafted pieces. Let’s explore more about the Etsy business model and more here.

Etsy’s Key Partners Sellers

Those small businesses and artists that manufacture handmade or owners of vintages and antiques. The company helps those who want to start selling online.

Buyers

Those who are looking to purchase handmade, unique, and vintage products from online shops. Those who are more interested in vintage and antique services.

Etsy’s Value Propositions

The Etsy business model’s success is mainly due to the value the company provides to its artists and buyers.

Sellers

• The company allows artists to put their items to the world.
• Sellers can easily create a shop on Etsy and name it as per their choice.
• Sellers have the option to add many items to their shop as per their preference.
• Sellers can select the items’ selling price according to what they think is perfect.
• Etsy also enables sellers to add tags to the items which enables users to research products easily.

Buyers

• Etsy allows buyers to search for unique hand items from artists across the globe.
• Buyers can buy vintage items.
• International shipping options enable buyers to get their ordered product delivered to their place.

Customer Segments Sellers

• Individual artists who make and want to sell handmade products.
• Most sellers are small manufacturers who create handicrafts.
• Artists can earn money by selling products.
• Individuals who want to sell online.

Buyers

• Etsy buyers can purchase vintage and handcrafted items.
• People who love to collect unique products.

How Does Etsy Work to Offer Unique Value to Users?

Etsy is a marketplace that attracts sellers of items to connect with buyers. Etsy connects buyers and sellers. It’s more of shared success. Sellers selling on Etsy help the company to make a great profit.

Steps That Help You Know How Etsy Works?

You might now have a sneak peek at the Etsy business model. Now let’s quickly understand how Etsy works to provide buyers and sellers with great shopping and purchase experience.

• Sellers can register and log in to the platform to list the items they sell.
• Listing items on the online marketplace platform is not free. The company charges a fee to list items that are valid for four months.
• Buyers can easily search for items and purchase the one they are more interested in.
• Buyers make online transactions or choose other payment options supported by the platform.
• Etsy charges almost 3.5% commission from sales done on the platform and transfers the rest to the merchant’s account.
• Buyers can easily rate and review the items sold on the platform.
• The review system helps buyers to know if a product or items sold on the platform is good or not.

Etsy Revenue Model: How Does a Company Make Money?

In 2021, Etsy an eCommerce platform that specializes in vintage items generates revenue of around 2 billion . It’s 35% up from the previous year. Most products and items are sold by independent artists and sellers.

Company in 2022 gathered revenue of US$2.6 billion and registered a net loss of US$694 million. The marketplace platform generates most of its revenue from three different streams: from final sale value, it generates around 6.5% of revenue. From seller services, the company generates 20% of the listing fee.

In short, the Etsy revenue stream includes fees for services like purchases, payment processing, and promoted listings through the platform. Other revenue includes third-party payment processors. The Etsy revenue model is quite like Amazon. It generates revenue through various types including

Listing Charges

Sellers have to pay almost $0.20 to list their items on the platform. Users can easily list thousands of products on the platform, this subscription expires after four months. Whereas petter-only listings don’t expire.

Sales Commissions

Etsy charges sellers a commission for each sale which is called transaction cost. The company charges around 3.5% of transaction fees for every sales total amount. The company takes a cut from the product sales.

Advertisements

Etsy enables sellers to advertise their items on its platform for specific fees. The company offers various advertising methods:

• Paid Advertising
• Shopping Ads

Shop specific Promotions

The advertising helps to bring more customers, ensuring more sales for the sellers.

Subscriptions

Etsy offers sellers suite tools that help them to manage products and stores. Esty Plus is a subscription service that offers extra tools to sellers for specific fees. The subscription fee is around $10 per month and provides sellers with lots of perks and features.

“Pattern” Tool Fees

Etsy provides users with website-building tools enabling them to create a personalized site to sell their products and services. The Pattern shop cost $15 per month after the period ends, helping businesses to grow.

Payment Processing

Etsy enables sellers to use its payment platform to facilitate buyers to purchase using different payment methods like credit & debit cards, coupons, gift cards, online wallets, etc. Etsy charges for processing transactions on its marketplace platform. Payment fees are different for every country, whereas the cost is deducted from the seller’s payment account.

Currency Conversion

Etsy charges 2.5% of the currency conversion. This percentage is charged when the seller’s preferred currency transactions. The buyer pays for vintage items in Euros, which later gets converted to USD and added to the seller’s account. Etsy charges a 2.5% cut out of product amount in terms of conversion fees.

In-Person Selling

The company enables sellers to list their items on the company’s site. The payment is done online using any platform supported by Etsy. The company facilitates in-person payment receiving using the Square reader for a $0.20 fee.

Launch Your App Like Etsy with White Label Box!

Etsy is the right place when it comes to selling your art online. The online items-selling platform has helped millions of artists and small business owners to sell their products without hassle. Due to its easy-to-use and user-friendly interface, Etsy has gained huge popularity among sellers and buyers.

The Etsy business model has unique selling points and other verticals’ approach is what makes the platform differ from other competitors. Attention to vintage and handcrafted items made the company an industry leader which is quite unique. Etsy has bright opportunities ahead, if you’ve taken the decision to build a platform similar to Etsy, White Label Fox is here to help you. Just specify your business requirements by connecting with us at [email protected]

Frequently Ask Questions

What is Etsy?

Etsy is an online marketplace focused on handmade, vintage, and unique goods. It allows individuals and small businesses to sell their products directly to consumers, providing a platform for sellers to reach a global audience. Etsy is known for its emphasis on creativity, artisanal products, and craft items.

How Does Etsy Work?

Etsy works by allowing sellers to create online stores where they can list their products. Buyers browse the marketplace, search for items, and make purchases directly through the platform. Etsy acts as the intermediary, providing a secure payment system and handling some aspects of the transaction, while the seller fulfills the orders.

What Types of Products Can You Buy on Etsy?

Etsy specializes in a variety of unique products, including:

• Handmade Goods: Jewelry, clothing, art, and home decor created by independent artists and crafters.
• Vintage Items: Products that are at least 20 years old, such as clothing, furniture, and collectibles.
• Craft Supplies: Materials for DIY projects, such as fabrics, yarns, beads, and tools.
• Personalized Gifts: Custom items tailored to the buyer’s preferences, such as engraved jewelry or personalized home decor.

How Does Etsy Make Money?

Etsy generates revenue through several streams:

• Listing Fees: Sellers are charged a small fee for listing their items on the platform (usually $0.20 per item).
• Transaction Fees: Etsy charges a commission (typically 5%) on each sale made through the marketplace.
• Payment Processing Fees: Etsy also collects a fee for processing payments (a percentage of the transaction plus a fixed fee).
• Advertising: Etsy offers paid advertising options for sellers to promote their listings within the Etsy platform and on external websites.
• Etsy Plus and Etsy Premium: These subscription-based services offer enhanced features, such as more customization options for stores, advanced analytics, and additional advertising opportunities.

What is Etsy’s Revenue Model?

Etsy’s revenue model is based on a combination of transaction fees, listing fees, and value-added services. The company collects:

• A fee for each product listed on the marketplace.
• A commission on the sales price when an item is sold.
• Payment processing fees.
• Subscription fees for enhanced seller features like Etsy Plus.
• Fees from advertising and promotional services offered to sellers.

How Does Etsy Attract Buyers and Sellers?

Etsy attracts buyers and sellers through a combination of:

• Targeted Marketing: Etsy invests in both paid and organic marketing strategies, including social media campaigns, Google Ads, and SEO optimization to drive traffic to the site.
• Brand Reputation: Etsy has built a strong brand around handmade, vintage, and unique items, which attracts shoppers who value creativity and individuality.
• Community Engagement: Etsy offers a community-driven platform where sellers and buyers can interact, share ideas, and showcase their products, fostering customer loyalty.
• Seller Tools: Etsy provides a range of seller tools to help merchants succeed, including easy-to-use store management features, analytics, and marketing tools.

What Are the Benefits of Selling on Etsy?

Selling on Etsy provides several benefits:

• Global Reach: Etsy’s platform allows sellers to access a large, global customer base interested in unique and handmade products.
• Low Startup Costs: Etsy has minimal upfront costs, making it accessible for small businesses and independent creators.
• Marketplace Tools: Etsy offers a variety of tools for managing orders, marketing, and customer communication.
• Built-In Trust: Etsy’s reputation as a trusted platform increases the likelihood of attracting buyers.

How Does Etsy Support Sellers?

Etsy provides several resources and services to help sellers succeed:

• Shop Customization: Sellers can customize their shop appearance to match their brand and style.
• Seller Education: Etsy offers workshops, guides, and a help center to assist sellers in growing their businesses.
• Analytics: Sellers receive data and insights into their store’s performance, helping them make informed decisions.
• Customer Support: Etsy offers dedicated customer service for sellers, assisting them with any platform-related issues.

How Does Etsy Compete with Other Marketplaces Like Amazon or eBay?

Etsy differentiates itself from larger e-commerce platforms like Amazon and eBay by focusing on niche products:

• Handmade and Vintage Goods: Unlike Amazon, which sells a vast array of mass-produced items, Etsy’s specialty is handmade and vintage products, which appeal to a specific market.
• Creative Community: Etsy fosters a sense of community, offering buyers the chance to connect with independent creators and purchase unique, personalized products.
• Personalization: Etsy provides an option for custom-made and personalized products, which isn’t a primary focus of many other platforms.

What Challenges Does Etsy Face?

Despite its success, Etsy faces several challenges:

• Competition: As the online marketplace space grows, Etsy competes with larger platforms like Amazon, eBay, and Shopify, as well as niche marketplaces.
• Fee Structure: Sellers may be concerned with the platform's fees, including listing fees, transaction fees, and advertising costs.
• Counterfeit Goods: Etsy works to ensure that its marketplace remains free of counterfeit and mass-produced items, which can impact the brand’s reputation and trust.
• Marketplace Saturation: With the increasing number of sellers, standing out on Etsy can become more difficult, especially for new shops.