I’ve been an Etsy seller since January 2022, so a little over 3 months, and I’m enjoying it. It’s a good platform if you’re selling something popular.
But I’m starting to wonder is Etsy greedy?
If you sell on Etsy then this question impacts you. Etsy is publicly traded which means it’s responsible to it’s shareholders, not to us sellers.
On 24 February 2022, Josh Silverman – the Etsy CEO – sent an email to the Seller Community. Interestingly, it’s the same date that Etsy were due to release their 4th Quarter and full 2021 performance reports.
The email’s subject line was:
“Investing in Etsy’s growth: A message from CEO Josh Silverman”
Growth = increased profits for shareholders = happy shareholders.
The email was to inform sellers that the transaction fee was increasing from 5% to 6.5%. And the reason being so that Etsy could “…make significant investments in marketing, seller tools, and creating a world-class customer experience so we can continue this tremendous growth.”
Etsy’s 2021 end of year report shows they made $1.26 billion in gross profit and their EBITDA (a measurement of profitability) was $549 million.
- How many creators on their platform are making that kind of profit?
- How many are even making sales at that scale?
It would be interesting to know, though I would guess none? I’d love to be wrong on that.
So I’m skeptical about the price increase. Why? Etsy’s stock dropped by 20 and 26% in Dec 2021 and Jan 2022 year-on-year according to Seeking Alpha.
But mainly because Etsy already charges sellers a significant amount compared to other platforms. So why can’t they use their profit to fund the platform development they’re promising? Not to mention a lot of advertising costs are charged to sellers as extra transaction charges (an extra 10-12%).
Here are the Etsy fees for sellers
Correct at the time of publishing.
- Listing fee £0.20
- Transaction fee 5% (increasing to 6.5)
- Processing fee 4.0% + £0.20 fixed fee
- Operating fee 0.25%
Total: 9.25% + £0.40
And the finance reports in Etsy are a little confusing for the charges.
For comparison, platforms such as Gumroad are transparent in their fees – I sell with Gumroad for my worldbuilding products. They charge 9% + £0.20 until you’ve earnt $1,000 at which point their fee drops to 7%, at $10,000 it drops to 5% and so on.
I mean 4% just for the processing fee! That’s insane, Etsy must be making a massive mark up on what are basically credit card fees. Remember, Stripe charges 2.9% for international charges – but that’s their published price i.e. the price you pay when you’re a small business. Large multinational companies processing millions of transactions will get a smaller charge. I’m not sure if Etsy use Stripe, but it gives you an idea of the costs involved.
0.25% Operating fee – what’s that you ask, I thought Etsy already charged a Transaction fee to cover their costs?
Correct, they do.
The Operating fee is a decision Etsy has made to charge in certain countries. Some governments (like in the UK) added a digital tax to large businesses who are making millions (billions?) from the country’s citizens, because most of the time these large companies have a tax obligation outside of the country where they are making their profits. So their tax gets paid to a different country.
Instead of accepting the tax as a cost of doing business and supporting the countries where they make profits, most large multinationals have pushed the cost of the tax onto their suppliers/customers.
In some ways I don’t begrudge the multinationals for doing this as it seemed the most obvious thing they would do. But once again it feels like a repeat of the VAT MOSS mess where lawmakers want to go after billion dollar companies but instead punish small and micro businesses.
From our Chancellor’s point of view the digital tax looks great on paper. They can point to the tax on the Treasury’s balance sheet and show how they have clawed back tax from big business.
Anyways, I’m digressing.
Back to the Etsy costs and fees, because those aren’t the only costs.
As I mentioned earlier if Etsy ‘advertises’ your product and you make a sale then you’ll pay an extra 10-12%. Small sellers can opt out but if you make over £10,000 from Etsy then you’re not allowed to opt out.
To get your shop and listings in front of sellers you can pay Etsy to advertise your products on search results. And actually this was insanely easy, as easy as choosing the listings I wanted to advertise and flicking a toggle.
When I tried it my listing worked out at around 26p a click.
I have a bit more data from sales and my average conversion rate from organic Etsy traffic has been 2.8% – so in theory I should get a sale every 35 clicks or so. Which would mean it costs me £9.10 to make a sale. Money that goes to Etsy.
My average sale value has been £16 and the fees on that are around £1.85 – so advertising is a little out of the question.
However, I may try a longer experiment with ads to see if the traffic from advertising converts at a better or worse rate than an organic listing. Just for the data and to learn.
Another way Etsy makes money is offering a Pro subscription. It works out at around £10 a month including VAT. For that price sellers get 15 listing credits a month (£3ish) and £3.80 in advertising credits.
There are also some extra customisation options for your shop.
In conclusion, Etsy has many ways of making money
$549 million is a nice pile of money to make. So why do they need to charge a further 1.5% on the base transaction fee? My guess is the drop in share price had something to do with it.
I’ll still sell on Etsy for now as it is an interesting platform with an audience of buyers. Most of my sales are for digital art services, and I mainly do it for fun as a hobby. I’m also interested to see what new seller tools they bring out.
But at some point the fees will be too much and it’ll make more sense to move away from the platform or rethink how I use it, especially if I grow big enough to go full time.