How does Etsy make money | Business Model & Marketing Strategy

In a world where e-commerce has been dominated by one company for the last two decades, which sells almost everything, finding a niche for your product can be a challenge. But it becomes easier to find a place when a company is trying to “keep commerce human.” That’s the motto of an American e-commerce company called Etsy that focuses on selling vintage items and craft supplies.

Etsy is not just an e-commerce platform, but it is a community that helps artists earn revenue for their work. At that same time, Etsy is doing business profitably. How? How does Etsy make money? What is this humanitarian yet profitable business model of Etsy? What marketing strategy made Etsy so famous?

What is Etsy?

The Etsy marketplace connects creative artisans and entrepreneurs with thoughtful consumers looking for items that are intended to make both every day and meaningful occasions feel special and reflect their sense of style. 

Etsy operates two-sided online marketplaces that connect millions of passionate and creative buyers and sellers. Their mission is to “Keep Commerce Human” and use the power of business and technology to strengthen communities and empower people worldwide. 

Launched in 2005 by a small company, iospace, with three founders, Robert Kalin, Chris Maguire, and Haim Schoppik, Etsy has become a global giant marketplace worth ~$30bn from a tiny venture in which Kalin was looking for a way to sell handmade furniture on the internet.

Etsy has become an epicenter of the handicraft movement on the internet. About 90% of the early sellers were women — today it’s still 87% — and they were all making certifiably handmade objects: paintings, sweaters, porcelain bowls

Etsy has three impact pillars:

Economic Impact: Make creative entrepreneurship a path to financial security and personal empowerment. In 2020, Etsy sellers contributed $13 billion to the U.S. economy and created 2.6 million jobs in the independent worker economy.

Social Impact: Enable equitable access to the opportunities. Etsy, in 2020, invested over $2.6 million in charitable gifts to support community organizations and programs.

Ecological Impact: Build long-term resilience by eliminating their carbon impacts and fostering responsible resource use. Etsy sourced 100% of electricity from renewable energy and continued to run a carbon-neutral business.

Due to its rock-solid business model, Etsy’s share, which made its stock market debut on April 16, 2015, with an initial public offering (IPO) of $16 per share, has given its shareholders a return ~700% return in less than seven years.

What business model makes Etsy unique?

Etsy’s business model is focused on fulfilling the needs of buyers and sellers. Let’sLet’s understand the value proposition for each of them.

Buyers: Buyers come to the Etsy marketplace to be inspired and delighted by items crafted and curated by its sellers. In fact, in a 2020 survey of Etsy buyers, 88% of buyers surveyed agreed that Etsy has things that you can’t find anywhere else. As of 2020, close to 81.9 million buyers, a 77% increase from 2019, had purchased goods through the Etsy ecosystem.

Sellers: Etsy sellers are the heart and soul of Etsy, and its technology platform allows sellers to turn their creative passions into economic opportunities. Etsy has a seller-aligned business model, which means Etsy makes money when its sellers make money.

Etsy offers its sellers a marketplace with millions of buyers and a range of seller tools and services specifically designed to help them generate more sales and scale their businesses. As of 2020, Etsy has a total of 4.4Mn sellers from 234 countries, of which 62% are from the U.S.

U.S. Etsy sellers contributed $13 billion to the U.S. economy in 2020 and created 2.6 million jobs. Etsy also gives freedom to the sellers to list items other than handmade and vintage guidelines at an extra charge. Sellers can upload videos showing the products and the production process, and more conversations between buyers and sellers are encouraged to drive further personalization. 

The success of Etsy’s business model is due to its four levers:

• Best-in-class search and discovery: Making it easier to find just the right item even when a buyer doesn’t have the right words to describe it.
• Human Connection: Leaning into the human and community aspect of Etsy by leveraging the power of video to tell the stories of sellers and their items.
• A trusted brand: Optimizing the post-purchase experience to increase transparency and trust, so buyers know we are reliable and have their back when something goes as planned.
• Seller’s collection of unique items: Etsy has over 60 million products listed on its platform.

When most of the businesses struggled in 2020, Etsy thrived. As soon as the recommendation to put Face masks was out, Etsy encouraged its community to help supply such masks to the public during this unprecedented crisis. More than 12 million masks were sold on Etsy’sEtsy’s marketplace in April alone, while more than 110,000 sellers sold at least one mask between April and June. Etsy overall observed growth of 106.7% in Gross merchandise sales (“GMS”) year-over-year to $10.3 billion, up from $5.0 billion in 2019. 

You will find more infographics at Statista

What marketing strategy is being adopted by Etsy?

Etsy is investing heavily in its marketing strategy. In 2020 alone, its market spend has increased by 100% YoY. Etsy’s marketing strategy can be broadly classified into Advertising, Influencer marketing, and Digital Campaigns. Approximately 85% of Etsy’s marketing budget is advertising.

Advertising

Etsy invests in upper-funnel strategies through T.V., digital video, and paid social with inspirational ads that built emotional connection and reinforced its core brand promise. Etsy also focuses on leveraging its new CRM tools to segment and target buyers with messages on and offsite. Etsy introduced Offsite Ads, a powerful and risk-free advertising platform that gives sellers access to some of the highest-trafficked platforms on the internet without any upfront costs.

Influencer Marketing

Discovering and identifying influencers to advocate the platform in the relevant niche was of top priority to Etsy to achieve its brand awareness and sales goals. A combination of influencer profile analysis, outreach, and performance analytics was implemented through influencer marketing platform Qoruz. 

Digital Campaigns

Etsy’s digital marketing strategy focuses on launching campaigns with a solid emotional connection. Etsy’sEtsy’s campaigns motivate people to gift something special with its campaign “Give more than a gift.” Etsy is smartly pulling away customers from other e-commerce websites with such campaigns as these unique gifts are available only on Etsy.

With its campaign “Why Buy Boring,” Etsy has taken its marketing strategy to a different level. Imagine a website is urging you to buy from its platform because you are not common, you are not bland, and you are definitely not boring. Then why buy from boring websites (you know what I am referring to!).

As far as its social media strategy, particularly Instagram, is concerned, Etsy promotes unique products from its sellers. This strategy put two thoughts in the mind of Etsy, which work in favor of Etsy.

Firstly such posts demonstrate that Etsy cares about its sellers, tiny businesses, and it’s a good citizen. Secondly, there is no denying that appreciation for handicrafts is declining in this digital world, and Etsy seems to be doing an excellent job by promoting such arts.

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How Does Etsy Make money?

In 2020, Etsy generated a revenue of $1.725bn, a 100% increase from 2019. Etsy makes money from sellers by charging various fees for selling on its marketplace and fees for some other services. 75% of revenue is generated through the marketplace. Below is a list of multiple fees that Etsy charges its sellers.

Listing Fees: Sellers are charged a listing fee of $0.20 for each item that sellers list for sale on Etsy.com or Etsy’sEtsy’s mobile apps. Etsy.com listings expire after four months.

Transaction Fees: When a seller makes a sale through Etsy.com, sellers are charged a transaction fee of 5% of the price they display for each listing plus the amount they charge for delivery and gift wrapping.

Advertising and Promotional Fees: Etsy offers multiple services to help sellers advertise listings and promote their shops. There are two ways: Etsy Ads and Offsite Ads. 

• Etsy Ads fees: Through Etsy Ads, Etsy charges sellers to advertise their listings or shops on the Etsy platform. 
• Offsite Ads Fees: Etsy purchases offsite advertising from a network of participating partners, such as social networks and search engines. Etsy pays the upfront costs to promote Etsy sellers’ listings on multiple internet platforms without any upfront costs for sellers. Etsy charges 15% on those orders if a buyer purchases through that listing.

Subscription Fees: Etsy offers its sellers an expanded set of tools for growing brands. The fee for an Etsy Plus subscription is $10 per month.

Pattern Fees: Etsy provides sellers a personalized, separate website for business through Pattern. With Pattern, one can sell items or services that don’t follow Etsy’sEtsy’s handmade and vintage guidelines. Etsy makes money by charging sellers $15 per month.

What can entrepreneurs learn from Etsy?

There are a couple of lessons that entrepreneurs can learn from the success of Etsy’s business model.

1. Find your niche– Don’t try to become Amazon on Day1. Even Amazon started by selling books only. But how can you find that niche? Think of a problem you are facing and think if other people would also be facing this challenge. Rob Kalin, the founder of Etsy, was looking to sell handmade furniture in New York. Most of his friends were facing a similar challenge. And that was the lightbulb moment for Kalin.
2. Earn the Trust– Amid economic turmoil and a fraught political environment in 2020, the world increasingly held companies accountable for being not only good businesses but also good citizens. Etsy calls itself a good citizen as it led from the front on many important social and societal issues. Don’t be too aggressive in your sales strategy. Sales will follow once you have earned the trust. For proof, you can refer to the 100% increase in Etsy’s revenue even during the pandemic.

Etsy’s business model is making an impact across all the spectrums of business: Economical, Societal, and Ecological. Be like Etsy!

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