The market mindset is shifting from “do-it-yourself” to “do-it-for-me.” In business, professionals are increasingly willing to spend money to save time. They hire others with the right skills to do things for them and value convenience, speed, and a frictionless, on-demand experience. They want to get things done quickly and efficiently while getting the best value for money.
Particularly, small and medium businesses (“SMBs”) are looking to benefit from the availability of reliable temporary skilled workers with certainty on the price that enables them to avoid unnecessary fixed costs and reduce the risks associated with hiring full-time employees.
There is a mindset shift on the workforce side too. People increasingly want to choose where, when, and what they do for work. This has contributed to a significant increase in “independent work.”
Notwithstanding these trends, both businesses and freelancers have traditionally faced significant challenges. For businesses, finding the right talent can take time and effort. Companies find negotiating prices, the scope of work, and terms time-consuming and inefficient. Freelancers have their own set of challenges. For freelancers, finding a job is not easy; winning the job is even harder, and the payment process usually requires a lot of effort.
Fiverr’s mission is to change how the world works together—Fiverr started with the simple idea that people should be able to buy and sell digital services in the same fashion as physical goods on an e-commerce platform. As strategy enthusiasts, we decided to analyze the business model of Fiverr and learn how does Fiverr work and make money?
What is Fiverr? How does Fiverr work?
Fiverr is a global online marketplace for freelance services. Fiverr’s platform connects freelancers (sellers) to people or businesses looking to hire (buyers). Fiverr was founded by Micha Kaufman and Shai Wininger in 2010.
Fiverr is designed as a digital marketplace built with a comprehensive SKU-like services catalog and an efficient search, find and order process that mirrors a typical e-commerce transaction. At the foundation of Fiverr.com lies an expansive catalog with over 550 categories of productized service listings, which Fiverr coined as Gigs.
Each Gig has a defined scope, duration, price, and buyer-generated reviews. Buyers can easily find and purchase productized services, such as logo design, video creation and editing, website development, and blog writing, with prices ranging from $5 to thousands. Fiverr calls this business Service-as-a-Product (“SaaP”) model.
Fiverr designed its platform to make it easy for buyers to find and purchase the digital services they want without time-consuming negotiations or pricing uncertainty while offering them the best value for their money. At the same time, Fiverr enables sellers to reach a large buyer universe, allowing them to spend more time doing what they love and are best at, rather than on-demand generation, contract negotiation, payment collection, and other requirements of running a digital services business.
Fiverr works to personalize user experiences through a machine learning algorithm and the dataset on profiling, transaction, and user behavior, which rapidly grows with increasing buyer and seller engagement. Fiverr believes that its business model reduces friction and uncertainties for its buyers while enabling sellers to reach a global audience, enjoy more flexibility and choice of work and make more money.
How does Fiverr make money? What is the business model of Fiverr?
Platform
The critical elements of Fiverr’s core platform include the following:
Service-as-a-Product model: The business model of Fiverr operates as a SaaP platform that allows sellers to offer services embedded with features that can be standardized and cataloged. Fiverr’s core platform enables digital services to be bought and sold in the same fashion as physical goods on an e-commerce platform, with predictable pricing, easy searches, standardized contracts, easy payment processes, and streamlined service delivery. Upon purchasing a Gig on Fiverr, a buyer knows the scope, duration, and price.
Comprehensive and diverse catalog: Fiverr’s expansive catalog of Gigs currently spans over 550 digital service categories. Today, buyers can purchase Gigs such as logo design, video creation, or website development with prices ranging from $5 to thousands of dollars, all easily and with just a few clicks.
Technology and data assets: Fiverr’s platform is powered by its machine learning technology and expansive data assets that continuously optimize product search capabilities, personalize user experience, refine matching algorithms and monitor service quality. Fiverr’s algorithms improve user satisfaction by predicting buyers’ future needs and increasing repeat or cross-category buying activities.
Tools and infrastructure: Fiverr has built a comprehensive suite of communication and collaboration functions, such as proposals and contracts, invoicing and payments, project management, and marketing, that enables buyers and sellers to communicate throughout the entire transaction lifecycle.
Value Proposition
Buyers
- Value for money: Fiverr’s expansive digital services catalog enables it to offer sophisticated browsing and filtering functions, resulting in a lower time-to-hire compared to traditional offline hiring platforms.
- Access to a diverse pool of freelancers: Fiverr provides instant access to hundreds of thousands of freelancers with broad skills. Using Fiverr, buyers can easily connect with these freelancers and get a wide range of digitally delivered services executed quickly.
- Transparency and certainty of price, the scope of work, and quality: Fiverr’s buyer-driven rating system provides a rating mechanism for every Gig, helping buyers make informed purchasing decisions.
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Sellers
- Maximize project pipeline: Sellers on Fiverr can avoid bidding to win a project. Instead, they list the service on Fiverr with a well-defined scope, duration, and price, and Fiverr directly matches them with buyers looking for the service they provide.
- Flexibility and control: Fiverr embraces habitual changes in the workforce and allows freelancers to find work and offer their services anywhere in the world at any time.
- Frictionless payment processing: Getting paid on time after project completion has historically been an uncertain and time-consuming process for sellers. Fiverr eliminates this friction by working with third-party agents to collect the funds from the buyer at the time of purchase and timely release them to the seller upon project completion.
- Business support infrastructure: Fiverr provides a set of technology tools to sellers to manage all of the administrative aspects of their business, such as providing standardized contracts, invoicing and payment, financial reporting, marketing, and real-time performance feedback.
The go-to-market strategy of Fiverr
Fiverr has adopted a bottom-up approach in its go-to-market strategy that targets individuals and teams who work in various business functions at companies of different sizes across different industries. Because each Gig on Fiverr has a clearly defined scope, duration, and price, it eliminates uncertainties and frictions and allows more autonomous purchasing decisions.
By providing buyers with a good experience, they continuously return to Fiverr and drive referrals. The approach is efficient as it allows Fiverr to penetrate the digital service freelance market at scale without a direct salesforce. This organic buyer growth results from its marketplace model’s embedded network effect and continued brand awareness growth.
Fiverr’s brand awareness and the virality of its solution have enabled it to acquire the majority of new buyers through organic channels. That is complemented by highly effective performance marketing and brand investments across various channels. Once any buyer joins, Fiverr’s strategy is to demonstrate the value of its platform to increase each user’s lifetime value.
Fiverr acquires the majority of buyers through organic channels, supplemented by efficient performance marketing investments. Fiverr continues to diversify and strengthen its performance marketing capabilities and invest in data science technologies to acquire more buyers and buyers with higher lifetime value.
How does Fiverr make money: revenue model
Fiverr made $298 Million in 2021. Fiverr primarily makes money via transaction fees for enabling the orders and providing other services to sellers, which is usually 20% of the selling amount, and via service fees to cover administrative fees to buyers, which is 5.5% of the purchase amount. In 2021, Fiverr generated 79% of its revenue from transaction fees and 21% from service fees.
Fiverr’s revenue growth has been driven primarily by the growth of active buyers and spending per buyer. For 2021, 2020, and 2019, Fiverr’s revenue was $297.7 million, $189.5 million, and $107.1 million, respectively, most of which were driven by repeat buyers.
Fiverr makes money from a broad mix of digital services that include over 550 categories across nine verticals, including Graphics & Design, Digital Marketing, Writing & Translation, Video & Animation, Music & Audio, Programming & Tech, Business, Data, and Lifestyle.
Fiverr does not hire freelancers directly or provide digital services to buyers. Fiverr’s business model grows as it benefits from a growing network effect. More buyers attract more sellers onto the platform, which, in turn, leads to more selection and better value for money, driving more engagement and spending by the buyers.
Fiverr also offers an ecosystem of value-added products that empower sellers to build a successful freelancing career and enable businesses of all sizes to implement an effective and efficient strategy to utilize the freelancing workforce.
