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Business Operations Business Models

How Does Etsy Make Money (Business and Revenue Model)

The Etsy business model

How Does Etsy Make Money?
Here’s what you should know:
  • What is Etsy, and how does Etsy work?
  • How does Etsy make money?
  • Transaction Fees (Commission Fees)
  • Etsy Payments (Processing Fees)
  • Listing Fees
  • Advertising (Etsy Ads and Offsite Ads)
  • Shipping Label Revenue
  • Etsy’s Subsidiaries, Acquisitions, and Exits
  • Etsy’s profit and revenue
  • What is the Etsy business and revenue model?
  • Etsy’s funding and market cap

How does Etsy make money? Here is a full, in-depth, breakdown of their five (5) revenue streams and the different products and services they offer, as well as the Etsy business model, their year-over-year revenue, and how Etsy works.

What is Etsy, and how does Etsy work?

Etsy is an e-commerce marketplace that connects buyers and sellers for the purchase and sale of vintage items, handmade items, and more.

Founded in 2005 by Robert Kalin, Chris Maguire, Haim Schoppik, and Jared Tarbell, Etsy began trading on the NASDAQ on April 21, 2015, under the ticker symbol “ETSY”. Since that time, Etsy now has over 4.36 million active sellers and more than 81.9 million active buyers on its marketplace.

How Etsy works is: Etsy users can browse from over an estimated 60 million products listed on the marketplace. Once a user is ready to purchase, they can either create an account or checkout as a guest.

Some of Etsy’s competitors include Poshmark, Vinted, Mercari, DepopOfferUpFacebook Marketplace, eBay, Amazon, and other marketplace apps.

Etsy App in Apple App Store | Etsy Business Model | How Does Etsy Make Money?
Source: Apple App Store | Etsy

How does Etsy make money?

According to page 75 of Etsy’s 2020 Form 10-K, Etsy had more than 4.36 million active sellers, 81.9 million active buyers, and transacted over $10.28 billion of Gross merchandise sales (“GMS”) in 2020.

So how does Etsy make money off of all those active sellers, buyers, and gross merchandise sales made on the platform?

Below is a breakdown of how much money Etsy makes and its revenue model. Including their revenue streams and how much they make from their services.

Here are the 5 ways of how Etsy makes money (in 2021):

Ety makes money in 5 ways that are bundled up into two (2) segments on their financial statements: marketplace revenue and service revenue.

Listing fees, transaction fees, Etsy Payments, and Offsite Ads are a part of their marketplace revenue, while Etsy Ads and shipping label revenue is a part of their service revenue.

#1. Transaction Fees (Commission Fees)

One of the main ways Etsy makes money is through the transaction fees or “commission fees” they charge the seller.

As mentioned above, Etsy processed over $10.28 billion of Gross merchandise sales (“GMS”) on its platform in 2020. Of which, Etsy takes a 5% transaction fee on each of those transactions.

Etsy Transaction Fee:

  • 5 percent of each completed transaction
Etsy Seller Fees | Etsy Business Model | How Does Etsy Make Money?
Source: Etsy

#2. Etsy Payments (Processing Fees)

In addition to the 5% transaction fee. Etsy also collects a 3% + $0.25 payment processing fee on each item sold if a seller accepts payments through Etsy Payments.

In fact, 92% of Etsy’s $10.28 billion of gross merchandise sales (“GMS”) on the marketplace were processed through Etsy Payments in 2020. So if we do some math, 3% of $10.28 billion is roughly $308.4 million made from processing fees.

Etsy Payment Processing Fee:

  • 3 percent + $0.25 on each item sold uisng Etsy Payments

Note: 92% of Etsy’s total gross merchandise sales were processed through Etsy Payments in 2020.

#3. Listing Fees

Another fee Etsy makes money from is the listing fees they charge every time a seller renews or creates a new listing.

The way Etsy listing fees work is: Whenever a seller creates or renews a listing, they will be charged a $0.20 listing fee. Listings last for four (4) months or until the item is sold, whichever comes first.

Etsy Listing Fee:

  • $0.20 listing fee (up to four months or until the item is sold)

Note: Listing fees, transaction fees, processing fees, and Offsite Ads are all a part of Etsy’s marketplace revenue segment. Which made up for a combined $1.3 billion or 75.5% of Etsy’s total revenue in 2020.

#4. Advertising (Etsy Ads and Offsite Ads)

In addition to Etsy fee revenues, Etsy also makes money through advertising – which they have two (2) forms of, Etsy Ads and Offsite Ads.

Etsy Ads, formally known as Promoted Listings, works off of a cost-per-click (CPC) advertising model. Meaning, sellers only get charged when the advertised listing is clicked on.

In May 2020, Etsy launched another ad program, called Offsite Ads, for sellers. These ads run off of Etsy and all costs are fronted by Etsy to promote the sellers’ listings. Once the item sells, they charge the seller 12% to 15% of the total sales price.

Etsy Ads Cost:

  • Offsite Ads: 12 to 15 percent of the sales price
Etsy Ads and Offsite Ads | Etsy Business Model | How Does Etsy Make Money?
Source: Etsy

#5. Shipping Label Revenue

Etsy also makes money through the shipping labels they provide at a discount to sellers.

How does Etsy make money on shipping labels? Etsy acts as an agent between the purchase and sale of each shipping label by a seller. Once a label is purchased on the Etsy platform, Etsy then keeps the net difference between the cost of the shipping label paid to the shipping provider and the label cost paid by the buyer or seller as revenue.

Etsy’s Subsidiaries, Acquisitions, and Exits

To date, Etsy, Inc. has made a total of 9 acquisitions.

Crunchbase Acquisitions
Source: Crunchbase

Etsy’s profit and revenue

In 2020, Etsy reported $1.725 billion in revenue.

Note: Because Etsy, Inc. is a publicly traded company, under the Securities Exchange Act of 1934, they must file continuous financial filings with the U.S. Securities and Exchange Commission (SEC). You can find all of Etsy’s publicly released financial reports, including annual reports, through Etsy’s investor section on their website.

What is the Etsy business and revenue model?

Etsy makes money through a few revenue models that they combine within their company, they are:

  • Commission based business model
  • Fee-for-service (FFS) business model
  • Advertising based business model
  • Mergers & acquisitions (M&A) business model

Etsy’s funding and market cap

According to Etsy’s Crunchbase profile, Etsy raised $97.3 million over 9 rounds and has a market cap of $27 billion as of September 2021.