Where can you shop for intricately crafted vintage goods? Where do you get an entire collection made up of handmade goods that are one of a kind? Yes, if you have guessed it right – we are talking about Etsy. The Etsy business model takes care of it all.
Etsy is an online e-commerce marketplace that specialises in a distinct niche. They are into online sale of handicrafts and vintage goods from artists around the world. In 2020 when the pandemic was raging and disrupting businesses, Etsy reported a healthy annual revenue of 1.7 bn USD.
The Etsy business model is churning huge numbers for them. Are you curious to know what their business model is? Let’s dive into the article to understand!
To understand Etsy’s business model, you must first work out its unique selling point.
Etsy works on a peer to peer (P2P) basis, rather than B2B and B2C models that most of the other e-commerce giants have employed. This peer to peer networking creates a credulous relationship between people who buy and sell on the platform.
P2P encourages niche specific consumer targeting. It entails creation of long term relationships between these consumers. And this can be harvested long after the purchase is complete.
The basics of Etsy’s business model involves charging sellers a listing price on every product, and taking a commission on every successful sale. Everything listed on Etsy is either handmade, vintage, or a craft supply.
Customers are not just the target audience but Etsy’s partner-in-growth. Etsy offers a community where sellers can exchange useful information. This creates a cordial atmosphere among people who are keen to carry out business.
How Does The Etsy Business Model Work?
Etsy has a unique vertical approach towards e-commerce. This vertical approach is unlike Amazon and eBay who offer a horizontal approach with literally everything under the Sun being sold on their platform.
Etsy is a unique and niche marketplace offering handmade, vintage products and craft supply. Craft supplies are tools, ingredients, or materials whose primary purpose is for the creation of an item for a special occasion.
There are many entities such as Etsy that have the very same components as other e-commerce websites. However, Etsy does display its star qualities in some aspects. Let’s discern the business model of Etsy in detail.
#1. Key Partners
These are the small business owners, local artisans who either create handmade products or own a vintage item that they want to sell.
Buyers are the ones on the lookout for special, one of a kind goods. As of 2020, the active number of buyers on Etsy were approximately 82.9mn.
#2. Key Activities
Etsy’s key activities include marketing and user management, for both sellers as well as buyers. It also has a key activity of addressing customer queries. Etsy’s other important activities include website management and management of the payment infrastructure.
#3. Customer Segment
Etsy serves both the sellers and the customers as their target audience. Sellers are encouraged to open shops to earn wonderful profits. Meanwhile, customers are encouraged to shop for niche vintage or handicraft products.
#4. Key Resources
This includes assets and aids that help grow a business. Etsy comprises of a unique artist community which is its strength. It provides them with a platform to connect with like-minded people and in the process, learn new skills through networking.
Another unique asset for Etsy is the ever growing number of buyers who are always on the lookout for unique handcrafted or vintage products. The Etsy platform in itself is a big resource centre since it is here where all stakeholders connect.
#5. Value Proposition
Etsy offers a unique value proposition to both its sellers and buyers. To the sellers, it offers easy and secured payouts when they sell their products online. These sellers decide the price of their products, can add tags to their items, and even create a shop on Etsy.
To the buyers, Etsy offers a one-stop destination for unique goods with worldwide shipping and online payment options.
#6. Customer Relationship Of Etsy
Etsy manages its customer relationship on an amazing level. This is possible because it provides buyers with a transparent review, rating, and feedback system for the products they buy.
Besides this, the sellers are offered support and education through local events and the Etsy community platform.
#7. Revenue Model Of Etsy
After understanding the basics of Etsy’s business model, you would also be keen to perceive how Etsy actually makes money! The major revenue sources of Etsy include:
- Listing charges of $0.20 for each product listed by a seller on Etsy. This listing is valid for 4 months, after which you will have to renew the listing by paying another $0.20.
- Etsy also charges a commission to the tune of 3.5℅ of the total amount of sale made by a seller on a single order.
- The sellers can also advertise their Etsy shop by paying a small fee. These ads are on a cost per click (CPC) basis.
- A $10 per month subscription on Etsy plus helps the company generate good profits. The Etsy plus subscription offers additional tools to the users to manage their shops and products efficiently.
- These additional tools include a monthly credit for listings and ads, a custom web address for your Etsy shop, and customised shipping boxes for all your orders.
- Etsy plus also offers custom business cards and restock alerts for loyal customers when you restock an item.
- Etsy charges a nominal fee of $15 per month on a pattern shop. This pattern shop is free-of-cost for one month for new users.
- Payment processing charges are not similar for all countries. Each Etsy seller pays a payment processing fee.
- Etsy also charges 2.5% of the sale price as per currency conversion charges before converting the entire amount in the user’s preferred choice of currency.
#8. Cost Structure Of Etsy
You have seen how Etsy makes its money. But where is that money spent? Let’s find out.
Etsy spends the bulk of its revenue on platform development and maintenance. Another important part where they spend money is on customer service and staff salaries.
Shipping, marketing, and advertising costs also add to Etsy’s expenditure. It also organises certain local events for the welfare of its sellers.
Etsy has been successful because of its dominant and impressive business model that has a unique selling point. Their vertical business approach is what makes them stand out in the crowd. Their focus on handicraft and vintage goods has made them industry leaders in the P2P business model.
Etsy has its eyes set on capturing the global marketplace for handicrafts and vintage goods. They are going to be an even stronger e-commerce marketplace in the coming future. It would be interesting to see if they can hold on to the present growth trajectory.