Who’d have thought that 5% of a $25 baby’s crown or taxidermy duckling could add up to so much angst?
When such curiosities are sold on Etsy, as they are, 5% also adds up to new revenue and operational opportunities for the online artisan marketplace, and therein resides the conundrum. On July 16, Etsy will up the fee it charges its 2 million selling vendors to 5% from 3.5%. It also will begin charging a 5% fee on all shipping costs, which it previously had not done.
If Etsy artisan sellers are willing to absorb the fee hike, as many are deliberating, it could translate to $60 million in revenue for Etsy. Etsy plans to use some of that money to improve the experience for its 2 million or so sellers. Specifically, it said the added revenue will help underwrite investments in marketing, customer support and other services.
“We’re planning to invest even more in bringing buyers to Etsy, building seller tools, and improving your seller experience,” Etsy wrote on its blog page, in announcing the change.
But how will these efforts benefit Etsy customers?
The Art of Money-Making
Etsy has grown substantially since its founding in 2005. Its 35 million active shoppers helped generate gross merchandise sales of $3.3 billion in 2017, up from $1 billion in 2005, it states in a recent shareholder presentation. Revenue, generated from payment fees, promoted listings, labels and other seller expenses, rose to $441.2 million from $365 million.
With the increased fees, Etsy boosted its 2018 gross sales outlook to as much as $3.9 billion from $3.84 billion. It revised its revenue guidance to as much as $591 million, from a range of $538 million to $547 million.
In addition to the revenue generated by fees, Etsy is offering optional monthly subscription packages that will provide members access to a suite of new tools geared to different stages of growth. The “plus” package, at $10 a month (it will jump to $20 in January 2019), includes the ability to customize one’s online shop, discounts on shipping boxes and provides 15 listing credits a month to use toward advertising on Etsy’s promoted listings.
Members who opt out of the subscription still can use tools designed to start and manage their online shops.
Crafting Change: 5 That Shoppers Might Notice
Less evident is how these changes will improve the experience for the millions of people who shop on Etsy. Based on the new fee structure, and the ways the fees are expected to be used, here are five possible benefits.
- More competitive prices. Some Etsy vendors told USA Today, as well as the Etsy bulletin board, that they might have to raise prices. This could trigger competition among those who target similar shoppers, however, and result in special offers and incentives. Etsy said it underwent significant seller outreach in advance of the fee increase, indicating that its most active sellers are OK with the figure and the proposed reinvestments it would enable, including around-the-clock help-center access for sellers.
- Artisan flight. Shoppers’ favorite artists might jump ship (alternatives include Shopify, Amazon Handmade, eBay, Zibbet and Bonanza). Liz Lamoreux, who operates the shop Soul Mantras on Etsy as well as her own Shopify spot, said the fee increase makes sense from a business perspective, but she’s not sure she would receive more in return for the increase. “I am actually more likely to move my business completely from Etsy than raise my prices dramatically because it is challenging to compete with people on Etsy who aren’t charging enough already, and Etsy is very quick to recommend other shops to buyers,” she wrote in an email. Etsy is aware of the risk. It stated in its investor presentation that it expects some seller churn, particularly because it has never raised prices before. Other options are not necessarily less expensive, however. Amazon charges 15% commission and a $1 minimum referral fee, which is more than twice Etsy’s fees before the hike.
- Easier searches. In its presentation to investors explaining the fee, Etsy hints at sharing its data with sellers, in part to make the shopping experience easier. “We’re committed to giving our sellers the data they need to make smart decisions. In 2018, we’ll be sharing more insights into what Etsy buyers want and new tips and advice on optimizing search.” Further, the optional subscription packages are designed to help vendors at different stages of their business life cycles.
- Etsy screenings. With part of the rate increase, Etsy plans to boost its marketing spending by at least 40%, to $110 million in 2018 from $78 million in 2017. That marketing budget will include TV advertising and a guest position on the upcoming crafting competition show "Making It,” which will premier July 31 on NBC. Etsy trend expert Dayna Isom Johnson will be among the judges on the six-part series, which will be hosted by Amy Poehler and Nick Offerman.
- Creative shipping and pricing. Etsy said it’s implementing the 5% shipping fee to promote transparency. Sometimes sellers “hide” part of a product cost in the shipping fee, the company explained, so the product appears less expensive. By extending its fee to shipping, Etsy is ensuring the seller pays the same no matter the breakdown. However, many shoppers are put off by higher shipping fees and might be more likely swallow a $6 fee on a $25 order than a $10 fee on a $21 order. Other creative alternatives, such as flat-rate shipping or free shipping with minimum order sums, could encourage larger single purchases. Etsy also plans to introduce shipping labels in the U.K. and explore opportunities in other countries.
These efforts are likely designed to eliminate barriers to selling — assuming Etsy artisans find that the higher fees will buy them a better merchandising model. After all, shoppers might be willing to pay extra to get that Scandinavian Viking knife, but not too much extra. And Etsy likely knows, as do its millions of artisans, there are other places shoppers can go to find such treasures.