How the world does business is far different now than 20 years ago when I was a single mom selling jewelry at house parties. Or cleaning and painting houses with my toddler son in tow, trying to scrape together enough money to pay rent. Those were the days of dialup internet and there were few reasons to be on the internet other than for news or finding a chat room. Social media wasn’t invented yet and while there were some e-shopping websites, most of us were too suspicious to even consider purchasing over the computer.
It wasn’t long before everything changed.
With social media and online shopping platforms like Etsy, Ebay, Amazon, even Shopify – selling your products online can make you a profitable business owner in a very short time.
In this post, I want to specifically address selling on Etsy. I’ve done business on several platforms, including Etsy. But no other platform has made me money like Etsy has. They’ve brilliantly built an empire of eager shoppers looking for the whimsical, unique, and uncommon.
With that being said, we’ve learned a lot about being an Etsy Seller – including the lesser-known issues of a frustrating lack of customer service and hidden fees (yes, their fees are not what they seem). With increasing fees this year, I put into play an exit strategy from Etsy.
Why would we leave Etsy if our business is doing so well? We still have a presence on Etsy but…
- Etsy has more control over our shop than we are comfortable with and,
- We’re tired of all the fees (they add up to 8 – 40% of our sales!)
Who should open a shop on Etsy?
One thing I appreciate about Etsy is that they make it so easy for ANYONE to start a business.
- Your grandma can start selling her hand-knit potholders, toilet seat covers, and tissue box covers – today.
- That 5-year-old neighborhood kid who hand draws notecards for every holiday and birthday on the block can open a shop and sell his first card without any money upfront.
Etsy is perfect for crafters and artisans that are just launching their hobby or business. It’s especially great if you have an idea but don’t know if anyone wants what you have. Test out the waters on Etsy – there’s no commitment.
If you don’t have any customers or any presence on social media but you want to sell your soaps, handmade jewelry, or your recycled vintage items, I say there isn’t a better platform to get started. Even if you only have one item to sell – list it!
Etsy is for handcrafted or restored vintage products ONLY. Despite this rule, there are plenty of resellers on there who haven’t been caught – yet.
What Are The Benefits Of Selling On Etsy?
Etsy is a fantastic platform and I love shopping there. From the perspective of a seller, this is what I appreciate:
- Easy to navigate
- Low commission rates of 5%* (not really, but it’s what is advertised)
- They have a ready audience (YES!)
- Attractive shop layout
- Can customize the header and profile image of the shop
- The free version is very robust
- Allows up to 10 photos per item
- EASY to communicate with customers
- Quick payouts
- Integrated shipping
- Downloadable statements*
- Do a great job of capturing customer reviews
- People trust the Etsy platform and that trust transfers to you as the seller
- Processing returns or other customer issues is easy
- They collect and process sales tax
Are There Any Downsides to Selling on Etsy?
First, let me say that if you are working from your kitchen table and you prefer to keep it more of a hobby rather than a thriving, growing business, Etsy is perfect for you. You don’t need to think about marketing or handling sales tax. Just upload and sell. Awesome.
For those who find themselves growing out of a side-hustle or hobby and into a bustling little business, you’re going to want to have an exit strategy – or at least another avenue to sell. Here’s why:
- The 5% selling (transaction fee) is low, but it’s not the only fee. There’s a 3% payment processing fee, a listing fee of $.20, and re-listing fees.
- The fees are taken off the TOTAL the customer pays. So it’s 8% (5% transaction, 3% payment) of the selling price AND tax AND shipping.
- When your product re-lists, you pay a $.20 re-list fee PLUS you pay this EVERY time that item sells – not just when you re-list the product.
- The monthly statements can be confusing.
- NO customer service number. NO chat. And good luck finding the link to email customer service. It’s buried so deep in their website you have to go on a treasure hunt each and every time. (HINT: If you do find it, BOOKMARK IT).
- It takes several days to hear back from customer service – if at all.
- Etsy has full control over who sees your listings or if it shows up on the first page of searches. (Don’t want to offer free shipping? Ding – you go to the end of the line.)
- There are extra fees to have your listings promoted
- You have to upgrade your account to list items on sale
- If you do over $10k/year in sales, you are AUTOMATICALLY enrolled in their Offsite Ads program. This requires an additional 12% off the TOP of your sales if they promote your product: of which you have no say.
(12% + 5% + 8% = 25% of the selling price + 25% of taxes collected + 25% of shipping costs) See how it’s adding up REALLY fast?!
The business my husband and I have on Esty does well over 10K/year so we were in for a shock when suddenly we noticed very large fees being deducted. With the new Offsite Ads program, it is mandatory for larger sellers to participate. There is no way to opt-out. This means if Etsy decides to promote your products in their ads and someone clicks on that ad, making a purchase, you pay the fee. In addition, if they purchase more than one item OR if they come back to purchase again within 30 days, you get charged the 12% AGAIN. (This happened to us when a customer came back and purchased a SECOND typewriter from us. The first time we paid a $48 fee because the customer clicked on one of their ads. When he came back to buy again, we paid another $53 Offsite Ad fee – on top of the 8% fees even though that product was not part of any ads. Since that customer purchased within 30 days of clicking on an ad, we had to pay an Offsite Ad fee.)
Crunching The Numbers
Here are two examples of actual transactions on our shop to give you an idea of what you will pay as an Etsy Seller.
Our lowest-priced item is $7.95. When you create the listing, you pay $.20. (The listing is good for 4 months). When that item sells, the customer pays $4.95 for shipping plus sales tax (let’s say the tax where they live is 8.25%). The total the customer pays is $13.96.
Our fees: $.20 listing
$.42 payment fee
TOTAL $1.32 total fees
Our profit: $7.95 Retail price
– $1.30 Cost of Goods Sold (our cost for the materials)
– $1.32 Etsy fees
TOTAL $5.33 PROFIT
Not too bad of a profit. Now, let’s add a 12% offsite ads fee to this. 12% of $13.96 (the total the customer pays) is $1.68. Add this to the $1.32 in regular fees and now we pay $3.00 in total fees on a $7.95 product.
$7.95 retail less $1.30 in COGS less $3.00 in total Etsy fees is a new profit of $3.65.
Hmmm, that’s still okay, but, wow, that’s a big chunk. In this example, we paid 37.7% on Etsy fees with Offsite Ads. Without the Offsite Ads, we paid 9.5% in Etsy fees.
That’s A LOT more than 5%.
Now, look at what the numbers look like with our main product. Our average price is $300 for a vintage typewriter.
We still pay a $.20 listing fee but we offer free shipping (on our typewriters). We will pay Etsy the shipping costs out of that $300. We’ll assume the same tax rate as above: 8.25%. With tax, the customer pays $324.75
Our fees: $.20 listing
$9. 74 payment
TOTAL FEES $26.18 total fees
Our profit: $300 Retail price
$90 COGS (our cost in the typewriter)
$45 Shipping average (remember, we offer free shipping to the customer, but we still have to pay it through Etsy)
$26.18 Etsy fees
TOTAL $138.82 Profit
Now, let’s add the MANDATORY Offsite Ads fee (because we sell more than $10k a year so we can’t opt-out). 12% of $324.75 is $38.97. Add this to the regular fees of $26.18 and now our Etsy fees are $65.15. Our new profit is $99.85
This breaks down to 21.7% in fees with Offsite Ads and 8.7% fees without Offsite Ads.
Add these fees to your Cost Of Goods Sold, taxes, and operating expenses, there is very little profit margin left.
If you are selling less than $10k/year on Etsy, it is still a good choice, but you need to understand your fees are closer to 10%.
Creating An Exit Strategy
Using Etsy to kickstart your business is a great idea and I highly recommend it. However, if you plan on growing your business, you’re going to need to make plans to either capture fans and eventually redirect them to an online shop that you control or build your business on multiple platforms. Learn to market on social media so you can direct potential customers to where you want them to go.
We have family members who also sold more than $10k a year and they had a loyal following. They captured those customers and took them to Shopify where they now host their online shop exclusively. About the same time, we started making plans to build our own online shop. This summer we began telling our social media followers about our website and now about 50% of our sales come outside of Etsy. We expect by the end of the year that the majority of our sales will come through our own website and only a trickle through Etsy.
Do you sell on Etsy? Have you calculated what you actually pay in fees? Are you thinking about selling on Etsy? Let me know!