Is it the right time for Etsy to raise seller fees?

Discussion
Photo: Getty Images/alphaspirit
Feb 28, 2022

Following a record-breaking fourth quarter, Etsy announced that it is raising seller transaction fees to 6.5 percent from five percent.

The incremental revenue from the 30 percent fee hike is expected to be neutral to margins as the platform reinvests in marketing, seller tools and the buyer experience. The crafts-focused online marketplace last raised sellers fees from 3.5 percent in 2018.

“We’ve demonstrated our ability to drive more sales and value for our sellers and believe that this represents a fair exchange of value between Etsy and our seller community,” said CEO Josh Silverman on its quarterly call. “We see so much opportunity to continue to raise top-of-mind awareness and consideration for Etsy.”

Etsy said its “unprompted awareness” was only 47 percent in the latest quarter.

Etsy’s growth surged over the last two years due to the wider adoption of e-commerce over the pandemic. Gross merchandise sales, or the dollar value of sales generated by merchants on its marketplaces, jumped 31 percent in 2021 and 107 percent in 2020. Growth has slowed in recent quarters against tough comparisons.

Etsy will focus its marketing investments going forward on retention. New buyers have grown 84 percent over the last two years, reaching 90 million active buyers. Around 53 percent of Etsy’s 2020 active buyers and 37 percent of new buyers returned to make a purchase in 2021. Mr. Silverman said, “The pandemic cohort has been sticky.”

At the same time, active sellers have vaulted 112 percent over the last two years to 5.3 million.

With the three-pronged focus on “inspiration, efficiency and reliability,” other planned investments include enhanced seller tools such as videos, thank you coupons and better access to resolve customer issues. Other priorities include improving search personalization, enhancing delivery transparency and better positioning Etsy as a gifting destination.

The goal is to become the starting point for more e-commerce journeys.

“We believe we have a real opportunity to win,” said Mr. Silverman. “We believe that unlike most of the rest, we offer something truly different and compelling. We aren’t trying to sell you the exact same commoditized product just $0.02 cheaper or 2 minutes faster.”

DISCUSSION QUESTIONS: Is Etsy in a good competitive position to be raising seller fees? Where should Etsy’s investments be prioritized to continue to drive buyer consideration and acquisition post-pandemic?

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"Etsy moved from maker marketplace to e-commerce juggernaut during pandemic, so the new fees shouldn’t come as a surprise. "

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8 Comments on "Is it the right time for Etsy to raise seller fees?"


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Neil Saunders
BrainTrust

A lot of sellers on Etsy have seen their sales boom over the past two years so, in a sense, the Etsy platform is delivering for them. Of course, no one will welcome the fee hike but if it is justified by greater investment in tools and services that mitigates some of the disappointment. Ultimately, Etsy has become a go-to destination for many categories and that has put it in a more powerful position to make this kind of move.

Jenn McMillen
BrainTrust

Etsy moved from maker marketplace to e-commerce juggernaut during pandemic, so the new fees shouldn’t come as a surprise. But the balm is that they are being plowed back into the business to make the seller experience better.

Brian Delp
BrainTrust
5 months 21 days ago

The unaided awareness at 47 percent is a very interesting metric and makes a strong argument for the potential growth from advertising. I assume their raising fees in a proactive build up towards gift giving season for later this year. Etsy already has a strong partnership with NBC through the show Making It but less traditional media should likely be the focus. This “maker” following is likely found more on platforms like YouTube, with how-to videos, or other streaming services.

Nikki Baird
BrainTrust

I know some Etsy sellers who already weren’t happy with the platform – they seem to have instituted policies that tilt towards a few, higher-volume sellers to the distinct disadvantage of the smaller independents. This will make that tilt even stronger. I would be very interested to know what percentage of Etsy sellers drive the majority of Etsy’s own revenue, and whether they are opening themselves to being picked off by Shopify or Amazon through moves that are discouraging to smaller sellers.

Jeff Weidauer
BrainTrust

While no one will be happy about the increase, the timing makes a lot of sense for Etsy. It’s coming off a period of solid growth and there is strong general awareness that costs are going up. Etsy will need to back this up with solid investments in marketing to increase awareness.

Matt Lyles
Guest

Will Etsy sellers openly welcome the price increase? Likely not. But they’ll certainly welcome the investment into the seller and customer experience enhancements.

Combine that with the supply chain issues consumers have been experiencing from larger retailers and I would expect to see exponential advantages for both Etsy and their sellers.

Craig Sundstrom
Guest

Etsy’s fees are its own business — well, between them and their sellers — but a period of “growth surge” and “wider adoption of e-commerce” doesn’t really strike me as logically leading to higher fees; unless of course you want to show how much power you have. If that’s the goal, then I guess this is the right time; otherwise….

Anil Patel
BrainTrust

Etsy’s fee hike is fair as long as they are able to justify it to their sellers and invest it to improve their marketing methods. Because an effective marketing approach would mean more customers being retained, that would result in higher profit margins and new revenue opportunities. Moreover, as long as Etsy can fulfill this purpose, they can disregard the percentage of spending.

Speaking of prioritizing investments, I believe Etsy should focus more on the consideration stage. Etsy’s main competitors are those market players who’re doing a great job in tapping into customers through TikTok campaigns. To be at par with them, Etsy would need to invest more in creating brand awareness and driving customer interaction through various social media channels. This would also help retailers increase their ad revenues.

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