Business Operations

Etsy and the Intermediary Model

What does your business expect from Etsy?

Do you think of them as your marketing department, whose job is to bring you viable leads? Do you think of them as a paid salesperson who is actively shaking the money tree to bring in revenue? Do you think of them as an advocate for your business?

If you expect any of the above, you are seriously mistaken, and it could hurt your business if you expect Etsy to do these things for you.

Etsy serves a few purposes for your business:

  1. A transaction processor: they collect the credit card information and tell you when it’s approved. If you’ve ever had to set this up yourself, you know it’s a huge pain and it’s worth paying someone else to do. Most processors charge between 1.5% and 3.5%.
  2. A postage calculator and provider: Etsy calculates and charges shipping fees, then lets you purchase the postage. Yeah, they kind of suck at multi-item orders, but if you’ve ever set up a standalone site you know how expense it is to get an add-on that does this at all (let alone accurately). Etsy is just about to start charging 5% of shipping fees for this (and it’s still cheap compared to other options.)
  3. An intermediary: Etsy helps connect sellers with interested buyers. Like any other intermediary, they charge for it.

A large part of the modern economy is based on the intermediary model.

Ebay started out as an intermediary between people with stuff around the house and others who wanted to buy it. You see new intermediary businesses popping up all the time. AirBNB helps travelers find available rooms. Uber helps people find a car with an open seat.

Most people think of intermediaries only for eCommerce, but that’s not all.

When is the last time you bought a product straight from the manufacturer?

Do you buy your toothpaste from Proctor and Gamble? Your toys from Hasbro? Your movies from 21st Century Fox? Probably not. You probably buy them from Target, Walmart, or Amazon. They are all intermediaries.

Like any other intermediary business, they will run campaigns to bring the people most likely to buy into the store and will give the most shelf space to items that perform the best. They also expect the manufacturers who make products to promote their products themselves so customers go to the intermediary looking for them.

Like any other intermediary, Etsy charges fees to the seller.

For example, there are fees just to be there. Grocery stores famously charge “slotting fees” to get shelf space, so they make money whether the food sells or not (or if it expires before it sells). That’s like Etsy’s listing fees.

A manufacturer can pay an intermediary for products to be featured on an end cap or in the front of the store. Etsy offers promoted listings, which get items seen higher in the results than they would otherwise. They also charge for “Etsy Plus”, which is like the custom displays that stores use for specific products (similar to the soup-can holders you see for a Campbell display).

I know it’s a favorite hobby for Etsy sellers to complain about Etsy fees, but the simple fact is that they are among the lowest fees on the market. (yes, I know, some people complain about their “fees” and forget that the invoice includes shipping, which is not an Etsy fee). To me, these complaints show a lack of understanding of the retail and eCommerce industries. It costs money to have an intermediary selling products for you. The intermediary needs to be profitable to stay in business, which includes charging for their services and increasing their fees when demand increases.

My point in all this is to set your expectations.

An intermediary market is a great place to get a few extra sales here and there. It’s not an entity that you should entrust with bringing you enough sales to make a living or grow a business.

Your business should use several sales channels, including multiple intermediaries (like Etsy and Amazon) and a way to buy directly from you. To maximize profits and brand recognition, your marketing and PR efforts should drive people to buy from you directly.

If you choose to fire your intermediary (“leave Etsy” or “fire Etsy”), then you will need to find a way to replace the sales that intermediary was bringing in for you. Someone who finds selling on an intermediary market like Etsy or Amazon difficult will struggle even more driving traffic on Google.

I realize this is a new way of thinking for a lot of people, who say they “have an Etsy business” and expect Etsy to bring them orders on a daily basis (if you sold at Target, you would never say you have a Target business).

But it’s a change that has to happen if you want to own a business that thrives and does not rely on an intermediary for its existence.

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