After a record-breaking fourth quarter in 2021, Etsy announced a significant transaction fee increase for sellers. From April 11th, 2022, seller fees would increase from 5% to 6.5% on the total order amount Etsy charges every time a seller makes a sale.
It is a staggering 30% increase.
If you consider the excellent returns in the final stretch of 2021, the significant price hike was alarming, to say the least. What was also surprising was that the announcement came in the wake of Etsy sharing their fourth-quarter revenue of $717.1 million in a report to investors. The company attributed the impressive revenue to a strong holiday shopping season.
Etsy is Not Desperate for Money, So Why the Increase?
Etsy experienced a spectacular end to a busy year. In addition to excellent returns, the global online marketplace added around 10 million new buyers in the final quarter of 2021, bringing the number of active buyers to 90 million - a record! No wonder stock prices increased by over 15% when the markets closed following the announcement and investors' report.
According to Etsy CEO Josh Silverman, the online marketplace has demonstrated its ability to implement improvements that drive sales for sellers, and this is proven by the record sales experienced throughout the year. Silverman further justified the elevated transaction fees by claiming that the increase will help Etsy to invest in key areas, including marketing, seller tools, and further bolstering the company during a time of full momentum.
The idea is to create world-class customer experiences. This is Etsy's plan:
Attracting more buyers - After spending close to $600 million on marketing in 2021, Etsy plans to invest even more in marketing channels like TV commercials, billboards, influencers, podcasts, and email marketing. The goal is to bring new buyers to the online marketplace.
Improving support to sellers - Etsy plans to grow its support team by over 20%, so merchants have improved access to help through quicker email responses, enhanced live chat, and prioritization.
Keeping Etsy unique - Silverman also promised to build on the previous year's approximately $40 million investment in teams and technology that help make the marketplace a secure destination for unique items like vintage, special, or handmade products. The company plans to expand its efforts to remove listings that are not suitable.
Is this enough to justify the massive price hike? Let's explore some of the previous 'changes' Etsy made and how they affected merchants.Small Changes. Large Repercussions for eCommerce
It's not the first time the company has made changes that did not sit well with sellers.
In 2020, they announced a controversial offsite ads program that had Etsy advertising sellers' products outside the site on Google, Instagram, Facebook, Bing, and Pinterest. Although this sounds generous, sellers are charged an advertising fee when a shopper clicks on one of the ads and makes a purchase within 30 days. This fee amounted to a staggering 15% of their income. To add insult to injury, every purchase made during the period is subject to the fee. It means that if someone clicks on an ad and makes several purchases from the same merchant, each transaction has an extra charge. Of course, this caused outrage, with many sellers leaving Etsy.
Can Merchants Sustain the Coming Fee Hike?
Despite Etsy's intentions with the additional revenue generated from the increase, higher seller fees will likely upset merchants.
They already pay payment processing fees, 5% shipping, and a transaction fee, plus 3 to 4% for Etsy Payments, which is mandatory in most countries. This amounts to as much as 24% of the seller's income from a sale before factoring in other costs like listing fees.
Even though they haven't increased the hefty offsite ads program fee, Etsy's prices hikes are not well received and could have some nasty ripples down the line for the eCommerce platform. Perhaps it's time for merchants to explore other options, like creating their own eCommerce shop with Shopify?Why Setting up Shop With Shopify is a Great Idea
Etsy merchants are usually creative, unique, talented, autonomous, and many cater to a niche market. It makes sense to give them a better way to showcase their products. Yes, Etsy is a digital marketplace, so there may be more exposure with people browsing it, but merchants are paying for advertising on external platforms anyway.
With a Shopify store, possibilities are limitless, and they can set their own rules. Shopify is packed with features that help shop owners build, manage, and market their eCommerce shops from the ground up.
Etsy may look cheaper if you look at upfront costs and may even work for people on an extremely tight budget or who only want to sell a few items. However, the 6.5% transaction fees, advertising fees, and other fees add up over time. In the long run, Shopify is cheaper for digital merchants. Let's explore why.
Costs: Shopify vs. Etsy
A Basic Shopify package is $29 per month. It gives you a fully functional website version of your store, the ability to sell an unlimited number of items, 24/7 support, discount code creation, abandoned card recovery, a blog, gift cards, discounted shipping rates of up to 77%, and so much more!
There are cheaper and more expensive monthly options available, so there's something that suits every store.
Etsy charges a $0.20 listing fee, plus the now 6.5% transaction fee on every item you sell. There's also a standard 3% + $0.25 payment processing fee and advertising fees. These fees can run high as your sales increase.So, Is Shopify Better (Cheaper) Then?
In short, yes. Shopify has many more valuable features than Etsy, and it's not rocket science to set it up. However, it depends on how many products and sales the merchant makes. For sellers who want to sell fewer items or infrequently, Etsy could be a good fit. But those who are digital merchants and sell regularly or in higher volumes may end up spending more on Etsy than Shopify, especially with the latest increase.