Are you wondering why it’s been getting harder to quit your day job and work from home selling your creations on Etsy? You never quite get enough sales to tell your boss to kiss your ass goodbye. Well, here’s the inside scoop.
A little history: In the beginning, Etsy was a welcome oasis in the online shopping mall world. You no longer had to sell on ebay with engine parts and costume jewelry made by children in sweatshops. You could find something that was made by an adult with crafting skills at a reasonable price. You could find rare and unusual things on Etsy, too. Better yet, you could sell your rare and unusual creations. Just find a niche and fill it. The web was hungry for it.
Fast forward to today: Etsy has been valued at $600 million in May. O.k., so do the math: $600,000,000 divided by 300,000 sellers. That’s $2,000 available for each seller, right? So, you have to somehow take a piece of someone else’s $2,000 in your niche to get ahead. Actually, to quit your day job you will need to take all of 25 people’s $2,000 because you have to buy supplies, you have to advertise, and you’ll also need to make a wage for all that time you’re blogging, writing you listings, photographing, and shipping, oh, and the thing you’re selling.
If your item sells, you owe them 3% not including shipping. 3% doesn’t sound like much, but let’s look at it from your profit instead of your gross income. Let’s say you make flimbles. You’ve been selling flimbles for a while, and through experimentation, have discovered that they sell like coffee at $30. You had hoped to sell them at $39 when you first got the idea, but $30 is three times what your materials cost. It takes you about one hour to make one fimble. Great! you just made $20/hour. If you can sell 8 of these every day, you’ll be on your way to replacing your day job.
Not so fast. Now you have to photograph them and then list them, because each one is unique. Let’s say it takes you ten minutes each to photograph all 8 and make them look good in Photoshop (80 minutes total). Then add 10 minutes each to list the items (80 more minutes). Now add $0.20 per for the listing fee. Let’s put the whole thing in a free USPS Priority Mail box to save on packaging and provide the tracking number that Etsy encourages (Hopefully, you charge for shipping). Oh, and add a Thank You note to the package to give it that personal touch everyone wants (80 minutes). So, you thought you were clearing $20/hour, but it’s actually an hour and a half per item, minus the $0.20 listing fee. Still, $13/hour isn’t bad, but you have to buy $80 worth of materials for tomorrow’s orders from that $13/hour.
Lets add it all up: You’ve gotten 8 fimble orders at $30 each. ($240 gross!!!) The materials for the fimble cost $10 each (-$80). It takes you 12 hours to make, pack, shoot, list, and ship all 8. You pay yourself $10/hour (-$120). Your expenses for Thank You notes, toner, invoice paper, packing tape, bubble wrap, post-its, listing fees and Avery labels adds about $3 to your per item cost. Oops, didn’t add that before. Hmmm. (-$24). You have a search ad running on Etsy. It adds a few cents to the cost of each item, too.
Wow. What’s left over? Well, if you subtract all the things in parenthesis from your $240 gross, you get $16. That’s your profit on 8 items. That’s the amount of money left to grow your business, buy new tools, fix old ones, and try new ideas. If we take 3% from the $30 gross that you sold the item for, we get 90 cents. So what? It’s only 90 cents right? Well, when you figure out the percentage of your profit that Etsy is taking, your eyes are going to pop out. You have $2 profit per fimble, so divide 90 cents by 2 and you find that 45% of your profit is going to Etsy.
Are you using PayPal? They get 3% of gross (or 45% of your profit) too. So, you’re left with 20 cents profit per item after Etsy and PayPal. With sales of 8 units per day, that’s $1.60 of profit a day or $400 profit per year (250 work days). And don’t forget, you have to pay Uncle Sam, too.
So, how do you make money on Etsy? You don’t.
That’s the obvious part of this layer cake. Now you have to add in the people pouring money into Etsy — the new owners. They want to take all the money out of the equation just like Meg Whitman did at Ebay. Your work is their investment. Well, not quite. Your work is your inventory problem, not theirs. What they want is for you to work like piece workers, only you have to buy the material, the sewing machine, the thread, the electricity, rent, insurance, and pay a listing fee for the opportunity of selling it with no guarantees for a sale.
Does paying a huge chunk of your profit to business partners that don’t carry any of the risk of your business sound like a good idea? Of course it doesn’t. The folks who own Etsy see you as their laboror who will work on speculation risking your personal money and paying them for the privilege of a lottery’s chance of you making money. Add to this risk the fact that at any time, for what ever reason, they can shut your shop at no cost or penalty to them.
The bottom line: You can’t build a profitable lemonade business in someone else’s front yard.