Thursday, July 7, 2016

The Economics of Running an Etsy Shop

Etsy, the online peer-to-peer marketplace that specializes in handmade and vintage products, has become the online leader for unique gifts, connecting millions of buyers and sellers for over a decade. The platform lets small-batch producers expose their wares to a global market instead of just the local community, and this opportunity is resonating with artists and crafters everywhere.

Sellers on Etsy use the site for different reasons.

Some are artisans as a hobby. Others have pivoted their passion into a means of supplemental income. And still others have become successful enough to turn to the business full-time as career Etsy sellers.

The beauty of the platform is both that it’s well-trafficked—it’s one of the most visited sites in the world—and the fees are reasonable and based on listings, rather than a flat monthly or yearly rate.

The economics of running an Etsy shop are straightforward:

There are fees for posting to the site, and sellers will also have to learn how to calculate for packaging materials, shipping costs, marketing and sales tax.

But learning to do so is how Michelle Eshleman went from looking to make ends meet while searching for a new job, to transitioning to a full-time Etsy shop owner. She now runs two Etsy shops: Paintspiration, her original site that deals in original art with “inspirational quotes, sayings and vibes,” and Mini Zen Garden, where she sells tiny zen gardens used for relief and relaxation.

“Ever since I was little, I wanted to be an artist, but people sort of discouraged me from going to school for art, so I went down the more traditional career path,” says Eshleman.

“I’ve had friends along the way who have told me I should sell my stuff, especially once Etsy started and became big. In the first few months it was really still a hobby and I didn’t expect that people would actually pay money for my art. It took me a little while to get used to the idea of selling my things and scaling it as a business.”

What Etsy Charges its Sellers

As we mentioned, there’s no regular fee associated with owning an Etsy shop or to sign up. Etsy requires sellers to associate a credit/debit card or a PayPal account with their store, but doesn’t charge for setting up a page.

Instead, sellers begin to pay Etsy when they list their products.

It’s $0.20 per listing, which lasts until the product sells or after four months, at which time a re-listing for another two dimes is required.

For those just starting out, current sellers can provide links—to friends, acquaintances or anyone else—that offer 40 free listings.

Etsy’s Seller Fees

There are transaction fees that come in two parts:

First is the transaction fee itself, which is 3.5% of the item price before taxes or shipping.

Next is the payment processing fee, which Etsy takes off the top for transferring the funds to the account of your choosing. “Direct Checkout” lets customers use their credit card for a purchase, with the money appearing directly in the seller’s Etsy bank account—this costs $0.25 per transaction and 3% of the total including shipping. PayPal to PayPal transactions are also available and cost $0.30 per transaction plus a slightly lower 2.7% of the total.

Etsy also charges for other “Seller Services” that can boost the performance of a page or make life easier for sellers, including additional fees for promoted listings and the sale of premade shipping labels.

Comparing to a Brick-and-Mortar Store

For years, even decades, the dream for many has been to open a brick-and-mortar store.

But for entrepreneurs like Eshleman, the numbers for opening a physical location just didn’t add up.

“I recently had the opportunity to open a kind of brick-and-mortar store. At first I was really excited at the concept, but the more I thought about it, it didn’t really make financial sense for me,” says Eshleman. “I think online selling—there’s not a lot of overhead, no rent to pay, and it’s also open 24 hours a day. I don’t have to be there. My store is working for me all the time, and that’s what I love about it: the flexibility and the scope of the market as well.”

Because most of Eshleman’s inventory is made-to-order—a luxury most physical stores don’t have, since a store with no products on the shelves isn’t very enticing and won’t last long—she also doesn’t have to worry much about inventory management or organization. She just needs enough space at home to work out of and to store the pieces that are near completion or ready to be shipped.

Shipping: An Esty Seller’s Best Friend

Speaking of which, shipping becomes the biggest overhead cost for businesses that run exclusively through Etsy. It’s the lifeline of the business, and at first it can be daunting to figure out how to do correctly.

“I really got nailed by shipping costs in the beginning because I wasn’t as familiar with what the size and weight of the packages would be as I am now,” says Eshleman. “When I first started, it was really stressful because I didn’t have any shipping supplies, so I’d have to go find a box for a painting and I’d have no idea what it would cost. Once I started to get more consistency with my sales, I bulk-ordered shipping boxes for each sized item I sell in the exact size I needed.”

“So now I have tons of boxes, mailing tubes, bubble wrap, and everything else around the house. Plus, now Etsy has calculated shipping, and you can set it up so the buyer can figure out what the costs will be upfront—they didn’t have that when I started.”

Boxes and other shipping containers are just part of the equation, of course.

There’s also labels, ink, paper and assets for the home office including a printer and computer.

In addition to a traditional computer printer, Eshleman invested in a fine art printer, which can run anywhere from $300 at the low end to several thousands of dollars at the high end. Additionally, there’s another facet of shipping all your products—instead of handing them over the counter—to customers that you’ll need to account for:

Inventory loss.

“Sometimes your packages will get damaged in transit, or lost, or a customer will return something and you can’t resell it because it’s damaged, or just giving customers a refund as good customer service depending on the case. So it’s good to figure in a percentage of your sales that will be lost to things like that,” says Eshleman.

It Requires Some Online—and Offline—Marketing Efforts

Etsy lets sellers access a global marketplace with millions of potential customers, but that marketplace is crowded with other sellers on the Etsy platform and beyond.

Differentiating yourself with quality products and good customer service is a given, but engaging in some simple online marketing campaigns can help you garner traffic and attention as well.

It starts with the Etsy page itself.

“The most important thing to have prepared is to have good photos. It’s crucial to have really nice product photos, especially if you have handmade items—that’s what you’re drawing customers to your page with,” Eshleman says.

Another common tactic is to have a blog that points back to your Etsy page, creating another avenue for potential customers to find you as well as possibly boosting your SEO ranking—the hosting of which can cost a few dollars or more a month.

But the most common practice is to set up social media pages which can drive traffic to your site.

“I market Paintspiration with a Facebook page, Instagram, Pinterest, my personal website and blog,” says Eshleman. “The blog and Pinterest definitely drive the most traffic, though it’s not always clear what leads to sales.”

Eventually, Eshleman wants to open her own site so she can sell directly to customers without paying Etsy any listing or processing fees—but admits the power of the platform to attract eyeballs is crucial and will “probably never get rid of it entirely.”

There are also “offline” marketing efforts you can make.

Eshleman puts her business cards and little magnets in each of her packages for Paintspiration, while Mini Zen Garden gets green tissue paper wrapping and branded package inserts to give customers a lasting impression when they open their delivery.

Reminder: The Laws of Business Still Apply

When moving from creating art and crafts as a hobby into a business, your approach to sourcing materials and tracking expenses must evolve as well.

“I have a spreadsheet where I put in the material cost of everything,” says Eshleman. “I get materials from all over, from local craft stores to ordering it in bulk from different websites. But I calculate everything in because I’m trying to run a business. All those little costs add up, so you need to be sure that’s reflected in the price you’re charging people.”

Plus, it’s not uncommon for Etsy store owners to forget that their dealings are subject to the same tax rules and regulations as any other company.

If you’re a U.S. seller and you sell more than $400 in one year, you have to file a tax return. Each state has different sales tax rates, so do your research ahead of time, suggests Eshleman.

“One of the things that hurt me when I was first getting started is I didn’t understand taxes and business licenses and all that stuff. Don’t be like me, waiting a year or two in and then having to pay back taxes. See an accountant early on. Also, each state has an entrepreneurial phone line you can call and ask questions to keep yourself informed. “

***

Opening your own small business where you’re the chief of production, sales, and customer service is a daunting task, but doing it online with a platform like Etsy makes it easier than ever.

Running an Etsy store isn’t a traditional path to selling wares, but it does present many of the same challenges that all business owners face—delivering a promised product, serving the customer to the best of your ability, finding new and more efficient ways to cut costs while maintaining quality.

If you’re able to do that, the dream of creating beauty for a living is as attainable as any other.

The post The Economics of Running an Etsy Shop appeared first on Fundera Ledger.



from Fundera Ledger https://www.fundera.com/blog/2016/07/07/running-an-etsy-shop/

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