Selling at an online marketplace has a lot of benefits. It’s a lot like selling your product at a mall. You have the benefits of a large number of shoppers walking by all day and good visibility from built in advertising. However, you also run into some of the same costly issues that you will find at a mall, and is probably the reason why you don’t already have a shop there too. The costly problem with malls and marketplaces comes from the same place: overhead!
With a lot of promotion-based marketplaces, there is quite a bit of overhead and it can become unwieldy at a certain point in the development of your business.
At first, online marketplaces are a great place to start because there is not a lot of cost to get set up. Signing up is usually absolutely free. The first cost only comes when you want to add a product to your store. That first fee is usually called a listing fee, and it is a flat fee charged to list an item for a set amount of time. If you don’t make a sale in time and the item listing expires, that sucks, but you’re probably only out a few cents.
The real costs begin when you make a sale. When you sell an item, the marketplace owner will charge around 5% of the value of that sale. In addition, you’ll also pay the payment processor around 3% of that sale. And things really start to get expensive if the visitor clicked an advertisement before they purchased your product. In those cases, the advertiser often charges upwards of an additional 15% of the value of that sale. All told, each time you sell a product on the marketplace, you could lose up to 25% of the price of each sale on fees alone.
At this point you can choose to eat that cost, or you can do what a lot of people do and mark up the price of your product to cover that cost. (Remember, when you do this, the marketplace, processor and advertiser also take more money — so if you mark up your item 25% and they take 25%, they’re now taking more money from you than they would have before, so you’re still not recouping all of your loss.) And if you mark up your product’s price, it’s really easy to lose your competitive edge in that marketplace.
The more you sell, the more you pay, so the busier your business gets, the heavier the weight of this overhead can feel.
When your business is new and small and you don’t have a lot of capital, an online marketplace makes a lot of sense. To set up your own online store, it could cost anywhere from 2k to 10k, just depending on how complex you want the store to be and how much of the products you want your web team to set up. Those seem like big numbers at first. But when you consider that after you sell 8k-40k in product via the marketplace you’d likely have paid enough in fees to afford your own online store (depending on what it cost to set up the site), it might make sense to look at having your own online store in the context of your longer term business goals.
How much do you plan to sell online in the next few years? Is it within the $2,000 – $40,000 range? Then you might want to consider your options.
If you have long term plans for your artisan business, we would love to talk to you about the role of that an online store has in those long term plans, and when it might make the most sense to invest in one. Please reach out to us for a free online consultation with a web designer and strategist today!
