Monday, June 9, 2008

Economics of Craft, or Why You Can't Make Money as a Middleman on Etsy

How is the existence of Etsy shaping people's ability to make a living off their craft?

The Storque, Etsy's blog, has begun a new feature called Quit Your Day Job. The series profiles Etsy sellers who've managed to cut their ties to 9-to-5 work and become self-employed. Since I often read the posts at my day job, I find it very inspiring!

Yet is it possible that Etsy has actually compromised the ability of crafters to earn a living?

Rob Walker, the New York Times Magazine columnist who gave us the handmade revolution's biggest and best mainstream article to date, has a 3 part series on his blog interviewing the founders of Austin Craft Mafia.

One founder, Jennifer Perkins of Naughty Secretaries Club, has been selling her jewelry online since the pre-Etsy era. She offers her perspective on how Etsy has changed the rules of the game:

Q: What's your take on Etsy - is there an "Etsy effect" in the
sense of an effect on pricing or other issues?

I love Etsy and shop there like a wild woman.... However, as someone who
has had a website selling my handmade goods as my sole source of income for
several years now, it has most definitely had an effect....

I have spent thousands of dollars through the years with Naughty Secretary
Club on advertising, web hosting, credit card processing fees and more. With
Etsy those fees are not an issue so people are able to price their items much
differently. Sometimes I think people are selling things just because they
enjoyed making the item and not to pay a mortgage, which makes it hard.

I sold a vintage/deadstock necklace to a girl over the Christmas holidays
through my website for $12 including postage. A few weeks later she sent me the
link to an Etsy vendor that was selling the same necklace for $7 (not including
postage) and a nasty note about how my prices were too high. There is a store on
the East Coast that specializes in deadstock vintage jewelry components that I
am assuming the Etsy vendor who was selling the same necklace bought her parts
from same as I did. If so, at the price she was selling the necklace, not only
was she not making a profit - she was coming in at a loss. That is not running a
business, that is just having fun. Fun is fine. I like fun as much as the next
guy. But how do I compete with that? Not all Etsy vendors price their things
this way, but there are a few that do, as I now know from personal experience.
And obviously, since I got hate mail about it, people notice.

This story offers great insight into the future of craft economics under Etsy. What can we look forward to?

You will not make money being Nordstrom, you will make money being an artist. To put this another way, there's not a lot of profit to be made if you are selling something that is not unique. While the necklace in Jennifer's story is handmade, in the sense that it required assembly, an identical necklace sold by many sellers is a commodity. It's more like a gallon of gas than an artisanal creation.

In a commodity market, the buyer will always seek out the lowest price. Etsy sellers dealing in these items will always face a "race to the bottom" in terms of profit margin. This is especially the case because there's such a low cost of doing business on Etsy. A middleman operating on Etsy or Ebay has no reason to markup items as much as Nordstrom, since there's no rent or staff (or often taxes!) to pay. And alas, if the site helps hobbyists buy in bulk and sell what they don't need, commodity products might even be sold below cost.

Do not despair! The upside is that you can charge a premium for unique, high-quality goods. For example, I love Etsy seller moop's Fraulein tote:

The tote currently sells for $96, which is on par with (or exceeds!) the cost
of a comparable bag bought from a department store. I have one in sage green
that is my default weekend bag - the durable construction stands up to anything
and everything I've thrown into it. The style is super cute and definitely not
something I've seen anywhere else. Is it the cheapest bag on Etsy? No. But it's
really cool, so I forked out a bunch of cash. This is the type of product that
will generate profit in the craft economy under Etsy.

Moral of the story? If anyone else is selling something that is
identical to what you sell, you have a problem.
Unless, of course,
you're comfortable with slim profit margins (i.e. a handful of cents per

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