With inflation on the rise, understanding your profit margin on Etsy is now more important than ever. Etsy raised its transaction fee by 1.5%. Inflation is up 8.5%, hitting a four-decade high. And every time I drive to the grocery store, I have to take out a personal loan. So why haven’t you raised your Etsy prices yet?
Today we’re helping you understand your profit margin on Etsy. Earlier this year, some Etsy sellers went on strike. And among the different reasons why they felt the need to boycott, Etsy’s transaction fee increase seems to be the straw that broke the camel’s back.
If you haven’t done anything in your Etsy shop and you’re still operating business as usual, that’s okay. But we’re gonna show you an easy way to take an objective look at your profit margin on Etsy, make some adjustments, and put more money in your pocket moving forward.
Let’s jump in.
The effects of inflation have on your profit margin for Etsy
The first thing we need to understand about your profit margin on Etsy is that inflation is affecting prices all across the board. Between supply chain issues, rising gas prices, and material shortages — everything cost more right now.
Earlier this year, USPS raised its shipping prices by an average of 3.1% across all of its services. With small flat rate boxes and flat rate envelopes (of all sizes) taking the biggest increase of about a dollar each. That’s a 12% increase from their previous price.
A subscription to Netflix just went up from $13.99 to $15.49. That’s about an 11% increase.
And our standard metric for tracking the price of anything — milk — has gone up $0.04 since March. Yikes.
So with all these price increases (including Etsy’s transaction fee increase), now is the time to make some adjustments in your shop. Honestly, several months ago was probably the time, but if you haven’t done anything yet, let’s go over your options.
Shrinkflation for Etsy
So what about shrinkflation?
You know what we’re talking about. It’s when all those chip bags get a little bit smaller, and they put fewer chips inside. Or it’s when the air inside the bag get’s a little bit wider, every time you open it.
Companies have been slowly making things smaller and providing fewer quantities for the same amount of money for decades. And that is shrinkflation: keeping prices the same while offering fewer quantities or smaller portions.
Honestly, I think my pants must be shrinkflating because my waistline keeps getting tighter and tighter. But that’s beside the point.
Should you shrinkflate in your Etsy shop? Maybe keep your price the same, but use fewer materials to create your product. Well, sure, if you can do that. If you create certain products where you can use fewer materials to create them, why not give it a shot? But for most Etsy sellers, shrinkflation isn’t really going to translate over too well into your Etsy shop.
Especially for an individually made, handmade product. It just doesn’t really work. But it does bring to mind the importance of thoughtfully sourcing your materials.
Thoughtfully sourcing your materials to increase your profit margin on Etsy
Where are you getting your supplies to create your products?
Have your suppliers increased their prices this year?
Are there any other suppliers you can purchase from that offer comparable materials for a lower price point?
Or would your current supplier be willing to provide you a bulk discount for ordering more materials all at one time?
These are some important questions you need to ask yourself before it’s too late and your business is hemorrhaging money with all of these price increases across the board.
If you’ve weighed your options and there’s just no way that you could spend less on creating your end product, then it might be time to consider raising your prices.
And the first question that comes to mind is, how much should you increase your price? Well, before you do anything, here’s why understanding your profit margin on Etsy is so important.
Understanding your profit margin on Etsy
To follow along with the rest of this article, we recommend you watch our video tutorial at the top of this page.
We’ll take you step-by-step through our Etsy fee calculator to help you figure out your profit margins for your Etsy listings. This will show you exactly how much money you make with each sale.
→ To follow along with your own copy of our Etsy fee calculator, claim your free download.
Here’s an example:
Product costs and Etsy prices
In this hypothetical example, we sell t-shirts in our Etsy shop. We order our t-shirts in bulk, a few times a year. And with shipping, it comes out to about $5.65 per shirt (in a medium which is our most popular size).
We print and press our shirts in-house, and our business has already paid for the cost of our equipment, so we don’t factor that into our prices. If you have equipment on rental, or if you’re still paying off your equipment, then you may want to factor that into your equation.
We do, however, need to buy the heat transfer vinyl that we utilize for our t-shirt printer. We get those from bulk at Michaels whenever it’s on sale. And we know that for the t-shirt designs that we sell, with one roll, we can get through about six prints. So that’s going to come down to about $1.89 per design, printed on a t-shirt.
So we add that up and we get $7.54. So out the door, that is how much it cost us to create our t-shirt.
Shipping costs and Etsy prices
We stuff all of our t-shirts into priority mail flat rate envelopes. And we can get commercial pricing with a third-party service that we use. Since we put the cost of shipping back on our customers, they pay $7.75 per order. And that’s exactly how much shipping cost us.
Total Revenue vs. Gross Profit
We’ve always felt that a $20 t-shirt seems like a reasonable price, so that’s how much we charge our customers.
With all of this plugged into our Etsy fee calculator, it will show us some pretty important numbers that we need to know for our business.
Total Revenue: Every time we make a sale, the buyer pays $27.75
Etsy’s listing Fee is of course: $0.20
Esty’s Transaction Fee is now: 6.5% = $1.80 for this order
Etsy Payments costs us: 3% + $0.25 = $1.08 for this order
Bringing our Total Fees to: $3.09
Of course, this doesn’t include off-site ads fees.
This puts our cost of goods sold at $18.38. Now, this is the cost that we’re paying for the t-shirt, how much it cost to ship, and how much we’re paying in Etsy fees.
Our profit margins with our current Etsy prices
With all of these numbers plugged into our Etsy fee calculator, we know that our gross profit is $9.37. Which gives us a profit margin of 34%.
But is 34% a good profit margin on Etsy?
That’s not too bad industry-wide for hand-made across the board, but since we’re selling t-shirts, we can do a little bit better.
Raising prices to maintain a healthy profit margin on Etsy
With our Etsy fee calculator, we can begin to manipulate our numbers to find a sweet spot that works for our business. Once you understand your profit margin on Etsy, you can do some minor things to tweak it.
So for instance, if we want to raise our Etsy listings prices to $30 per shirt, then our profit margin will jump up to 49%. So we’ll be making $18.42 per sale.
Now, we like the sound of that. But is anybody going to buy a t-shirt that cost $30?
Well, that’s where Marmalead comes in.
Understanding your profit margin on Etsy with Marmalead
With Marmalead, we can run market-based pricing research for our Etsy listings by searching through popular keywords.
Now, we’ve already done a complete tutorial all about why market-based pricing is one of the best ways to price your listings, so make sure you go check that out.
For the rest of this article, we’ll be using Marmalead to help us complete our Etsy listing pricing research. Follow along with our video tutorial.
Once you have Marmalead pulled up, you’ll use our keyword search feature to pull up pricing data on your popular Etsy listing keywords.
Continuing with our t-shirt example from above:
Etsy pricing research through keyword searches in Marmalead
For our business, we like the retro look, so we predominantly sell ’90s-inspired t-shirts. So that’s the first keyword we’re going to use for our research.
Once we search this keyword in Marmalead, we can scroll down to see helpful pricing information. Marmalead shows us the bargain price range between $4 and $19. The mid-range price, between $19 and $30. And the premium price, between $30 to $850.
What about vintage?
We’re not selling vintage t-shirts. So right off the bat, we’re going to ignore the premium price range, because “vintage” is what’s most likely for sale in that range.
If you were selling vintage shirts — say you thrift local yard sales picking out old ’90s tees — then this pricing research should still help you out. Depending on the quality of the t-shirt you find and how rare it might be considered, you could dip a little further into the premium range (probably not all the way up to $850, but you could get up there.)
Try searching for specific keywords that are directly related to the vintage t-shirt that you have in front of you, and then you can look at the pricing spread for that specific keyword. This should help you figure out your pricing a little bit better for your vintage materials.
How should you price your Etsy products?
For our handmade shirts, mid-range seems like a good option.
Inside Marmalead, scroll down until you see “Price Spread.” As you can see, quite a few shops are listing their t-shirts at $20. Some are on sale for a little less at $15, and others are on the higher end at $25.
And then some t-shirts are even higher at $30. Listed higher than that, we see t-shirts for $40, $50, and beyond!
So what this tells us is maybe a $30 t-shirt isn’t such a bad price after all.
What about shipping?
What’s great about the pricing information available to us in Marmalead is we can also see how much other Etsy shops are charging for shipping.
It looks like our shipping price at $7.75 is on the higher end of the scale. Quite a few shops are offering free shipping. And the minimum shipping price other than free is $2.45. But overall, the average shipping price is about $5.
So at the very least, we can consider lowering our shipping price. So let’s jump back over to our Etsy fee calculator, and change the amount we charge for shipping, to $4.99.
This makes our Etsy listing a little more desirable for those that are more conscious about what they pay for shipping.
Where is our Etsy profit margin at now?
After adjusting our Etsy price and lowering the amount we charge for shipping, we still have a healthy profit margin of 46%.
Which means we’ve increased our revenue by about 9% from where we started.
And that’s pretty good.
Research all the keywords in your market
Now, don’t forget that your market is bigger than just one keyword. So what you’ll need to do is jump back over to Marmalead and run these keyword searches with multiple keywords that you utilize for your listings.
Go through your most popular keywords. Go through the keywords that buyers are using to find your product.
Then run all those keywords through Marmalead.
Look through price spreads, and analyze the prices that pop up for the other listings in your market. That way, you’ll be at the top of your game to make strategic pricing decisions for your Etsy listings.
Running a razor-thin profit margin on Etsy
Now, if you’re pricing research shows that you are severely overcharging for your products, but that’s the price you have to set because your labor and material costs are so high, then it might be time to reconsider the products you sell.
Or at the very least, reconsider the way you create them.
Back to our example with t-shirts: there are tons of varying shirt styles out there, all with different costs. Comfort Colors is a popular t-shirt style right now, but it comes out to about $7 per shirt. And on the flip side of the spectrum, there are basic soft-style tees that you can order for about $2.67 per t-shirt.
Now, if you were to sell these t-shirts at the same price you’re selling your current shirts, this would drastically increase your profit margins, but your shoppers may begin to notice the decline in quality.
Use Marmalead to find your sweet spot for your profit margin on Etsy
Now that you know how to use Marmalead to research pricing on Etsy, use our Etsy fee calculator in tandem with the Marmalead price spread to plug in the actual numbers that you’re charging for your products, figure out where your margins lie and see if you can adjust your prices to increase your margins.
It’s as simple as that.
Over to you
So what do you think? Have you already raised the prices in your Etsy shop? How did it go?
Are you still getting the same amount of sales as you were before?
If you’re an Etsy shop that’s on the fence about raising your prices, what’s holding you back?
Let us know in the comments down below, and we’ll see you down there.
As always, happy selling!