What Should my Profit Margin be on Etsy? A Definitive Guide

Statista tells us there were around 7.47 million Etsy sellers in 2022. If you're one of these sellers working on building a lucrative Etsy shop, you'll need to understand how to calculate your profit margin. Once you know this, you'll be able to devise effective strategies to increase it so you can ultimately boost the profitability of your business.

However, like most other aspects of eCommerce accounting, getting a firm grasp on profitability can be challenging for those with little experience on the topic. What's the difference between gross profit and total revenue, for example? Should your COGS (cost of goods sold) be counted as an expense or asset? Does it even matter?

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Today, I'm diving into Etsy profit margins. Stick around to discover what your profit margin should be on Etsy, how to calculate it, and how you can improve it.

What is a Profit Margin?

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A profit margin is the amount of profit from each $1/£1 that your business generates. This is converted into a percentage. Your profit margin gives you a good indication of your business's financial health. And, a benchmark for improving your business's profitability. The higher your profit margin the better because it means that a higher percentage of each $1 in revenue is profit.

So for example, if you sell a product for $100 and $30 of this was profit, your profit margin would be 30%. If, on the other hand, $50 of this was profit, your profit margin would be 50%; obviously, a more preferable margin.

Total Revenue vs. Gross Profit

One of the the very first rules of honing in on a good Etsy profit margin, and how to calculate it, is to ensure you have a firm grasp on the difference between your total Etsy revenue and gross profit. Thankfully, this isn't a particularly difficult thing to understand.

Your total revenue is the income your Etsy shop generates from sales. Gross profit, on the other hand, is this income minus your COGS (cost of goods sold). Your total revenue accounts for returns too. And, your COGS includes all the aspects directly associated with the cost of your products. For example, raw material costs, production costs, and packaging. It does not, however, include Etsy seller fees or Etsy charges.  

Your calculation for gross profit is:

Total revenue - COGS = Gross profit

Gross Profit vs Net Profit

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There are two profit margins that might be useful for your Etsy business; gross and net. A net profit deducts all your company's expenses, including taxes, advertising costs, transaction fee, and Etsy's fees. It covers both one-off and recurring expenses, such as rent, loan repayments, and material costs.

When you're measuring the profitability of your business, it's better to work towards a net profit margin rather than a gross profit margin. This is because it is a more accurate representation of your business's profitability.

An Etsy Seller's Expenses

So what kind of expenses might Etsy sellers have that they need to deduct from their total sale revenue and gross profit? Let's take a look:

• COGS
• Etsy fees
• Listing fees
• Shipping costs
• Taxes
• Rental costs
• Fulfilment
• Warehousing
• Advertising fees, like Etsy Ads

What's a Good Profit Margin for Etsy?

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There are a lot of things that can impact your profit margin. This includes your product price, your market share, your COGS, your competition, and your business model. You should also keep in mind that you might have a low profit margin but a high profit due to a large volume of sales.

However, this is the general rule of thumb when it comes to what profit margins to aim for:

• 10% = Average
• 20% = Good
• 30+% = Excellent

The most successful Etsy sellers shoot for a 20% - 50% profit margin.

How Should I Calculate a Selling Price on Etsy?

To calculate a selling price on Etsy, start by calculating your expenses and your COGS. Once you've calculated these, you can determine the mark-up of your products.

Pricing Tips for Your Etsy listings

Here are some tips for pricing your Etsy products:

1. Do Competitor Research

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First thing's first, you need to get a feel for competitor pricing. Etsy offers the opportunity to sell one-of-a-kind items. And with the wide selection of unique, handmade goods on the platform, competitor research is sometimes easier said than done.

Spend a good amount of time time looking at products in your niche. Note the prices, along with factors that might influence the prices and consumer purchasing decisions. For example, product quality, free shipping, highlighted features, product descriptions, and the images that showcase the product.

Once you've noted these aspects and have a good idea of what competitors are doing to sell their products, you can build upon this to do a better job of it. For instance, you might go into more detail in your description about a particular feature. Or, you might photograph your product from a more flattering angle.

2. Do Customer Research

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When you're discussing the features and benefits of your products, and photographing them, you're effectively attempting to sell them to your audience. However, a thing is only worth as much as someone's willing to pay. You need to establish who potential customers are and what they want from your product to make it worth them spending their hard-earned cash.

Are they looking for a high-end item or a cheap and cheerful product that serves its purpose reasonably well? If it's the former, are you marketing to people who have the means to buy from you? Develop a buyer persona, and get to know your customers and their pricing expectations.

3. Create Bundles and Offers

Bundling items together can save on shipping costs, payment processing fees, transaction fees, and Etsy fees. This can also be a good way of shifting old stock to make room in your budget (and warehouse) for new stock. You might also create special offers and discounts for new or returning customers, depending on your business strategy.

Although this will lower your profit margins initially, you can use this tactic to draw in more customers and increase your sales volume.

4. Gather (and Pay Attention to) Feedback & Reviews

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Customer feedback and reviews can give you valuable insights into your customers' thoughts, needs, and experience with your brand. Ensure you take the time to gather these and read them. Look for areas of improvement so you can adjust your price accordingly.

For example, someone might say your product is excellent value for money. This might leave you a little wiggle room to increase your price slightly. Or, prompt you to look at ways to cut expenses so you can keep the price the same while increasing your margin.

You can also look at competitors' feedback for additional insights. If, for instance, customers have expressed disappointment with the quality of a competitor's product compared with the price, you can use that knowledge to improve your products and pricing. You might highlight the excellent quality and materials you use in your product descriptions.

5. Use an Etsy Fee Calculator

Etsy fees can get a bit complicated. However, they're essential to understand if you're going to nail your product pricing. Using an Etsy fee calculator before you set your prices will tell you what your Etsy seller fees, listing fees, and payment processing fees will be for different hypothetical prices.

You can use the information from your Etsy fee calculator, along with the intel you gathered from research and reviews, to hone in on the ideal price for your products.

An Etsy fee calculator can also tell you your profit margins for different prices. They're often free to use and can take into account aspects like shipping fees, as well as Etsy fees and other transaction fees, like PayPal, for example. Using an Etsy fee calculator is a simple way to keep on top of your finances.

6. Offer Free Shipping

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The shipping cost often puts people off buying things online because it's something that is not included in the product price. Offering free shipping, even if you're putting your prices up a bit to account for shipping cost, might draw customers to your Etsy shop because of the perception of getting a better deal.

7. Test Your Prices

Don't be afraid to play around with your prices and test them to see what works. And keep in mind that just because something works for your competitors does not mean it'll work the same for you. There are all sorts of things that influence buying decisions, and competitive prices is just one.

Etsy's algorithm, for example, will determine where your products are listed compared with competitors'. Test prices to see what brings in the best results.

Pricing Strategies for Etsy

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We're now going to take a look at four pricing strategies you might want to get stuck into:

Strategy #1. Competitor-Based Pricing

This pricing strategy is pretty much what it sounds like. You base your product prices on competitor's in an attempt to outdo them. This is not necessarily about undercutting. Instead, you might decide to offer better value for the same price. For example, with better quality products.

Strategy #2. Prestige Pricing

Etsy is the perfect platform to implement a prestige pricing strategy. Simply put, prestige pricing is the practice of conveying a luxury or prestige experience and/or product. This allows you to set your price higher than your competitors because you're creating an air of exclusivity around your brand.

Strategy #3. Charm Pricing

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We've all seen charm pricing both online and in stores. It's the practice of making something seem cheaper by lowering prices to just under whole numbers. For example, $19.99 instead of $20. That tiny difference to your profit margin might be a big influencer for buyers.

Strategy #4. Enhance Perceived Value

Try the age-old trick of enhancing the perceived value of your products. This can be used alongside your other strategies. To do this, you have to emphasise things that make your products more valuable or desirable. For example, using terminology like artisan goods, handcrafted, and eco-friendly, where applicable.

How to Increase Your Etsy Profit Margin

Now we've got your pricing strategy perfected, let's take a look at some effective ways to increase your Etsy profit margin:

Increase Your Prices

This is the most straightforward way of increasing your profit margin on Etsy. However, you need to be strategic about any price increases. If you have repeat customers, you'll probably need something to justify the higher price so they don't look elsewhere.

Negotiate With Suppliers

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If you've been with your suppliers for a long time, you might have a good chance of negotiating a better price for your goods and/or materials. Equally, buying in larger quantities might persuade suppliers to accept a lower price per unit.

Sell More Products

It's important to remember that selling more products does not necessarily equate to a higher profit margin. For example, if you spend more money on advertising and consequently get more sales, your margin will be lower even though your profits are higher.

However, the more you sell, the more reviews you'll likely get. And by extension, your shop could get bumped in the Etsy searches, making you more likely to be found organically.

Encourage Repeat Custom

Existing customers are easier and cheaper to sell to than new ones. Therefore, it's always good practice to try to encourage repeat custom where you can. You can do things like including a flyer in shipments and offering discount codes on repeat purchases. You can also include freebies and personalised notes.

Ensure your packaging is appealing, with gift wrapping, for example. Also ensure that you reinforce your branding with logos and other elements. It's good practice to send thank you emails and follow up messages to customers. That way, you're expressing a desire to ensure customers are happy. And, keeping your brand in their minds.

Automate Processes

You can automate different processes within your business to enhance efficiency and productivity. Freeing up your time with, for example, automated bookkeeping or analytics, affords you more time to work on bringing in organic traffic to your Etsy store. It'll also allow you more time for competitor and industry research. And, to source profitable products, materials, gift wrapping, and packaging.

Use Social Media

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Utilise social media channels to draw people into your Etsy store. Platforms like Instagram and Snapchat are both good for showcasing visually-appealing products. Develop a community around your brand and create that feeling of exclusivity that we discussed earlier.

Instead of just churning out photos of your products though, you should pair these with helpful content for your audience, such as tips, tricks, and how-tos related to your niche.

For example, if you sell handmade bath products, you can offer beauty and grooming tips. If, on the other hand, you sell handmade cushion covers, you can share advice for creating a homely atmosphere. TikTok is a good platform for sharing this type of content.

Leverage Etsy SEO

Getting to grips with Etsy SEO will help you rank in Etsy searches. This will help make you discoverable without the costs associated with Etsy Ads. Thus, your profit margins will be lower. Conduct keyword research to determine what people are typing into that search bar to find products similar to yours. You'll use these keywords in your listings' titles and tags for optimum reach.

Write Compelling Descriptions

If you're running PPC campaigns, you want as many people as possible to actually go through and buy your products. Otherwise, you're simply wasting your money and decreasing your overall profit margins. Write clear, compelling product descriptions, highlighting all the features and benefits of your products. Test out different descriptions and wordings to see what generates the best results.

How Link My Books Can Help Boost Your Etsy Business

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Link My Books allows you to put your Etsy bookkeeping on auto-pilot. It automatically sends your financial data across to your accounting software in the form of summary invoices. These summaries break down revenue and expenses into data like Etsy fees, shipping price, payment processing fees, and advertising fees, so you can get a clear view of business income and expenditure.

Although automated bookkeeping is the core functionality of Link My Books, there are some other standout features that make it an essential Etsy bookkeeping software Etsy shops:

Tax Calculations

Why go through the long, boring, and often complex process of calculating taxes every time you get your Etsy payments? With Link My Books, you'll answer a few questions about tax rates when you're setting up, and the software will then automatically apply the right tax rules to every item you sell to calculate your taxes for you. These taxes are also included in your summary invoices and sent over to your accounting software.

COGS Tracking

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Most people count their COGS as an expense when they purchase their products. However, counting it as an asset initially, and then a cost once you've sold it, presents a truer representation of the profitability of your business. This is how Link My Books does it.

Simply enter the cost of each product in your Link My Books dashboard, turn on COGS tracking, and the software will account for your COGS each time you sell something. Your COGS are also included in your summaries and sent across to your accounting software.

Profit & Loss by Channel

Link My Books has some powerful analytical tools, one of which is its Profit & Loss by Channel. This analytical tool compares performance across different sales channels. So for example, if you sell on Etsy, eBay, and Shopify, you can look at things like sales, advertising fees, and refunds across all three. And, do side-by-side comparisons. This allows you to see where your budget and efforts are generating the best results, so you can effectively scale your Etsy shop.

Link My Books Benchmarking

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Benchmarking is a new feature that you wont find anywhere else. Using anonymised data and a cohort analysis, it gives users a percentile ranking for different metrics based on industry averages. It looks at metrics like sales growth, Etsy fees, and refund ratio, and tells you how your business stacks up compared to similar businesses.

Link My Books Benchmarking displays this information in clear, easy-to-read graphs. You'll see precisely where your business comes in relation to the industry median. Furthermore, you'll get some helpful advice on how to improve your ranking.

Payout and Bank Account Reconciliation

With Link My Books, payout reconciliation from Etsy payments is instantaneous. The recorded figures in your Link My Books dashboard and accounting software will precisely line up with the data from your Etsy payments. All Etsy seller fees, advertising fees, shipping expenses, and money generated from sales will be accounted for. Additionally, you can ensure accurate bank account reconciliation in just a few clicks.

Get Ready for Automated Bookkeeping With Link My Books

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Etsy profit margins can be difficult to navigate. There's lots of competition on Etsy, with people selling their unique and wonderful creations to customers across the world. However, there's also plenty of opportunity to get ultra creative with high-quality, one-of-a-kind handmade items that demand a higher price-tag.

Whether you make your own Etsy items for your online business or you buy them, Link My Books frees up your time so you can concentrate on other areas of your business besides bookkeeping. Link My Books also has some powerful, must-have analytical tools that'll give you the intel you need to make data-based decisions for your Etsy store.

You'll be able to drive sales, increase your profits, and decrease your expenditure.

Link My Books offers first-time customers a free two-week trial so you can try before they buy. Sign up today to reap the benefits of automated bookkeeping coupled with powerful analytics for your Etsy shop.

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