The Rise of Wholesale Marketplaces

But Is It?

Artist Sally makes jewelry and has been quite successful over the years. Her average order is around $325. She averages 3-5 orders per month. On a commission based platform where you can see rates from 0% - 25% - Sally see’s this scenario:

In one month, Sally pays $171.25 in commission fees. Sally is thinking hey 3 orders for over $750 is not too shabby! Not at all - but who pays for that fee? Sally’s overall profits are taking a hit and she has to choose to either pad the fee into her base price or take the profit hit. If she pads her price the buyer is taking the hit, if Sally absorbs the fee, she is.

Let’s revisit Sally on a fee based model

Based on her sales noted earlier, Sally had $753.75 of orders placed in one month. On a fee based model – such as IndieMe who charges $39 per month - this would have cost her $39 or 5.2% of her orders. Sally can budget that expense knowing each month her shop maintenance fee is $39.

But Sally doesn’t always get orders on her fee based platform. So, what’s an artist to do? Keep paying that monthly fee with no return on investment? Maybe the answer is yes.

From the buyer’s perspective

Tom is a successful gallery owner, selling a range of handcrafted items from USA based artists. For over 15 years Tom has seen many marketplaces come and go. Tom shares, “Majority of those pop up marketplaces are in it for the money, they charge a high rate of commission and don’t invest the income made, back into the artists success. That worries me and is disruptive to the industry as a whole.” Tom’s main concern is the cost to do business with the artist if they are facing an unknown in total commission fees each month. Tom explains, “How is the artist(s) managing those fees? If I purchase from a new artist, I am fully aware they could be charged 25% commission. I fear the artist has to incorporate that 25% into their wholesale pricing. I also know that a savvy artist would always plan for the worst case scenario – assuming the order would garner the 25% commission rate.”

Sharing buyer lists

Our hardworking artist Sally was offered an incentive, send us your buyer list and any orders you get from these buyers will be charged 0% commission. Sally thinks for a moment and decides ok that seems fair. “I trust that you will guard the list as well as I do”! Over the years Sally has built an impressive list of over 150 qualified buyers she has done business with. One of those buyers is Tom.

One morning Tom wakes, grabs his coffee and checks his email. He sees an invitation which appears to be from his friend Sally the artist. Come join me here where you can shop from me with this $200 credit. Hmmm Tom wonders how real is this? Someone is going to pay me $200 to order from Sally? Almost too good to be true. As Tom explains. “I wasn’t ready to place an order with Sally so I tucked the email aside for the time being. Then it started. Email after email coming from Sally, reminding me to ‘shop soon take advantage of the $200 credit’. Becoming irritated after realizing the emails were not coming from Sally directly, I deleted them.” Tom quickly realized the new Marketplace Sally was on was sending the emails. “I got mad that she (Sally) felt it was ok to share my email address with another company without my permission.”

Tom goes on to explain, “Over the next couple of weeks I was inundated with emails from this new Marketplace, check out our over 3000 artists you can shop from. New this week! No more emails from Sally, no all I was getting was shop from this new artist. I realized why; the Marketplace would get 25% commission on any new artist I shopped from!”

Tom contacted Sally, asked her to never send his email information to another company without his approval. He eventually reordered from her, but not on the commission based platform.