Fiverr is an online marketplace for freelance services. It is one of the biggest and popular freelance platforms where interested people can buy and sell services of all professional categories. Those include graphic design, programming, web development, content writing, SEO etc. In fact, it is a giant platform where one can find any kind of digital service.
The platform operates globally and it has over 2.4 million customers as of 2019. In fact, the company was designed as a marketplace to buy and sell digital services due to which Fiverr is able to balance the buyers and sellers count.
With all this in mind, most people wonder how does Fiverr make money? So, if you are one of those people, then dive into the article. Let’s discuss how Fiverr works, what is its business model and how it makes money in detail. But before that, let’s have a quick look at its short history. So, shall we?
Brief History of Fiverr
Fiverr International Ltd. or Fiverr was founded by Micha Kaufman and Shai Wininger in February 2010. The company is based in Tel Aviv, Israel, however, it offers its services to people all over the world. The founders created Fiverr with an idea to launch a marketplace for professional services the same as e-commerce platforms. As there were only a few marketplaces for professional services a decade ago, their plan panned out well. Fiverr was developed as a SaaS model to make working with freelancers as easy as buying something on Amazon.
As the number of unemployed was (and is) higher, freelance platforms like Fiverr experienced a great user-base. Not to mention, the platform made it easy and affordable for buyers to avail of required service which it calls a “gig”. The services on Fiverr start at $5 and go up to higher based on the requirement. Although the platform is free for anybody to sign-up, it charges a certain share from every transaction happening on the platform from sellers.
The platform was a huge success initially as within two years of its launch, Fiverr hosted more than 1.3 million gigs. Fiverr has been ranked among the top 200 most popular websites in the world and top 100 in the US since 2013. The transaction volume on the website has raised by 600% since 2011, which is highly significant growth.
In June 2010, the company raised $1 million in seed investment and in May 2012, it received $15 million in funding from Bessemer Venture Partners and Accel Partners. In August 2014, Fiverr had raised $30 million in Series C round and in 2015, it had raised $60 million in Series D funding round led by Square Peg Capital. Its total funding amount counts to $110 million as of 2019.
The company reported $107.1 million in revenue in FY2019.
How does Fiverr Work?
Fiverr is a freelance platform, an online marketplace for freelancers to advertise their services and buyers can avail the services. It lets freelancers or sellers or service providers promote their services and accept gigs from buyers. The price of the service or gig is set by the service provider.
To avoid low-quality services, Fiverr allows sellers to publish their profiles so that interested buyers can go through them before assigning a gig. Buyers can also see pricing, work samples, ratings of the sellers to make the right decision.
Coming to the payment part, Fiverr simplifies and secures certain things. It takes care of the payment process and ensures the best-sellers are shown for buyers when searching. In return, it charges a 20% fee from every transaction from sellers. In fact, this is what Fiverr’s business model is to generate income and continue its operations.
Fiverr also offers Top Pro services for interested buyers who need higher quality services. Only sellers that are vetted by Fiverr can offer their services to Pro buyers.
Fiverr Business Model
Fiverr generates its revenue majorly through transaction-based fees. Buyers on Fiverr will have to pay the gig price and service of 5% for a successful order. The minimum service fee Fiverr charges is $2 and it can go high based on the location, and gig price. Fiverr transfers 80% of the gig price paid by buyers to the seller and keeps 20%. And that is how it earns income.
However, the company succeeds and generates a good deal of profits only when sellers and buyers on the platform are active and successful. In fact, Fiverr takes advantage of the flywheel effect which means when more buyers join the marketplace, the more the demand for sellers due to an increase in jobs. This results in more services available on the platform which drives more buyers again. Thus buyers and sellers are the only revenue generators for the company.
Fiverr targets individuals in different industries who are responsible for business functions such as getting things done in a specific time and budget. With this simple yet effective marketing strategy, the company avoids too much spending on the sales force. Fiverr claims that the majority of new buyers come from non-paid and organic sources.
How Fiverr Makes Money?
So, now that you have seen how the popular marketplace for freelance services, Fiverr works and what is its business model. By now you might have understood how it makes money. Anyway, let’s see that in detail here.
Fiverr charges a flat fee of 20% from sellers for every transaction they receive. For example, if a gig costs $100, then Fiverr takes $20 plus a minimum $2 service fee and payment processing fee of up to $1. It transfers the remaining amount to the seller.
In fact, the share of Fiverr is quite reasonable as it takes care of promoting the advertisements of sellers, payment process and shows the sellers to buyers’ search queries. Fiverr estimates that their freelancer market is about $100 billion in the US alone whereas the market in the United States is estimated to be $750 billion annually. They claim their market share would continue to increase more with the addition of new categories on to the platform. Although the marketplace is available for people in over 160 countries, around 70% of revenue is generated from English-speaking countries.
Fiverr in Numbers
The world’s largest marketplace for freelancers reported $107.1 million in revenue for FY2019, there was a 42% rise from the previous year. The market cap of Fiverr is roughly estimated at $1.9 billion. The company has raised $111 million in funding over six rounds. It is funded by 8 investors, of which ION Crossover Partners, Bessemer Venture Partners are the most recent ones.
In 2019, Fiverr acquired a premium subscription-based content marketing platform, ClearVoice for an undisclosed amount.
As you can see, this is how Fiverr makes money. The world’s largest freelancing platform that matches buyers and sellers relies on its user base to generate income. However, with its successful business and marketing strategies, the company is able to keep and grow its buyer and seller base. Hence, there is a great demand for services and gigs on the platform, these are likely to increase more with the new feature launches on the platform.