How Fiverr Makes Money by Reducing Friction for Gig Buyers & Sellers

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The expected value of the global gig economy, which is a term used to classify independent contractors/freelancers, is projected to be $455 Billion by 2023

In 2018, the global gig economy generated $204B in Gross Volume — with transportation-based services comprising 58% of the value, the asset-sharing sector capturing 30% & the remaining 12% being distributed among professional services & HGIM (Handmade Goods, Household & Miscellaneous Services)

Fiverr, which falls under the professional services category of the gig economy, is a two-sided digital marketplace that connects people who are interested in doing gig work (sellers) to people who want to get gig work done (buyers). 

Started by two Israeli entrepreneurs, Micha Kaufman and Shai Wininger in 2010, Fiverr launched with support for only 8 service categories but has come a long way since then, generating $107.1 million revenue in 2019. 

History of Fiverr

Source: Fiverr SEC filing

The company was started with a simple idea: people should be able to buy and sell digital services in the same fashion as physical goods on an e-commerce platform.

Having experienced first hand how challenging the process of working with freelancers can be, the founders developed Fiverr’s digital marketplace to mirror the typical e-commerce transaction, having a comprehensive SKU-like services catalog and an efficient search, find and order process.

Before we get into how Fiverr makes money, how much revenue it generates & what metrics it uses to track its business, let’s look into Fiverr’s value proposition for Buyers & Sellers, to develop a better understanding of the business.

Value Proposition For Buyers

 With sophisticated browsing and filtering functions to navigate their catalog of digital services, Fiverr reduces the friction and inefficiencies in the process of hiring a gig worker, thus saving valuable time for buyers.

— In 2019, Fiverr reported that its expansive digital catalog of services had over 200 categories, with gig prices ranging from $5 to thousands of dollars. 

— Instant access to thousands of freelancers having a broad set of skills

— For buyers, Fiverr enables certainty of price, scope of work and quality. 

— To make sure they get repeat purchases from buyers, Fiverr prioritizes dispute resolution  

Active Buyers on Fiverr

In the year 2019, Fiverr had 2.4 million active buyers, up 17% from the 2 million active buyers in 2018

Value Proposition to Sellers

— Fiverr matches sellers with buyers directly without sellers having to bid on projects, enabling sellers to focus on providing services.

— Freelancers can work remotely, from wherever they want & whenever they want.

— Fiverr works with third-party agents to collect money from buyers at the time of purchase & releases the funds to sellers at the time of project completion, making the process of receiving payments frictionless.

— Sellers can create a personal storefront ( seller page ) to showcase their services to buyers.

— Fiverr provides sellers with tools to manage the administrative aspects of their business.

— Sellers are provided with 24/7 platform support in their freelance journey. 

Active Sellers on Fiverr

In the 12 months prior to March 31, 2019, Fiverr had approximately 255,000 active sellers from over 160 countries across the globe.

How Fiverr Makes Money

Just like most marketplaces that connect two different sets of people, Fiverr too makes money through transaction fees and service fees, which are based on the total value of transactions processed through the platform. 

Depending on the size of the transaction, Fiverr charges either $2 or 5% of the total transaction as a processing fee to the buyers. The $2 rate applies to transactions that are less than or equal to $40 in value. Orders that are more than $40 in value will incur the 5% processing fee.

Other than the processing fee it collects on buyer transactions, Fiverr takes a flat 20% cut from the seller’s fee. That means sellers on the site only make 80% of what they charge to complete a project. As a result, a traditional $5 gig generates $4 for the seller.

According to Fiver, the payment processing fee and transaction fee are what enable it to operate the platform & provide 24/7 customer support.

2019 Financials of Fiverr

Source: Fiverr 2019 Financial Report ( All data above is in thousands )

Even though Fiverr made a revenue of $107 million in 2019, it reported a net loss of $33 million in the same year. One thing worth noticing is that the majority of Fiverr’s losses were due to Sales & Marketing, which means Fiverr is heavily investing money to scale up their operations.

How Fiverr Evaluates it Business 

Every company has what’s called a north star metric — which is used to measure the success of its business. While each and every internal department might have a different north star metric, the company-wide north metric is what all departments cumulatively work to push forwards.

In the case of Fiverr, the company measures two north star metrics to judge its success: repeat buyers & spend per buyer.

The reason Fiverr focusses on repeat buyers is because the majority of its revenue comes from repeat buyers compared to first-time buyers & repeat buyers are even more likely to recommend Fiverr. 

Fiverr's Repeat Buyers vs Fiverr's first-time buyers

Source: Fiverr SEC filing

Fiverr’s repeat buyers grew from 55% to 57% from the year 2017 to 2018. Moreover, as Fiverr gains more repeat buyers, the amount each buyer spends goes up. 

Fiverr's Spend per Buyer from 2012 to 2018

Source: Fiverr SEC filing

The spend per buyer metric shows that since 2012 the amount each buyer spends on the site has more than doubled, starting at $64 in 2012 and going up to $145 in 2018. In 2019, spend per buyer increased to $170 compared to $145 in 2018. However, despite Fiverr’s north metrics headed in a positive direction, the company is yet to make a profit. 

Fiverr’s Acquisitions

Fiverr has acquired Video creation marketplace VeedMe & Content marketing platform ClearVoice to bolster valuable individual categories like video production & content marketing. In Jan 2018, Fiverr also acquired AND CO, which is a software for freelancers looking to manage their client relationships. 

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How Fiverr Makes Money by Reducing Friction for Gig Buyers & Sellers
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How Fiverr Makes Money by Reducing Friction for Gig Buyers & Sellers
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Fiverr makes money through transaction fees and service fees, which are based on the total value of transactions processed through the platform.
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