How Does Fiverr Work And Make Money? Fiverr Business Model In A Nutshell

Fiverr makes money primarily through transaction fees and service fees. The company follows a two-sided digital marketplace business model, where it needs to attract buyers (SME businesses) and sellers (freelancers) that enable the platform to grow. The company looks at two key metrics for its growth over time, repeat buyers and the spending per buyer over time. Fiverr generated $297 million in revenues in 2021 from 4.2 million active buyers with a spend per buyer of $242.  

Background story

fiverr-timeline

Source: Fiverr F1 Form 

Two Israeli entrepreneurs, Micha Kaufman and Shai Wininger, had an idea for a two-sided digital marketplace that could offer any “micro gig” on their platform.

Thus, in 2010, they launched Fiverr. The marketplace went live in 2010 with a few live categories.

Today Fiverr offers services in many categories ranging from web design to editing, writing, development, and more.

Let’s look at its business model by starting from Fiverr mission statement.

Fiverr  mission statement analysis

Our mission is to change how the world works together.

Starting from the mission statement helps understand where Fiverr unlocked customers’ value that helped it scale over time.

Often this mission is a simple idea that solves a simple issue.

Indeed, Fiverr started with the idea that people “should be able to buy and sell digital services in the same fashion as physical goods on an e-commerce platform.”

On the premise of that idea, Fiverr developed as a marketplace for digital goods and services, which got built similarly to e-commerce selling physical products, with a built-in efficient search and smooth transaction process.

To understand what problems Fiverr solves, we need to look at its value proposition and break it down.

Breaking down the Fiverr value proposition

When a company successfully unlocks growth, that happens for several reasons and the alignment of several factors.

One of the key ingredients that help reach a scale is a real understanding of a problem to solve for a group of people. Be them a hundred, a thousand, or over a million. 

In most cases, allowing a business model to be viable takes more than just figuring out how to deliver a product and a service.

And in many cases, a business model becomes viable only if it enables several players to gain something in interacting with the organization that built and delivered that business model.

That something can be related to advantage, pain relief, or emotional relief.

But it needs to be designed to address several needs based on the key players that will make the business successful in the first place.

For that matter, Fiverr’s two-sided digital marketplace business model has two key players:

  • Buyers: businesses of all sizes that need to outsource digital activities
  • And sellers: mostly freelancers looking for the opportunity to gain some financial freedom for themselves

It is important to remark that often those changes are part of broader societal and cultural changes enabled by development in technology.

Thus, when an organization spots a pattern affecting society, it can capture that to offer and craft its value proposition.

Some of the macro changes and trends that affected Fiverr success can be traced back to some key trends:

  • What Fiverr calls the “Do-it-for-me movement,” or the willingness of professionals to outsource part of their work to freelancers 
  • More companies are relying on temporary talent, as digital platforms allow those organizations to hire freelancers on-demand
  • Flexibility and choice: freelancing grows in popularity as more professionals want to have the option of when and where to work
  • Technology and digitalization enable those shifts by allowing on-demand transactions from anywhere in the world.

Fiverr value proposition to buyers

buyer-experience-fiverr

Source: Fiverr F-1 Form

(The buyers’ experience on the platform: Buyers can browse hundreds of services and look at reviews from other buyers to assess what is the most suited freelancer for the job)

The company points out five many values buyers get out of the platform:

  • Value for money: Through a frictionless platform with a wide array of digital services catalog with filtering functions, which reduced the time needed to find the right freelancer for the job 
  • Extensive inventory of digital services:  As of 2019, Fiverr offers 200 categories of services with prices ranging from $5 to thousands of dollars
  • A diverse pool of freelancers:  In 2019, Fiverr already had hundreds of thousands of freelancers with a broad set of skills
  • Clear price, the scope of work, and quality of service: With a buyer-driven rating system, the company claims to provide a “transparent quality rating mechanism” to make informed decisions.
  • Trusted brand: The company focuses on dispute resolution and customer service to enable repeat purchases on the platform

Fiverr value proposition to sellers

fiver-analytics

Source: Fiverr F-1 Form

(Example of The Seller Analytics Platform that enables sellers to track their progress and see all their transactions on the platform)

  • Maximize project pipeline: Fiverr directly matches freelancers with buyers looking for the service they provide so that they can focus on the service offering. 
  • Flexibility and control:  Freelancers can offer their services wherever they want.
  • Frictionless payment processing
  • Credentialed storefront (seller page):  Where freelancers can showcase their services. This is almost like a website but easily manageable through the platform.
  • Business support: This helps sellers manage support to the customers acquired through the platform. 
  • Success management and support:  Sellers also get support from the platform on managing their services, for instance, with tools to track their performance over time.  

Unlocking the marketplace liquidity by generating network effects

amazon-flywheel
The Amazon Flywheel or Amazon Virtuous Cycle is a strategy that leverages customer experience to drive traffic to the platform and third-party sellers. That improves the selections of goods, and Amazon further improves its cost structure to decrease prices that spin the flywheel.

Marketplaces’ business models to be successful need to trigger a flywheel, what Amazon calls a virtuous cycle.

In Fiverr’s case, that is the selection of available and competent freelancers on the platform.

To do that, the company has used several injections of capital (over a hundred million in total funding by 2019, before the IPO) to inject liquidity on the offering side.

Indeed, although the company popularized the term “Gig,” which is a microtransaction starting at $5, in 2011, just a year after its launch, there was the first transaction that passed the $5 mark.

In 2015, as Fiverr needed to expand its freelancers’ basis further, it allowed them to set their minimum prices.

Another critical metric the company uses to track its success is repeat buyers.

Those that come to the platform make more purchases throughout the year.

Thus, the Fiverr intended flywheel looks something like the following:

  • Seller support services help freelancers worry only about providing a good service, attracting freelancers looking to make a living.
  • Buyers can browse through hundreds of freelancers and look at their reviews and seller reputation to understand who will provide the best service at an affordable price.
  • Buyers complete transactions successfully.
  • When completing transactions, they are offered discounts to refer to the service.
  • More buyers join in, and one-time buyers become repeat buyers.
  • At the same time, sellers can further build their reputation on the platform.
  • The seller base grows, which allows Fiverr to expand its catalog of “Gigs.”
  • Thus making the overall platform more valuable to users.
  • And allowing more buyers to join in.

Breaking down Fiverr overall business model

Fiverr makes money primarily through transaction fees and service fees. 

As a marketplace model, most Fiverr revenue comes from transaction fees and service fees based on the total value of transactions processed through the platform. 

fiverr-financial-statements

In 2021, the company made over $297 million in revenues and over $65 million in net losses. 

As a marketplace trying to grab shares of a new industry, Fiverr is in blitzscaling mode, and this can also be noted by the fact that, as of 2021, the majority of the company’s expenses are in sales and marketing activities.

As the company has not had a direct sales force, those expenses are driven primarily by aggregating online advertising spending across various channels, including search engine optimization, search engine marketing, video, and social media used for buyer acquisition. 

According to SimilarWeb data, Fiverr had more than sixty million monthly visits in the last months. 

With an age distribution primarily skewed toward 25-34 years old. 

And a marketing mix skewed toward direct digital distribution

Coherently with being a digital marketplace, Fiverr’s extensive digital reach enables it to attract almost forty million visits on the platform each month.

It’s important to remark that for a company to have a viable business model, it also needs to align its profit formula to manage an efficient cost structure and processes that drive growth over the years.

Fiverr revenue is diversified from a broad mix of digital services spanning 200 categories and eight verticals that go from:

  • Graphics & Design,
  • Digital Marketing,
  • Writing & Translation,
  • Video & Animation,
  • Music & Audio,
  • Programming & Tech,
  • Business and Lifestyle

Fiverr North Star metrics

Each company has to have a few key metrics to measure its business’s success.

Of course, each internal department will have different parameters based on what processes they have control over.

For instance, the SEO department might look more at the organic traffic acquisition over time or the conversion rates of buyers based on ad spending.

However, at a financial level, the company has two key metrics to measure its success:

  • Repeat buyers.
  • And spend per buyer.

Indeed, in 2021, the company grew its repeat buyers compared to first-time buyers. 

In 2021, Fiverr’s revenue growth was driven primarily by the growth of active buyers and spending per buyer.

For the years ended 2021, 2020, and 2019, its revenue was $297.7 million, $189.5 million, and $107.1 million, respectively.

These favorable dynamics provide us with revenue visibility and predictability.

As repeat buyers keep using our platform, placing additional orders, and ordering higher value and cross-category services, we benefit from growing buyer lifetime value.

Repeat buyers generally increase spending on Fiverr over time.
 
For 2021, repeat buyers contributed 59% of Fiverr revenue on its core marketplace, up from 55% in 2020.
 

spend-per-buyer

Key takeaways

  • Fiverr follows a two-sided digital marketplace business model
  • It started with a simple idea: make it possible to purchase any digital service or goods, just like we do for physical stuff
  • As a marketplace, it grows on top of network effects. Those network effects can be engineered to create a flywheel or virtuous cycle of growth
  • Marketplaces usually rely on as many value propositions as many are the key players interacting on the platform. As a two-sided platform, Fiverr has to offer a compelling value proposition to both buyers and sellers
  • As the company has not a direct sales force, it spends most of its resources on acquiring buyers through digital acquisition channels, like search engine optimization, search engine marketing, and social media
  • The company still runs at an operating loss, which makes its business model still lack the profit formula
  • Any company has to have a few key metrics to assess its success over time. Fiverr, in particular, looks at the repeat buyers and the spend per buyer as critical metrics.

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