How Does Fiverr Make Money? Business Model of Fiverr


How Does Fiverr Make Money

Fiverr is a popular online marketplace where freelancers provide digital services. The company generates revenue by charging fees to buyers and sellers who use its platform.

Fiverr operates on a platform business model. Fiverr makes money by charging 20% transactional fees to sellers and 5.5% service charges to buyers.

Fiverr was founded in 2010 by Micha Kaufman and Shai Wininger. Fiverr was created to provide users with a frictionless marketplace where anyone could buy and sell services with minimal processing time and hassle. Originally, it focused on low-priced services that were only five dollars.

Fiverr achieved early success, crossing $1 million in monthly gross sales within a year of the company’s launch.[1] Today, Fiverr has over 4.2 million monthly buyers with each spending an average amount of $259 on the platform.[2]

What is Fiverr & How Does It Work?

Fiverr is a popular online marketplace that connects businesses with freelancers offering digital services. Sellers offer their expertise in the form of a package known as a “Gig” on Fiverr. Gigs can have multiple tiers and are segmented based on quality and extra options offered.

Buyers love Fiverr because it connects them with a diverse range of professionals from around the world who offer their services at affordable price points. Sellers love Fiverr because it gives them access to a vast marketplace without having to invest in their own infrastructure and marketing. Fiverr automatically manages the portfolio, profile, and analytics for sellers. That allows them to focus solely on delivering their services.

Currently, there are over 4.2 million active buyers on Fiverr. According to the last publicly released information on seller numbers, Fiverr had 830,000 sellers in 2019.[3]

Fiverr’s platform hosts over 300 categories of services split across eight verticals that include digital marketing, copywriting, animation, programming, and web development.

The service has continuously expanded into new markets and is now available in more than 160 countries. Since Fiverr is offered in so many countries, buyers get to choose from a wide pool of professionals with extremely flexible payment rates. To date, Fiverr has facilitated over 50 million transactions on its platform.

Starting as a freelancer on Fiverr is extremely easy. The freelancer only needs access to a computer and internet connection. First, the seller creates a profile on Fiverr by registering for free. Here, they can provide details on their occupation, education, experience, and certifications.

By listing marketable details on their expertise or showcasing awards and certificates, sellers can make their services more attractive to potential buyers. Fiverr also allows sellers to link their professional social media accounts with support for sites such as LinkedIn. Once a seller has constructed their profile and portfolio, they’re ready to start selling gigs.

Gigs can be created by entering a name and description. Sellers also have to select a category and subcategory, which helps Fiverr recommend their gig to the right community of buyers. After entering the relevant descriptors, Fiverr sellers can decide on their pricing and their promised delivery times for their gig.

To help sellers be more flexible with their services, Fiverr allows them to offer distinct packages with tier-based pricing. The basic tier starts at $5 with additional charges of $10 and $20 for extra options. Sellers can also offer custom packages with prices up to $20,000.

Each seller has a level, and there are four levels in total. The initial level is ‘New,’ which indicates that a seller recently started offering their services on Fiverr. For Level 1, they must be active for at least 60 days and complete a minimum of 10 orders while maintaining an average rating of 4.7 or more.

By segmenting sellers into four levels, Fiverr gives businesses a quick way to identify reliable veterans with a proven track record. It also means that sellers can’t buy their way to the top by purchasing highlighted ads or premium profiles. To become a top rated seller on Fiverr, one must do a lot of business and consistently score positive reviews from their customers.

For businesses looking to buy gigs on Fiverr, there are plenty of advanced search options and screening methods. This helps a buyer select the best freelancer for their business at a price that works for them. Fiverr also provides a resolution center to help buyers who need to cancel their job or would like a refund.

Before hiring a freelancer, buyers can visit their profile to look at work samples and reviews. Certain freelancers have quality assurance badges that Fiverr awards themselves. Through private messages, buyers can chat with the freelancer and request a custom order.

If a buyer is satisfied with the service provided by the freelancer, they can subscribe to the seller’s service for additional services in the future. Each subscription can last up to six months. Sellers can also update the terms of the job based on their changing needs or to set a more flexible payment schedule.

For those running larger projects with multiple team members in need of seamless communication, there is Fiverr Business. Fiverr provides its business-tier freelancers with priority ad listings which makes them more likely to be noticed by high-end buyers. Only vetted individuals can offer their services on Fiverr Business, and they are constantly evaluated to ensure high quality standards.

Fiverr is loved by buyers and sellers around the world for its streamlined user experience. The idea behind the platform is that the market decides the worth of each seller and it’s a self-sorting system where the best eventually rise to the top.

Fiverr maintains rigorous quality standards and offers guarantees to buyers if they are unsatisfied with the services they purchase. That’s why each buyer spends an average of $259 on Fiverr in 2022. That’s a 14% increase year-over-year (YoY) compared to 2021.[4]

Fiverr is also launching new features geared toward professionals and high-end businesses looking to pay more for vetted freelancers. Fiverr’s proprietary rating system ensures higher user retention and engagement.

 

Business Model of Fiverr

Fiverr is based on the concept of Service-as-a-Product (SaaP). Its business model utilizes a centralized platform to host service creation and delivery. Both buyers and sellers can access Fiverr’s marketplace free of charge.

Fiverr makes money through transaction fees. Whenever a buyer places their order from a freelancer through Fiverr, the platform charges a 5.5% service fee. The minimum service fee for any order placed on Fiverr is $2.

Sellers also pay a share of their revenue to Fiverr. Whenever an order is successfully delivered, sellers get 80% of the total money they made. So for every $10 made by a seller upon completion of their gig, Fiverr keeps $2 and transfers the rest to the seller.

Any buyer making a purchase under $50 is charged a $2 small transaction fee. Money is delivered to the seller only upon successful completion of an order. If there is an issue with delivery, the payment made for an order will be refunded to the buyer’s Fiverr balance.

Fiverr ensures rigorous quality control and streamlines the delivery of purchased services to buyers. This ensures a high rate of repeat purchases from the same buyer over a period of time. As a result, Fiverr ensures a stable flow of revenue from its annual cohorts who have been using the platform since 2010.

Each year, Fiverr attracts new buyers by offering good value and a wide selection of freelancers. In turn, these buyers encourage more freelancers to sign up on Fiverr. A flywheel effect is created and everybody gets to benefit from the growth of the marketplace.

Because of its unique bottom-up marketing tactics, Fiverr organically acquires new users. It does so without spending too much money on promotional content and reduces operational costs as a result.

Many Fiverr buyers are regular office workers looking for good value within a given deadline. They usually learn about the service through social media posts or word of mouth. Fiverr’s primary demographic consists of small and medium-sized businesses (SMBs).

Fiverr also has a proprietary liquidity management system. This algorithm tracks transactional data and behavioral patterns for each user over a period of several years.

By creating profiles for each user, Fiverr can deliver personalized matches for both buyers and sellers. On top of this, Fiverr also has a highly advanced rating and trust scoring system that ensures optimal gig quality and reliability.

Fiverr’s machine learning algorithm scans through terabytes of data to ensure that higher-quality freelancers are at the forefront of search results. Buyers will gain a more positive impression of the site when they see properly vetted individuals at the top of their search results. This increases turnover rate, and the amount of money that a buyer is likely to spend on Fiverr.

Satisfied buyers can subscribe to a freelancer’s gig and make repeat purchases for a period of up to six months. This reduces the amount of communicational overhead a buyer has to go through in order to get the same service. It also gives Fiverr a more loyal user who is a recurring revenue source.

In 2021, it was estimated that Fiverr made 59% of its revenue from repeat buyers.[5] US buyers alone account for over 51% of Fiverr’s annual revenue.[6]

To expand its business, Fiverr is constantly rolling out new features. These create additional revenue opportunities through the improved value provided to users. For example, Fiverr has recently partnered with Zoom to offer video conferencing services.

It has also created something called Fiverr Studios. This is a way for businesses to commission large projects. Buyers can select a team of freelancers who are managed by a single, experienced team lead.

Highly vetted specialists spanning multiple disciplines are used to construct the freelancer team. And project developments can be managed from the buyer’s dashboard through an automated process. By providing its Studio service, Fiverr attracts a niche userbase that other freelancing marketplaces don’t have.

Fiverr’s biggest rival is Upwork as they offer similar services. Upwork is considered a more upmarket solution that’s catered towards industry professionals rather than gig workers. While Fiverr has fixed payment tiers for each gig, Upwork freelancers have to bid on job offers.

Bidding allows certain freelancers to undercut others, resulting in a highly competitive marketplace. Upwork also allows sellers to post projects and connect with recruiters. Compared to Fiverr, the marketplace on Upwork is more insulated and restrictive to newcomers.

On Upwork, freelancers use tokens called Connects to bid on projects or jobs. Upwork also offers an hourly payment scheme as opposed to Fiverr which only supports fixed payments for each gig. Freelancers can purchase additional tokens to bid on more jobs.

They can also subscribe to Freelancer Plus which costs $14.99 a month. It provides special features like market insight, customizable profile URLs, and a higher token cap each month. Fiverr doesn’t have a similar feature for its freelancers.

However, Fiverr’s curation and rating algorithms are far superior. It is a more automated and streamlined platform. For buyers, this makes the process of finding the right freelancer for a job much quicker.

Since Fiverr is more accessible, it’s used by more buyers and freelancers. This ensures a more diverse pool of talent with flexible pricing options. Upwork also doesn’t have any service similar to Fiverr Studios or Fiverr Logo Maker.

Fiverr’s business model has significant operating expenses. In 2021, Fiverr generated $297.6 million in annual revenue. But it also spent $291.2 million on research and development, marketing, and general administrative costs.[7]

 

How Does Fiverr Make Money?

Fiverr makes money from two different revenue streams. These are transaction fees and service fees.

Transaction fees

Fiverr charges transaction fees from its sellers every time they successfully complete an order. Transaction fees amount to 20% of the total revenue made by a seller on each gig. That means that for a payment of $100, Fiver takes $20.

That is higher than some other freelancer marketplaces. However, Fiverr offers an incredibly large marketplace to its freelancers that also requires significant operational costs. In exchange for this 20% cut, Fiverr takes care of the automation, product delivery, security, marketing, and infrastructure.

In 2021, Fiverr made $217 million from transaction fees. That’s a 56.1% year-over-year increase compared to the $139 million the company made on transaction fees in 2020.[8]

 

Service fees

Fiverr charges service fees whenever a buyer places their order. Currently, they charge 5.5% of the purchase amount. Meaning, a buyer will pay an extra $5.50 for every $100 that they pay to freelancers. If the order amount is below $50, Fiverr also charges a $2 small transaction fee.

Fiverr made $80.6 million in service fees in 2021. That’s an increase of 59.6% year-over-year compared to the $50.5 million the company made on service fees in 2020.[9]

 

Fiverr Funding, Valuation & Revenue

Fiverr (FVRR) is currently a public company trading on the New York Stock Exchange (NYSE). The company launched its IPO in 2019 at a price of $21 per share for a valuation of $111 million.[10] As of September 2022, the company’s stock traded for just over $36 for a total valuation of $1.28 billion.

Prior to going public, the company went through eight successful funding rounds and raised a total of $111 million. Well-known Fiverr investors include ION Crossover Partners, Bessemer Venture Partners, Cerca Partners, and Square Peg Capital.[11]

Fiverr’s annual revenue has been climbing steadily for the past few years. In 2021, the company generated $297.6 million in annual revenue. This is up 57% from the $189.5 million they made in 2020.[12]

YearTotal RevenueNet Profit
2019$107 million($33.5 million)
2020$189.5 million($14.8 million)
2021$297.6 million($65 million)

 

Is Fiverr Profitable?

Fiverr is not yet profitable. Its annual revenue has been on the rise in recent years, but the company has yet to turn a net profit. In 2021, Fiverr had a net loss of $65 million. That’s much more than it lost in 2020 when the company only saw a $14.8 million loss.[13] 

The reason behind Fiverr’s losses is the company’s significant operating expenses. Their cost of revenue as a percentage of net revenue went down slightly from 17.5% to 17.4% in 2021 compared to 2020. However, the company also spent more money on operating expenses overall.

In 2021, research and development cost Fiverr $26.6 million. They also spent $53.5 million on sales and marketing expenses and $17.7 million on administrative costs.[14]

Nevertheless, Fiverr is steadily increasing its pool of return customers. Fiverr is also investing in premium services like Fiverr Studio, which attracts higher-paying customers by providing services for larger businesses. As a result, there is hope that Fiverr might become profitable in the future.

 

Conclusion

So there you have it—the business model of Fiverr, and how it makes money. We’re glad you’ve read this far, and we hope you’ve learned a lot about Fiverr and what it takes to be successful in the gig economy!

Fiverr’s future looks bright as they continue to grow as an online marketplace for freelancers and small businesses alike who need help with creative tasks such as graphic design, video production, writing, etc.

The company also continues to invest heavily in marketing efforts to increase awareness of their brand among potential customers around the world, including those in emerging markets

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