How Does OfferUp Make Money? Business Model of OfferUp


How does OfferUp Make Money

OfferUp is a popular online marketplace where people post ads and sell new and used products directly to other users. Unlike some of the company’s competitors, it was designed specifically for mobile.

OfferUp is a consumer-to-consumer (C2C) marketplace where users can buy or sell new or used items to each other. The company makes money via fees paid by sellers, advertising, and selling a software solution to car dealers.

Founded in 2011 in Bellevue, Washington by Nick Huzar and Arean Van Veelan, the online marketplace was conceived as a competitor to Craigslist, the popular online classifieds site.

Huzar originally launched a company called DealSpringer in 2010 where a user could add a photo of a deal they found and share it with anyone close by. However, people used the app to share things they were selling themselves. That led to a shift in the business strategy and the creation of OfferUp.[1]

What is OfferUp & How Does It Work?

OfferUp is a mobile-based local marketplace that competes with companies like Facebook Marketplace and Craigslist. They launched with a goal of providing a better and safer marketplace app experience.

The mobile-first application makes it faster to post an item for sale. You simply take a photo on your phone and quickly upload a post explaining what you’re selling. Everyone on the app has a profile where people they buy or sell to can rate them. This feature was added in response to issues on other local marketplaces where people were robbed or assaulted when they met up to sell someone something.

With OfferUp, you don’t need to share your personal email, phone number, or social media account with potential buyers or sellers. You can communicate with other users right in the app. Unlike sites like Crasgslist, you can also block sellers and report them if you believe they have violated OfferUp’s terms of service.

OfferUp also recommends that users be verified. This program, called TruYou, requires that users share their phone numbers, a scan of an identification card, and a selfie with the company to confirm that they are who they say they are. People who are verified by this program get a badge added to their profile.

Other users then know that the person they’re meeting up with has been verified as the person they’re claiming to be. In addition, they know that if anything goes wrong when they meet up with them, OfferUp will have that person’s identifying information.

The app’s design is more intuitive and attractive than other marketplace apps. The app has a Pinterest-like photo interface where you can search for products or browse visually. That increases the amount of time people spend browsing products on the site.

OfferUp also suggests community meetup spots to users to reduce the chance of harm when someone meets you at your home. They choose bright spots that are well lit, located in front of or inside a police station or at a supermarket, and clearly marked with signs as an OfferUp meetup spot. The company currently has over 1,000 designated meetup spots in communities across the United States.

OfferUp also offers a service that many local marketplaces don’t offer: the ability to ship an item to a buyer who is not local. In this case, people from outside your area can find the item that you’re selling. They can then make an offer and pay for the item and shipping via the app.

In 2020, OfferUp merged with LetGo, a competitor in the mobile local marketplace space. The joint company merged LetGo’s U.S. business under the OfferUp umbrella and kept the LetGo brand name in countries where OfferUp hadn’t launched in such as Sweden, Brazil, and Italy.[2]

OfferUp had around 20 million monthly active daily users and 90 million app downloads as of 2021.[3]

 

Business Model of OfferUp

OfferUp has a few different revenue streams. Their business model brings together some popular monetization strategies commonly deployed by other types of companies with popular monetization strategies commonly deployed by local marketplaces.

First, OfferUp follows the free online classified business model first created by Craigslist. That involves offering free classified ads to facilitate a C2C local consumer marketplace. This is a freemium model where they give away a service in order to get a critical mass of people using it.

OfferUp monetizes sales that have to be shipped but charges no fees when a seller and buyer meet up and exchange the item in person. As OfferUp also handles the processing and shipping logistics with this option, the company is adding a value-added service by connecting buyers and sellers outside their local communities. In that way, OfferUp’s business model mirrors Ebay’s business model.

Another part of OfferUp’s business strategy is to monetize their customers with advertising. Sellers can buy a promoted listing to ensure their item is listed high up in the search results. This is something that people trying to quickly sell something because they’re moving or people selling high value items are willing to pay for.

This is a similar monetization strategy to Amazon’s promoted products where sellers can similarly get prime search result placement by purchasing ads.

Another way OfferUp monetizes their app is by targeting car dealerships listing new and used cars on their site. They have a Verified Dealer Program that helps auto dealers improve their sales on the site with advertising tools, lead targeting software, and other features.[4]

Craigslist, an OfferUp competitor also monetizes car dealers but does so by charging for postings from dealers. In contrast, OfferUp offers the dealers valuable tools to help them increase their sales on the platform.

Ultimately, OfferUp has focused their business strategy around being an easier to use and safer alternative to sites like Craigslist. However, that has not fully protected buyers and sellers from being attacked, even with the precautions that the company put in place. For example, in 2020, a teenager was brutally attacked and had his car stolne during an OfferUp meetup to sell a car.[5]

OfferUp’s main competitors might be Craigslist and Facebook Marketplace. However, the fact that the app facilitates non-local sales makes its business model also similar to Ebay or specialty marketplaces like Poshmark, Depop, Etsy, and Nextdoor.

OfferUp is a private company and does not release their financials. While the company is estimated to have annual revenue of around $89.1 million per year, the company also has considerable expenses.[6] These include things like staffing, hosting, platform, and development expenses.

Due to the lack of data on OfferUp’s financials, it is unclear how profitable OfferUp’s business model is.

 

How Does OfferUp Make Money?

OfferUp makes money in four different ways. These include fees from sellers, promoted listings, the company’s Verified Dealer Program, and advertising.

As OfferUp is a private company, details about how much revenue they generate from these different revenue streams aren’t public.

Seller Fees

OfferUp charges sellers fees when they sell something that needs to be shipped. Sellers pay a service fee when shipped items are sold. That fee is either 12.9% of the sale price or a minimum of $1.99. The buyer then pays for the shipping costs after the shipping label is created. Sellers also pay a service fee for shipping items. This fee is a percentage of the item’s full price.

Sellers are given a quote of this rate when they list their item but it isn’t calculated until they accept an offer. Not all items can be shipped. They must be under 20 pounds and fit into one of OfferUp’s predefined box sizes.[7]

 

OfferUp allows sellers to promote their listings in order to sell their items faster. They estimate that promoted listings get 14 times the views as non-promoted listings every day.[8] When an item is promoted, it is featured in the top 50 items in a search, browse, or category results. That makes the item easier for buyers to find.

Sellers sign up to promote their item for a set length of time. Most sellers usually choose to promote their item for one to three days. Sellers can also create a Promote Plus listing that allows them to create ongoing promotions and have more options.[9]

Not all items can be promoted. If the item does not have a Sell Faster button at the bottom of the screen, they will not be able to promote that item via a promoted listing. OfferUp does not say how much a promoted listing costs. This might be because the price ranges depending on the item and location.

 

Verified Dealer Program

OfferUp offers support for car dealerships on its platform via its Verified Dealer Program. The program is aimed at helping dealerships sell cars faster. Membership gives dealerships a suite of tools that help them generate leads.

It also allows dealerships to list their vehicle inventory automation from their DMS provider, gives them increased visibility through advanced advertising options, streamlines communication with prospects, and alerts them to buyers who are shopping for cars of a similar make or model as the ones the dealer is selling.

The cost to the dealership depends on the size of the dealership.

 

Advertisements

OfferUp offers local advertising to businesses in OfferUp’s markets. Their ads start at as little as $15 per day and allow companies to target buyers and sellers based on location, keyword, and category.[10]

It is unclear how much OfferUp makes on third-party advertising.

 

OfferUp Funding, Valuation & Revenue

OfferUp is currently a private company whose financials are not publicly available. It is also unclear what the company’s valuation currently is.

However, OfferUp had raised $381 million in venture capital funding during 9 funding rounds. Notable investors include Andreessen Horowitz, GGV Capital and Pobts.[11] The company’s last disclosed valuation was $1.4 billion when it raised money in 2018.[12] While the company has continued to raise money, it has not disclosed its valuation.

It has also been estimated that OfferUp makes around $89.1 million a year in revenue.[13] Whether that number is accurate or whether OfferUp makes far more than that isn’t clear.

 

Is OfferUp Profitable?

OfferUp is likely not yet profitable. The company is still private and does not disclose details of their financials. However, it was estimated that the company makes about $89.1 million a year.[14]

As OfferUp is still in the midst of expanding their markets and increasing their revenue, it is likely the company is not yet profitable since it is prioritizing growth. In the company’s last funding round in 2020, it raised $120 million to merge with LetGo, one of their direct competitors.

The fact that the company hasn’t raised money since suggests that it is generating enough revenue independently to extend its runway for a while after each funding round. It could also indicate that the company has become profitable, but that cannot be confirmed.

 

Conclusion

As an online mobile-first C2C marketplace, OfferUp is able to connect buyers and sellers in a much more fluid way than traditional eCommerce platforms.

This helps individual buyers and sellers find each other with ease, and because of the relatively low commission rates (between 10-15%), it also makes this type of marketplace a viable option for small businesses and entrepreneurs.

In addition, OfferUp takes care of the shipping process – all you have to do is make sure your item is available to be sold!

Thank you so much for reading this article about how OfferUp makes money. We hope it was helpful and informative! If you liked what you read, we encourage you to share this with your friends and colleagues.

And if you have any questions, comments, or suggestions, please feel free to reach out!

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Sources

  1. Seattle Times
  2. CISION
  3. eCommerce Bytes
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  5. Q13 Fox
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  7. OfferUp
  8. OfferUp
  9. OfferUp
  10. OfferUp
  11. Crunchbase
  12. Retail Touchpoints
  13. Grow Jo
  14. Grow Jo