How Does Poshmark Make Money? Business Model of Poshmark


How Does Poshmark Make Money

Poshmark is a popular online marketplace where users buy and sell clothes and accessories. It has a slightly different business model than other online marketplaces.

Poshmark primarily makes money via peer-to-peer sales commissions. However, Poshmark also makes money from shipping fees, boutique clothing sales, and wholesale products sold on the site.

Founded in 2011 in Redwood City, California by Manish Chandra, Tracy Sun, Chetan Pungaliya, and Gautam Golwala, the online specialty marketplace was initially focused on selling fashion for women, men, and children. However, the company later added the ability to sell home good, pet goods, and electronics.

One of Poshmark’s founders, Manish Chandra, had previous experience founding a social shopping site. He created Kaboodle, a bookmarking site where visitors could save home décor that they liked with the intent of purchasing it later. In 2007, Hearst Media bought Kaboodle for $30 million.[1]

Poshmark (POSH) launched its IPO in early 2021. Despite pricing its shares at $42, they began trading at $97.50 per share.[2] The company’s stock has steadily fallen since then. In August 2022, the security traded for just over $10.50 per share for a valuation of $831.1 million.

What is Poshmark & How Does It Work?

Poshmark is a social marketplace focused on peer-to-peer buying and selling. They have a website and also iOS and Android apps. The company claims they have over 80 million active users, with 8 million of them actively selling on the platform.[3] They operate in a number of different markets, including the US, Canada, Australia, and India.

When users sign-up for the platform, they create a user profile, which they call a Closet. They are then asked to share three brands that they like with Poshmark. This helps the company match users with sellers that offer products from those brands. Profiles include personal details, a photo, and a short bio. Users can follow each other so buyers can easily see new items by sellers they like in their feeds.

Sellers can then upload photos of items they want to sell, write a description, and set a price. Listing can have up to 16 photos. Once an item is uploaded, it is then shared with a user’s followers. Buyers can also find it by browsing or searching for items.

Buyers are able to send messages to the seller and ask questions in the comments about the item. Sellers can then answer their questions to ensure they have the information they need to make their buying decision. Buyers can also make offers below the listed price which the seller may or may not be willing to accept.

Poshmark is a social selling app that focuses on shipping products to buyers like Ebay rather than meeting up to exchange items with buyers like with a local classified marketplace like Craigslist or Facebook Marketplace. Thus, when a buyer purchases an item, sellers then need to ship it out.

Poshmark handles the shipping logistics. They send the sellers an email with a pre-paid pre-addressed shipping label. Sellers just need to print it out, package the item, and schedule the delivery. All Poshmark items are sent via priority shipping.

Sellers get the funds from their sale when the item is received by the buyer. Sellers can have their payments sent to them via a check or bank transfer. Or they can keep the money in their Poshmark account to make purchases in the marketplace.

Poshmark manages return requests on behalf of their sellers. They require buyers to let them know they’re requesting a return within three days of receiving the item. They also require that buyers take pictures to show why they are requesting a return. If approved, Poshmark then provides the appropriate return labels to buyers.

Buyers can rate their purchases by giving sellers anywhere from one to five stars. They can also suggest ways the seller can improve such as by improving on seller responsiveness, shipping time, packaging, the item’s cleanliness, or the item’s description. The score is not displayed publicly but shared with sellers to help them improve.

However, that score is used when it comes to deciding who can be in the Poshmark Ambassador program. The program gives sellers more visibility but requires an average rating of 4.5 or above. Poshmark Ambassadors can do things like host Post Parties, host Posh N Coffee events, and speak at Poshmark events. Their closets are also recommended to new Poshmark users when they sign up.

Poshmark is unique among social selling apps in that it also coordinates online Posh Parties. These are real-time shopping events where users can meet up to sell and shop. They host at least 4 parties per day. Each parties is typically organized around a particular theme like a brand or a type of item.

Users can find Posh Party listings in the app. After the party, they can then buy things featured in the Posh Party. This is an effective way to build community and showcase items in sellers’ stores.

Poshmark also hosts some in-person events. For example, they host events called Posh N coffees where sellers meet up locally in order to learn how to be more effective at selling on the platform. Poshmark Ambassadors lead these meetups and provide tips to other sellers on how to increase their sales and improve their business.

Poshmark also offers a styling service. Sellers can sign up to be a stylist and answer buyer requests for different types of items or outfit suggestions for various occasions. Sellers then send recommendations from their own closet or that of other sellers.

Popular items on Poshmark include t-shirts, leggings, tank tops, blouses, sandals, dresses, athletic wear, sneakers, designer items, and accessories.

The site is frequently used by influencers and celebrities to resell clothing they got for free or for a steep discount from partners and companies. For example, actors like Ashton Kutcher, chefs like Rachael Ray, Youtubers like Casey Holmes, athletes like Alex Morgan, and reality stars like Patti Stranger from Millionaire Matchmaker all use the Poshmark to get rid of clothes they no longer want. [4]

There are also stores that specialize in resale that sell on the platform. Some people have even started small businesses where they source clothing at local thrift stores and resell it on the app.

 

Business Model of Poshmark

Poshmark’s business model is that of an online peer-to-peer marketplace. They created a marketplace where individual users and buyers can easily sell items to each other. The company then facilitates that transaction and exchange by managing the shipping and return process.

In this way, they’re more hands-on than selling sites like eBay and Etsy where sellers and buyers need to manage their shipping and returns themselves. However, as part of their commissions-based business model, the site also charges more in commission than those competitors.

The unique thing about Poshmark is how they charge sellers. Unlike many other marketplaces or selling platforms, they don’t charge for listing an item. Instead, they charge a 20% commission on sales. That added expense means that items might be more expensive on Poshmark than in other marketplaces as sellers include the commission in their pricing.

However, the higher fees for used clothing and other items sellers can get on the app is also related to Poshmark’s work in creating a community of fashion buyers and focusing on selling branded merchandise. They have been able to create a resale marketplace where sellers are able to get more money for secondhand clothing than on many other sites.

This is likely because their algorithm explicitly connects buyers with people selling the brands that they love. Their daily Posh Parties and stylist recommendations also help people discover products more easily — selling them faster.

Poshmark also attracts people who sell expensive designer items on the site. As a result, Poshmark has an aggressive counterfeit detection polity. They allow a buyer to dispute an item’s authenticity and review whether the item is a counterfeit. They then refund the full cost of the item to the buyer.

They even have technology that scans their site to try to detect counterfeit items. This technology, which they acquired by purchasing the company Suede One in 2021, currently is best at virtually authenticating sneakers but they plan to expand to more items.[5]

Another unique thing about Poshmark’s business model is that they encourage the creation of community on their selling platform. By being able to follow sellers, meetup in real life, and participate in real-time Posh Parties, they encourage people to forge relationships with sellers.

The fact that the company has also attracted celebrities to sell their items on their app also elevates the status of the service and attract more buyers. The service is likely to benefit from the fact that it’s a reseller in the future as more people consider adopting more sustainable fashion buying habits.

While Poshmark’s business model might be compared to other online marketplaces like Ebay or classified sites like Craigslist, Poshmark is perhaps more similar to a secondhand store that takes consignments. Similar to such stores, Poshmark focuses on curated branded items, some of which are high-priced. Poshmark represents the online evolution of such stores.

While the company generated revenue of $326 million in 2021, Poshmark also has considerable expenses.[6] These include things like operations, research and development, marketing, staffing, and hosting costs. After expenses, the company experienced a loss of $98.3 million in 2021. However, the company previously saw a profit in 2020 of $6 million.[7]

It is unclear if Poshmark’s business model will prove to be profitable in the future.

 

How Does Poshmark Make Money?

Poshmark makes money in four different ways. They are via commissions on peer-to-peer sales, shipping fees, their boutique, and wholesale products sold on the site.

Poshmark does not share a breakdown of their income by revenue stream in their annual report so it is unclear how much they make from each of these monetization strategies.

Peer-to-Peer Sales Commissions

Poshmark doesn’t charge sellers to post an item. Instead, they charge a commission on all sales they make on the platform.

For every sale below $15, Poshmark charges a flat fee of $2.95. For every sale above $15, the company charges a commission of 20%. The flat fee amount varies in their international markets but the percentage is the same.

In return for these commissions, Poshmark handles the financial transaction and provides the seller with a pre-paid shipping label.

This makes it easy for sellers to run their business without having to worry about shipping logistics. However, this fee is much higher than other platforms like Etsy which only charges 6.5% as a transaction fee and $0.20 as a listing fee.

 

Shipping Fees

Poshmark might handle shipping for sellers, but the company charges buyers for those shipping fees. While fees vary by country, in the US, the company charges buyers a flat fee of $7.67 per item.

Orders are shipped via the US Postal Service’s 1 to 3 day Priority Mail service. Buyers purchasing multiple items from one closet can pay a single shipping fee so long as the total order does not exceed 5 lbs.[8]

 

Boutique Listings

Poshmark allows companies to sell new items as Boutique items if they were purchased wholesale or directly from a distributor. These items are being sold for the first time to the public.

Sellers can add a Boutique tag to their listings but must complete Poshmark’s Boutique Certification process to qualify. These items are then marked and marketed differently in the Poshmark app. However, it doesn’t cost anything to set up a Boutique listing and commissions are the same on Boutique items as on other items.

However, Boutique items is a way the company lets retailers and small businesses sell on Poshmark. They are therefore able to steadily increase their listings on the site without having to exponentially attract more sellers. This also gives users with closets that have a lot of followers an extra opportunity to monetize their following.

Wholesalers who reach 10 sales and an average rating of 4.5 or above can get access to Poshmark’s Wholesale Market, where they can buy items. The market features items from hundreds of brands that sellers can purchase and add to their store.

 

Wholesale Sales

Poshmark makes money off items sold by brands or distributors in their Wholesale Market to Poshmark Boutique sellers. Poshmark facilitates these sales similarly to how it does other sales. It takes a commission from the seller and charges the buyer shipping.

This is yet another way for the company to monetize their app. It helps sellers get additional merchandise to monetize their store and followers more effective. It also creates an added revenue stream for the company from wholesalers.

As many sellers procure merchandise off-app to sell on Poshmark, this process allows Poshmark to get a percentage of those wholesale transactions.

 

Poshmark Funding, Valuation & Revenue

Poshmark (POSH) is currently a public company trading on the NASDAQ exchange. As of August 2022, the company’s stock traded around $10.50 with a valuation of $831 million. This is a significant decrease since the company launched it’s IPO when it opened at $97.50 per share.[9]

While the global apparel industry is a $1.9 trillion market, the industry saw a 20% decline from 2019 to 2020.[10] Much of this was due to the COVID-19 pandemic but that has left some investors cautious about fashion stocks.

Poshmark also is still operating at a loss. They’ve had to spend additional money on marketing in order to offset moves by technology companies to protect user privacy.[11] Since its IPO, the company has consistently missed analyst expectations which lead to a sell off of the stock.[12]

Prior to going public, Poshmark raised $153 million in venture capital funding during seven funding rounds. Notable investors include JKH Capital and Menlo Ventures.[13]

Poshmark generated $326 million in revenue in 2021 but posted a loss of $98.3 million.[14] That was a larger loss than in past years despite impressive revenue growth. In 2019, the company brought in $204.9 million in revenue and posted a loss of $47.7 million. In 2020, the company increased their revenue to $261.6 million but had a net income of $18.8 million.

YearTotal RevenueNet Income
2019$204.9 million($47.7 million)
2020$261.6 million$18.8 million
2021$326 million($98.3 million)

 

Is Poshmark Profitable?

Poshmark is not yet profitable. While the company is increasing their revenue steadily, they saw a loss of $98.3 million against revenue of $326 million in 2021. This was after posting a net income of $18.8 million in 2020.

As Poshmark is still in the midst of expanding into new markets in order to, ultimately, increase their revenue, the company seems to be prioritizing growth over profit. [15]

It remains to be seen, however, if the company’s business model will prove profitable or if they will struggle to grow.

 

Conclusion

We hope that this article has helped you to understand how Poshmark makes money, and hopefully, you’ve learned something new about Poshmark. You might have even had some questions answered that you didn’t know you had!

We know that it’s not always easy to find the time to keep up with all the latest trends in fashion, so we’re here to help! We’ll be bringing you more articles about all the latest and greatest things happening in fashion, including how your favorite brands make their money.

If you have any questions about anything we’ve covered in this article, or if you want to share some of your own feedback with us, please let us know!

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Sources 

  1. TechCrunch
  2. CNBC
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  4. Closet Assistant
  5. Ecommerce Bytes
  6. Poshmark
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  9. CNBC
  10. Financhill
  11. Financhill
  12. Financhill
  13. Crunchbase
  14. Poshmark
  15. Poshmark