The Fiverr Business Model – How Does Fiverr Make Money?

Executive Summary:

Fiverr is platform for freelancers. Interested buyers can purchase services for as low as $5 in categories such as programming, graphic design, video editing, and many others.

Fiverr makes money from service and transaction fees, software subscriptions, as well as course sales. It operates on a marketplace business model.

Launched in 2010, the company has become an immediate success with buyers and sellers alike. The continued growth led to its IPO in 2019.

How Fiverr Works

Fiverr is an online marketplace where freelancers can advertise their services to interested buyers. The company claims to be the “world’s largest marketplace for digital services”.

Services offered on Fiverr are called a Gig. The price for a Gig is set by the seller. Furthermore, sellers can offer so-called Gig Packages, which include different levels of service at different price points.

Freelancers on Fiverr offer a variety of services, including:

  • Programming
  • Graphic Design
  • Writing & Translation
  • Video Editing

… and many, many more. Before purchasing a service, buyers can read through a seller’s profile to see which types of services they offer at what price, examples of their work, ratings from previous buyers, as well as how many projects are currently in queue.

If there are any outstanding questions, users can get in contact with service providers. As the operator of the marketplace, Fiverr will take care of the payment process as well as making sure that the best service providers are shown for a given search query.

how fiverr works
fiverr.com

If buyers are interested in higher-quality services, they can opt into Fiverr’s Pro Services. Pro sellers need to go through a Fiverr-organized vetting process to assess aspects such as education, professional skills, and past projects.

Apart from serving individual customers, Fiverr also connects companies with freelancers through Fiverr Business. In the past, it has worked with organizations such as Unilever, L’Oréal, and more.

Both buyers and sellers can, furthermore, educate themselves by purchasing a course on Fiverr.

Fiverr can be accessed by visiting the company’s website or by downloading any of its mobile apps (available on Android and iOS devices).

A Short History Of Fiverr

Fiverr, headquartered in New York City, was founded in 2010 by Micha Kaufman and Shai Wininger. The pair had run successful online businesses prior to starting Fiverr.

The idea of starting Fiverr was based on the observations the founders made in the e-commerce world. Amazon and eBay were starting to hit worldwide scale, but marketplaces for professional services were still a rarity.

Furthermore, the effects of the financial crisis were pushing a lot of their peers into unemployment. The pair saw an inherent need for people to have more flexibility when it comes to their work.

Overnight, they coded together a very basic version of what later became Fiverr. Instead of pitching the product to investors or the media, Kaufman and Wininger stuck to promoting it within their inner circle.

The platform quickly grew in awareness, primarily due to word-of-mouth. One of the site’s major appeal was its low price point – customers were able to buy services for as little as $5. And if you haven’t guessed it by now, this is what Fiverr’s name is based upon.

fiverr company history
Wayback Machine

While the low price point became a great and fast way to attract and grow the company’s user base, it became evident later on that it wasn’t necessarily sustainable.

After much criticism from both freelancers and the media alike, Fiverr removed the $5 price restriction and gave sellers the opportunity to price services according to their liking.

With the added price flexibility, Fiverr quickly grew into one of the world’s largest platforms to hire freelancers. By 2014, the company had amassed millions of users on its platform.

A year later though, they had to face another blowback. Wininger, who led the company as CTO, left Fiverr to focus on a new project he had built: Lemonade Insurance.

But even without Wininger, the company continued on its path of growth. This included adding new features such as Gig packages or Fiverr Pro as well as expanding into new countries to serve local markets.

The continued growth resulted in the company’s IPO in June 2019, which allowed it to raise another $111 million. The next year, in 2020, would prove to be Fiverr’s most important year to date.

The coronavirus pandemic not only led to lockdown measures across the globe but forced millions of people into unemployment. It also affected the way employers think about remote work, with many becoming more and more comfortable to hire workers online.

As a result, adoption of Fiverr’s services literally skyrocketed. To take advantage of the remote work trend, Fiverr decided to launch its Business segment in September, which would aid employers in finding suitable freelancers.

Its growth and revenue acceleration also enabled Fiverr to make some hefty acquisitions. In 2021 alone, it acquired three business, namely Working Not Working (February), CreativeLive (October), as well as Stoke (November). For Stoke, which lets companies manage their freelance teams, Fiverr churned out a whopping $95 million.

How Does Fiverr Make Money?

Fiverr makes money from service and transaction fees, software subscriptions, as well as course sales.

The business model of Fiverr is operating an online marketplace. The more buyers its marketplace can attract, the more services sellers will offer. That, in turn, attracts more buyers again, which is known as the flywheel effect.

With more services being offered, the overall quality of Fiverr’s marketplace improves (as sellers compete against each other for the top spots).

Additionally, Fiverr makes sure to improve the quality of its sellers by providing them with a variety of tools, such as online courses or accounting software.

Let’s, therefore, take a closer look at each of the company’s revenue streams in the section below. The analysis will exclude revenue generated from its other businesses such as Working Not Working.

Service & Transaction Fees

The vast majority of the revenue that Fiverr generates comes from the service and transaction fees it charges to both buyers and sellers.

Sellers are charged a transaction fee of 20 percent. For instance, for an order worth $50, the seller then gets to keep $40 while the rest goes to Fiverr.

Buyers pay an additional 5 percent in service fees. To stick to the above example, the above order would then amount to $52.50, with $2.50 going to Fiverr.

As with any online marketplace (for instance including its competitor Upwork), Fiverr’s goal is to surface the best possible services for any given search query. Therefore, any two-sided marketplace (consisting of buyers and sellers) needs to ensure having enough supply (in this case amount of services offered) to fulfill a buyer’s need.

Furthermore, by taking care of the payment process as well as the promotion of services, Fiverr minimizes the amount of friction when hiring a freelancer.

Prior to the purchase, any interested buyer can already see how well the service is rated, which types of services are offered, and when to expect them. This removes a lot of the uncertainty that is present when hiring a freelancer online.

Additionally, sellers will be able to tap into a pool of millions of buyers while not having to worry about the money hitting their bank account (as Fiverr services have to be paid upfront). Additional benefits include dedicated support from Fiverr, automated invoicing, or dashboards to track revenues.

Fiverr has since expanded its offering to promote both repeat purchases as well as target business customers.

In September 2020, it launched its Business segment, which allows companies to tap into a pool of vetted freelancers to have their tasks completed. Apart from the service and transaction fees, Fiverr monetizes that service by charging companies $149 per year for teams of up to 50 users.

A few months later, in February 2021, it then introduced Subscriptions, which allows customers to work with their favorite sellers on an ongoing basis.

Software Subscriptions

Naturally, many of the sellers on Fiverr’s platform tend to grow alongside the platform (remember the flywheel effect).

As a result, some of them are able to build major businesses that employ multiple employees.

Fiverr has developed Workspace, which helps business owners run their companies and handle dozens of client requests at the same time.

There is a Free as well as Unlimited tier available. The Free tier offers a limited number of features, such as seller integrations, ready-to-use contracts, or payment processing.

Unlimited, which costs $24 per month (or $216 per year) extends that by providing sellers with editable contracts, business analytics, priority support, custom-branded documents, and many more.

Providing sellers with a variety of additional tools increases the robustness of Fiverr’s platform. Normally, sellers would be incentivized to leave the platform as soon as they’ve built up a recurring client base due to the fees charged.

However, taking the hassle out of client and business process management does give them a greater incentive to stay on due to time savings (which then can be used to serve more clients).

Course Sales

Lastly, both buyers and sellers can purchase a variety of online courses that are hosted by top performers in their field.

Example courses include tips on viral marketing strategies, how to create high-converting landing pages, or how to master Facebook ads.

Fiverr does not publicly specify how much of the proceeds from its course sales go to the creator versus the platform.

Fiverr Funding, Valuation & Revenue

According to Crunchbase, Fiverr has raised a total of $111 million in six rounds of venture capital funding. Investors into the company include the likes of Accel, GC Capital, Bessemer Venture Partners, Qumra Capital, and many others.

Fiverr raised another $110 million after its IPO in June 2019. Back then, the company was valued at $800 million. Today, its valuation has risen to about $4.3 billion.

For the fiscal year 2020, Fiverr reported annual revenues of $189.5 million, a 77 percent increase from the year prior. However, the company still posted losses of $14.8 million over the same time period.

Hi folks, my name is Viktor! By day, I lead a tech team of 10 for an e-commerce startup. At night, I work on expressing my weird thoughts through this blog. And if there's time, I cuddle my cat..