The Hidden Cost of Faire and Other Marketplaces
Love it or hate it, Faire is the dominant wholesale marketplace. Some brands love the simplicity of Faire and other marketplaces, seeing them as a way to automate their wholesale channel despite the cost. Others are growing increasingly frustrated. Not only are the fees high, but Faire seems to be rolling back some of the promotions that made it so attractive in the early days (free shipping anyone?).
You may be thinking “what’s so bad about Faire? They take care of everything!”
There is nothing bad about Faire per se–however, let’s break things out by the numbers so you can see the true cost of working with marketplaces:
Surprisingly, two of the biggest benefits (complimentary financial fees and net-60 terms) make up only 4% of the total 15% fee. That means Faire is keeping the other 11%.
What else could you accomplish with that 11%? Brands we speak to say they’d:
Reinvest in R&D
Ramp marketing
Build cash reserves
I’m sure you can think of other ideas.
The Hidden Cost
However, it’s not just about the fees. With Faire, you lose your direct line of communication with the retailer. Having a direct line of communication or “owning” the customer means that you can develop a stronger relationship with the customer over time, which likely will translate into you being able to grow your business. Not owning the customer creates hidden costs over time:
Uh oh. We went from a 15% cut of your revenue to 25%!
In all honesty, the 10% hidden cost estimate is probably an underestimate. However, brands see Faire as a net positive since it increases revenue overall (in theory). We think brands are willing to eat the fees – and hidden costs – because “high fees on something is better than low fees on nothing”.
We challenge that assumption. You can manage this channel outside of Faire – and keep the margin to yourself.
I’ll repeat, what could you accomplish with 21% higher margins (25% margin minus the ~4% Faire benefits)
So you’re telling me to ditch Faire?
No! However, we think you should limit Faire where you can and start building more direct relationships with retailers from the outset.
Our suggestion is to make use of Faire’s initial benefits (free shipping, net 60 terms) for a year. But over the course of that year, develop a personal relationship with your retailers on Faire and try to move towards owning the retail relationship after the year is up, off of the marketplace. This will translate into you having a stronger relationship with your retailers, while potentially earning significantly more profit for your business.
If you’d like to talk to us about what you are seeing and experiencing on Faire, feel free to reach out to us, as we’d love to learn more about your business!
