How Does OfferUp Work: Business and Revenue Model Revealed

How Does OfferUp Work? Business And Revenue Model Revealed

2177 Views | 7 min | Published On: February 12, 2022 Last Updated: February 22, 2022
how does OfferUp work

Everyone wants to make room for new things by taking out the old ones. This is the idea that OfferUp – one of the most popular buy and sell platforms in North America – resonates with. Read further to find out how does OfferUp work.

OfferUp allows its users to sell their already-used or second-hand products to someone who needs it. It is the first mobile application for a C2C marketplace where users can buy or sell products. The app enables the exchange of things like furniture, clothing, automobiles, etc. 

After acquiring LetGo, OfferUp has just gotten better. Seeing the achievements of OfferUp, many business owners are planning to build an app like OfferUp or LetGo with better USPs and business models. If you are one of those, we are here for you! Read further to know what OfferUp is and how it works, the OfferUp business model and what you can learn as an entrepreneur from OfferUp’s success.

OfferUp Stats & Facts: Funding And Other Milestones

OfferUp has achieved so much to date and it has also been listed in the Top 50 most downloaded free apps on Apple Appstore and Google Playstore. OfferUp announced on March 25, 2020, that they had acquired their competitor LetGo and raised $120 million and later on August 31, 2020, the merger happened.

Let us look at some quick facts about OfferUp:

  • Founders: Nick Huzar and Arean Van Veelen
  • Launched In 2011
  • Headquarters: Bellevue, Washington
  • Number of App Users: More than 20 million
  • Industry: Marketplace, App
  • Company Valuation: $1.4 billion
  • Total Funding Amount: $381 million in over 10 rounds

OfferUp has raised a total amount of $381 million through funding and currently, it has around 100 million application downloads. OfferUp has raised funding from various investors like Allen & Company, T. Rowe Price, Warburg Pincus, Tiger Global Management, GGV Capital, Andreessen Horowitz and various others. Have a look at the success timeline of OfferUp:

how does offerup work- success timeline

The Inspiring Success Story Of OfferUp

The story of OfferUp started in June 2012. OfferUp was an improved version of Craigslist, which is a platform that offers personal advertisements, job ads, ads for pets, cars, and many other things. OfferUp has always marketed itself as a more user-friendly and safe marketplace.

Nick, the CEO of OfferUp got this revolutionary idea when his wife was expecting a baby and they had to make room for the new family member. He was not happy with the traditional method of selling items online which was by updating a lot of information about the product. 

At that time peer to peer marketplaces existed but they were fixated on the dot com era. The user experience was poor as users found it hard to navigate the websites on mobile phones. He assumed that for enhanced efficiency, everyone would start using smartphones more, phone cameras would improve, and people would be willing to pay for products directly from their phones. 

This is how the idea of OfferUp struck his mind. 

OfferUp is known to provide the best services in the simplest form. There is no need of filling up pages with advertisements, instead, users can simply click a picture, add a description and list their product for sale. However, the liquidity of this marketplace increased quickly as listing and selling products are free of cost.

Also, watch – The Trends of On Demand Marketplace: Statistics & Future Economy

How Does OfferUp Work: Customer Segment, Value Proposition & More

The OfferUp business model is merely based on charging the sellers on the listings they have updated on the platform and the buyers they have acquired. Here is the business model canvas of OfferUp determining its customer segment, value proposition and many other things that will help you understand how does OfferUp work in a better way:

how does OfferUp work -business model

Along with the business model, you should also be aware of how Offerup works. The game is simple – sellers put up products they have already used and buyers buy them. Let’s dive into it a little more:

  • The sellers registered on the OfferUp platform can upload the images of the item they are selling. Buyers can explore the listings on the platform or they can even search with the help of keywords to find the product they are looking for.
  • Once the buyers find the item they were looking for, they can contact the seller over the application. Both parties can communicate and discuss the deal further.
  • After the fixed price is decided, sellers and buyers can meet to sell or buy the product.
  • Buyers and sellers can rate and review each other’s profiles after the transaction is completed. These reviews and ratings help other users find the most reliable seller on the platform.

Is OfferUp Safe?

The main concern for a user is his privacy and safety. Most people think if OfferUp is safe for them to use and the answer is – YES!

OfferUp uses 5 methods to make its platform safe for its users.

  • The ratings and reviews given by the sellers or the buyers create a sense of trust and social validation. If a seller has a high number of likes then he is observed to be more reliable. In addition, OfferUp displays a seller’s average response time, which serves as a gauge of how active its users are.
  • The company has implemented a TruYou program which asks the users to update their identification card, phone number and also selfie to confirm their identity. If authenticated, the user receives a batch.
  • Users can block the other party if suspected to violate any policies of the platform.
  • OfferUp provides designated locations to buy or sell items when the parties meet in person. These locations include supermarkets, police stations, etc.
  • Unless the buyer confirms that he has received the product correctly, OfferUp withholds the payment from the seller.

OfferUp Revenue Model: How Does OfferUp Make Money?

OfferUp is a huge marketplace that earns money from the products that are sold through the platform. However, the platform is free for the buyers and sellers even though the customers can explore the various product categories on the app like toys, sports equipment, clothing, furniture, etc.

Now that you know how does OfferUp work, let’s discuss how does it make money-

OfferUp revenue model

1. Seller Fees

Usually, local marketplaces charge the sellers registered on their platform a commission fee for every deal they make. When the shipping items are sold, sellers are supposed to pay a service fee. The cost is either $1.99 or 12.9% of the sale price for OfferUp, whichever is greater.

Note – This monetization strategy will only be beneficial if both the parties involved in the deal are offered huge value by your platform.

2. Promoted Listings

Sellers can use the promotion functionality to promote the listings. Buyers can search for their required product by putting the category and subcategory of the product. When a seller promotes a product, it appears in the first 50 results in the search results. It allows them to purchase promotions for a set period, such as a week or a few days.

Merchants can purchase bumps to catapult their products to the top of a feed, and the listing advances the provisions with each new boost received by other sellers. Open-ended merchants can choose to participate in promoting plus. Promote Plus is a monthly subscription service that allows sellers to continuously promote their items.

3. Verified Merchant Program

Currently, OfferUp is responsible for more than 10% of the automobile sales in the United States. Therefore, the company launched a Verified Dealer Program that would improve the visibility of the car dealerships that are actively selling on the platform. 

This program includes a variety of marketing features to help dealerships increase sales, such as an AI-powered top lead indication, a click-to-call button, and automatic DMS imports. Pricing is determined by the size of the dealership’s business as well as the number of premium features employed and is available upon request.

 

4. Transaction Fees

One of the most popular monetization strategies OfferUp uses is charging a transaction fee from its users. Not only OfferUp but various other platforms take advantage of this strategy. When a user pays through the platform a fixed percentage or cost is charged. The execution of this strategy will be a piece of cake with the help of third-party payment integrations like PayPal.

5. Pay Per Use Services

Sellers can use Promote and Promote Plus functionality provided by OfferUp. This allows the product to appear in the top 50 items displayed in the search result and this feature can be purchased for a set period like 2-7 days. 

Usually, Promote Plus is used for continuous or long-term promotions as it is a monthly subscription. Sellers can also buy the Bumps functionality to keep their product at the top of the user’s feed. With each new Bump purchased by other vendors, the listing will slide down the feed. 

6. Monthly Subscription

With a subscription to the Promote Plus feature, sellers can promote their products for the long term and get them displayed in the top 50 items of the search results. 

Simply transfer your promotion to a different item when you need a quick promoter because it is a paid subscription, you have the option to cancel at any time. This useful feature is completely optional, yet it is a very successful way for OfferUp to generate revenue.

Also, read – How Much Will It Cost To Make Marketplace Apps Like OfferUp & LetGo?

Why Is OfferUp Successful: 3 Key Takeaways For Entrepreneurs

To build a revolutionary product, it is important to learn from the mistakes and success of others. Here are some takeaways for entrepreneurs:

1. Anything That Exists Needs an Upgrade

Most people were habitual of updating long descriptions of the product they wanted to sell on Craigslist. Nick faced a genuine problem with the platform and thought of an idea to upgrade it. 

It is not always necessary to come up with a unique idea for your business, you can think of an upgraded version of an existing idea too.

2. Mobile App Is the Key to Customer Communication

The peer-to-peer marketplace at that time was attached to the dot com period. It provided a very poor user experience and made it difficult to navigate. 

The technological advancements in mobile applications have made everything easy. If your business has a mobile presence, it will be available in your customers’ hands at all times. 

3. Deliver What The Customer Wants

Huzar developed the solution to a problem he was genuinely facing and assumed it might be a problem for others as well. No one wants to give so much information about products where he can simply click and picture and upload it. 

As a business owner, you should not only focus on your business objective but also on what your customer wants. Your application should provide ease and convenience to the users.

Conclusion

Building a marketplace that caters the local sellers and customers is a very good idea and it is affordable as well. Now that you know how does OfferUp work, if you plan to create a buy-and-sell app like OfferUp, you must keep the essential flow in mind. Define the core, important features, and other necessary functionalities. 

Consult one of the top mobile app development companies to discuss your business idea today!

 

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