Boom!
Last weekend, Gumroad — one of the web’s oldest and most popular platforms for selling digital goods — announced to triple its fee for top creators.
It started with a short email from Gumroad CEO Sahil Lavingia, in which he stated that he would raise the fee to 10% for all creators using Gumroad.
To understand why this is a huge problem, you have to look at the old pricing structure of Gumroad:
- 9 % fee for earnings between $0 and $1,000
- 7 % fee for earnings between $1,000 to $10,000
- 5 % fee for earnings between $10,000 to $100,000
- 3 % fee for earnings between $100,00 to $1 million
- 2.9 % fee for earnings beyond $1 million
All those tiers included the credit card processing fees, while the new fee of 10% is excluding those processing fees which average around 2-3%.
Until now, as a top-tier creator, you paid only for those fees.
This made Gumroad the cheapest and most competitive platform for selling all kinds of digital goods.
Sahil’s decision changed everything overnight.
Suddenly Gumroad became the most expensive platform in its niche
No wonder some creators immediately predicted Gumroad’s imminent death.
Gumroad will die.
I hope.
Evolution is relevant to businesses just as much as it is to living beings.
Evolve or die.
Gumroad started as a lazy business.
Stayed a lazy business.
And will stay a lazy business.So it’ll die.
I hope.
— George Ten (@GrammarHippy) December 17, 2022
George is over-dramatic hear. Gumroad will survive, but it will certainly lose a large chunk of its top creators.
These are the people responsible for Gumroad’s success. They stayed loyal to the platform and promoted Gumroad within their fanbase despite the existence of dozens of technically superior alternatives.
Sure.
Most small creators don’t care much about fees: Paying 5% or 10% doesn’t make a huge difference if you are just earning a couple of hundred bucks per year.
But for someone making 100k a year, this literally means 10k more in only fees for no additional return.
My initial thoughts on the @gumroad price increase:
The 10% flat fee "no longer includes credit card processing fees", which means it's more like a 12.9% fee to sell on the platform.
We do ~$100K/mo in sales, so this would make our fees go up to roughly $13,000/mo. pic.twitter.com/kgNZDts3K5
— Thomas Frank (@TomFrankly) December 18, 2022
This is enough money to build your own digital exosystem, or at least to justify the migration to an alternative platform.
Why did Gumroad increase fees?
It’s the economy, stupid.
Before recent interest rate hikes, businesses could thrive without making money from actual customers.
Times have changed, and Gumroad was not generating enough money. That may come as a surprise to some people, because as recently as November 2022, Gumroad was boasting about making a new record amount of money in a single month.
In November, Gumroad creators set a new record for how much they earned in a single month: $16.97M.
Congratulations to all 27,343 of you!
— Gumroad (@gumroad) December 6, 2022
Impressive! Unfortunately, Gumroad was only able to keep a small portion of that money for itself.
In November we helped creators earn $17M and had a net income of $54K. That wasn’t sustainable for us in terms of retaining a great team that could ship a world class product for our creators.
— Sahil Lavingia (@shl) December 17, 2022
According to Sahil Lavinga, Gumroad’s net income as of November 2022 was just $54,000. This obviously isn’t enough to pay for a professional development team, and could also explain why Gumroad doesn’t currently have a full-time staff.
In my opinion, raising the price of the product was the right choice. Yet, tripling the price for the most loyal customers will backfire.
Gumroad is not a monopolist. Most people use it out of convenience, not because the platform offers something unique.
In fact, there are already dozens of competitors battling over market shares in Gumroad’s niche. Some of them do even a better job than Gumroad at providing a powerful environment for digital creators.
So, if you are thinking about moving your digital products from Gumroad to a different platform, now is the right time. However, there is something you should consider!
2 things are certain death and taxes
In the case of digital business, we need to deal with the VAT (Value Added Tax, occasionally also Sales Tax). This is a tax that most countries add to every sale of goods or services.
While the internet makes it easy to sell to anyone worldwide, the bureaucracy still lives in the world of the past.
I've seen a lot of confusion around the recent @gumroad pricing and alternatives
The biggest, most overlooked issue?
Gumroad is a Merchant of Records (MoR)
And switching to a different provider who isn't a MoR might create a huge legal issue for your business
Here's why
— Matthias 🔥 I help you waste less time (@MFreihaendig) December 19, 2022
As explained by Matthias, Gumroad acts as a Merchant of Records. This means that legally when you sell your product via Gumroad, you first sell to Gumroad, and then Gumroad sells to your customer. This way the platform is responsible for:
a) calculating the correct VAT
b) collecting it from the customer
c) reporting it
d) paying it to the respective government
Chances are, like most people, you won’t.
As long as your income is small, that might not be a huge issue. However, while optimizing your tax rate within the legal framework is always advisable, not paying them illegally is never a good move.
So, when you are switching to a platform that is not acting as a Merchant of Records, you better learn a lot about international sales taxes quickly.
Alternatively, you can also hire an accountant who is doing the tedious work for you. Most big sellers will probably choose this option, but if this is too expensive for you, I would recommend staying on a platform that is acting as a Merchant of Records.
With that important warning, we now come to the heart of this article.
The 12 best Gumroad alternatives
In the following, I have compiled a list of the 12 best Gumroad alternatives.
To make comparing the different options easier, I am
- displaying the fee structure of each platform
- showing if it is acting as a Merchant of Records.*
1. Whop
Whop is a new and (according to the website) fast-growing marketplace for internet businesses to sell access to their product.
- Merchant of Records – No
- Pricing – 3% fee
- Website: dash.whop.com
2. Lemon Squeezy
From their website:
“Lemon Squeezy is the all-in-one platform for running your SaaS business. Payments, subscriptions, global tax compliance, fraud prevention, multi-currency support, failed payment recovery, PayPal integration and more. We make running your software business easy peasy.”
According to the information on the website, Lemon Squeezy is also trusted by thousands of companies in more than 100 countries.
They also state:
“As your merchant of record, we handle the tax compliance burden so you can focus on more revenue and less headache.â€
This and the current fee of 5% + 50¢ makes them an attractive Gumroad alternative
- Merchant of Records – Yes
- Pricing – 5% + 50¢ *
- Website: www.lemonsqueezy.com
3. Flurly
Flurl promotes itself as “the easiest way to sell digital products online. List your first product in under a minute and keep 99% of what you make after payment processing fees. No monthly fees either.â€
Sounds fantastic, but besides the 1% fee, you still have to pay the processing fee for Stripe, which will add up to a total fee of 4-5%. This is still low, but Flurly is not acting as a Merchant of Records.
- Merchant of Records – No
- Pricing – 1% + Stripe Fee
- Website: flurly.com
4. PayTable
Paytable lets you easily add a members area to your site to sell secure access to Airtable. This way you can pretty much sell any form of stored or saved content that could be of value to your audience. The pricing is good, but unfortunately, also PayTable is no Merchant of Records.
- Merchant of Records – No
- Pricing – 2% + $29-119 per month
- Website: paytable.io
5. ConvertKit
ConvertKit is the go-to marketing hub for creators that helps you grow and monetize your audience with ease. Besides allowing you to sell products, the platform also allows you to run paid newsletters a la substack, and it acts as a Merchant of Records. This makes it one of the most attractive platforms for creators this year.
- Merchant of Records – Yes
- Pricing – 3.5%+30c + $0-25 per month
- Website: convertkit.com
6. Sellfy
This is another easy-to-use eCommerce for creators. Unfortunately, while Sellfy is handling the technical part, it is also not helping you with taxes.
- Merchant of Records – No
- Pricing – No transaction fees, no hidden costs but monthly subscription costs between $19 and §159
- Website: sellfy.com
7. PayHip
Another all-in-one platform with everything you need to start, scale and manage your business.And the best? They report and pay digital EU & UK VAT.
- Merchant of Records – Yes
- Pricing – 5%, 2%, 0% Fee + $0, $29, $99 per month (+ Paypal/Stripe Fee)
- Website: payhip.com
8. Paddle
Paddle promotes itself as the complete payments, tax, and subscriptions solution for SaaS
B2B and B2C software companies around the globe use Paddle to offload operational complexities so they can focus on growth
- Merchant of Records – Yes
- Pricing – 5% + 50¢
- Website: www.paddle.com
9. Stripe
Stripe’s products power payments for online and in-person retailers, subscription businesses, software platforms and marketplaces, and everything in between.
No matter, which marketplaces and platforms you use, most payments will be done with Stripe. You could use Stripe directly as a payment method and thereby avoid any marketplace fee, but in this case, you don’t have a merchant of record.
- Merchant of Records – No
- Pricing – 1.4-2.9% + 0.25$
- Website: stripe.com
10. Etsy
Everyone and your mom know Etsy as a marketplace for handmade products. Few know that you can also sell your digital products on the platform. This makes it a viable alternative to Gumroad. I personally wouldn’t recommend using Etsy exclusively, but it can definitely be a side platform for your online business. Another benefit of Etsy is that it’s a real marketplace, which can drive a lot of traffic to your listings if you optimize them properly.
- Merchant of Records – Yes
- Pricing – $0.20 USD per listing + 6.5% per transaction
- Website: www.etsy.com
11. Shopify
Shopify is a user-friendly e-commerce platform that helps small businesses build an online store and sell online through one streamlined dashboard. Of course, it can also be used for selling digital products. If you want to build your own platform, setting up a Shopify store is the easiest thing you can do!
- Merchant of Records -No
- Pricing – $1-289$ p.m. + Stripe or Paypal fees
- Website: www.shopify.com
12 Woocommerce
Woocommerce transfers your WordPress website into a fully functioning e-commerce store. It is customizable and open-source. Today, WooCommerce powers more than 25% of eCommerce stores in the top 1 million sites worldwide. besides Shopify, it is the most popular e-commerce solution on the web.
- Merchant of Records – No
- Pricing – (Stripe or Paypal fees) 1.4-2.9% + $0.25-0.30
- Website: woocommerce.com
Conclusion
Let’s be frank. If you earn less than 5 k per month on Gumroad, you should better not switch to another platform right now.
Better wait till the dust settles.
A lot of Gumroad alternatives promote their product at the moment Many of them are suboptimal long-term Also, don’t underestimate the Merchant of Record issue
For the small sellers, it’s better to stay calm and observe You don’t want to move the platform twice!
We’ll soon see on which platform most of the big sellers will end up. They will decide who will be the new Gumroad soon.
*This article is for entertainment purposes only. All data in this article was checked on 19.12.2022. I am not guaranteeing the accuracy of the displayed information. Please do your own research, or hire a lawyer for all legal questions.
