The New Marketplace Tax

A recent email from CafePress to their shopkeepers notified us of their intention to tax commissions.  “Tax?  Really?  That seems like a harsh word to use, surely they didn’t use that word.”  You are correct, they did not say Tax, they just implied it.  Here is what they plan on doing:

1. Change the pricing in the marketplace on all products so every shop is consistent
2. Any sales derived from the marketplace WILL NOT be given the full markup on top of the base prices established, but instead be given 10% of the final retail price. 

Wait, how is that taxing again?

Let me explain and run through some math.

My shop - Ha Ha Shirt Shop currently has about 10 sales a month with a markup of $5 on each product, so I usually get about $50 a month in commission revenue.  The price point on most shirts is around $20 with that $5 markup.  My Google Analytics puts traffic to my site from Google & Yahoo at around 150 visits per month.  (The number in the pic below is actually 135 for this month)

Google Analytics

 If I do a search for some of the keywords that Google Analytics tells me people are finding my site with, then I see the result is a direct link to my shop.  You would normally assume that this traffic would be counted as a “Shop” sale since it was my masterful descriptions that lead Google to link to my shop directly.   But alas, I have had zero sales counted as “Shop” since the beginning of January (adjusted for direct purchases).  That is nearly 4 months worth of search results sent to my shop specifically that apparently zero sales have been made. (About 520 hits from the Yahoo & Google combined).  Now also, some of those searches were searches for items that I did see sell.  Curious.

Here is where the math comes in.  Since every sale is being counted as “Marketplace”, then it is safe to assume ALL of my sales will no longer achieve the $5 commission.  If we keep the price the same (~$20) and the sales the same (~10/month), then I will receive a commission for the month of about $20 instead of the $50 I had been getting.  10% of the SAME $20 price, is only $2.00.  So even if CafePress doesn’t change the price I have already instituted on my products, they are now getting 3/5 of the markup.  Of course they should already be getting their margins from the “base price”, so now they are going to be charging what I am calling “the marketplace tax“ on shopkeepers.  Of course if they lower the prices, then I would expect even less.  This process is the equivalent of charging a tax to sell through the marketplace.  That tax will only be 60%+ of your commission. 

What does this mean?  What am I going to do? This change is nothing new to any shopkeeper that has been on CafePress for a couple years.  They make unilateral decisions that sometimes do not provide the best results for the shopkeeper quite often.  For instance, in March they quit their affiliate program.  So now if I send any new shopkeepers their way, I no longer get a commission for doing so.  Even though their latest email states “It is clear to us that to continue growing our Marketplace, we need to deliver a higher-quality shopping experience to customers, continue to invest in customer acquisition, and maximize conversion.”  That part about continuing to invest in customer acquisition must be a hold over from previous emails.  As for “what am I going to do?”  Once the new settings are in place, I am going to do a test to see how they are classifying sales.  If my test purchase results in a “marketplace” sale, then I will have to decide what to do at that point.  If the shop keeps making money on its own, then I will probably leave it up, but I am still weighing my options.

Could they have done something different?  Yes.  All they had to do was ask, and different ideas could have been presented.  For instance, they could still do their consistent pricing, but then count as commission anything over the base price (as they do now).  So although this could lower the sales commission for anyone who had a high selling price, those who had reasonable markups would still get their commission over the base price.  Then you can take the scenario above where a $20 sale would result in the same $5 in commission.  This in effect would not give CafePress a portion of the commissions, and would continue their own margins based on the base price.  I got the email on Wednesday, today is Monday and I came up with that solution while writing this post, so obviously it isn’t that hard to come up with reasonable solutions that wouldn’t result in heavily taxing their shopkeepers.  Based on this example, “taxing” is the only nice conclusion I can come up with, as they wish to pad their margins through a back-end hose job on the shopkeepers.  Since the new rules don’t take effect until June 1, they still have time to implement my solution I just explained.  Don’t hold your breath though.

I am taking a wait and see approach, but am expecting sales to go from around $50/month to around $10 - $20.  If that is the case, it might no longer be worth paying the $60/yr for the premium shop.  We will see.

Slippy
From Pink Slip