How to Use Etsy To Create Passive Income


Chances are, you have heard of Etsy.

If you haven’t, it’s an online sales platform where anyone can sell, well, anything. Think of it as a conglomeration of thousands of online stores, all selling their creations.

You’ll find millions of handmade, vintage, and unique creations.

How Does Etsy Work?

As a seller, Etsy is a great marketplace to list your items. You can get instant traffic to your store by listing your items in your Etsy shop. Visitors search Etsy’s database for whatever they’re looking for and if your item is one of those items, you’ll show up in the search results.

Just like anything else online, your keywords, how you describe your items, and the overall SEO in your listings is critical to your success in searches on Etsy.

What are the Costs of Using Etsy as a Seller?

Creating your own shop on Etsy is free. (Woo hoo!) In fact, you don’t have to pay a dime until you create an actual listing.

Here is the breakdown of what Etsy charges:

Let’s look at each of these individually.

$0.20 Listing Fee

Every time you create a listing, it costs you twenty cents to list it on Etsy’s marketplace. The listing will renew every 4 months either automatically or manually (you decide when you list it and can change this at any time).

Now, Etsy also allows you to sell more than one quantity per listing. For instance, if you are selling earrings and have 15 of a certain style in stock, you’d want to indicate 15 as your quantity. The reason for this makes financial sense because you won’t be charged for the listing after each sale, just the one time every 4 months.

This especially important for digital products (which have an unlimited quantity) because you won’t have to re-pay the listing fee if you list the quantity high enough to cover the number of sales you may get within 4 months.

Once the quantity in stock goes down to zero, the listing will then be “sold out” and you’ll have to pay to re-list (even if it’s within the 4-month window).

The best news about this is that you can change the quantity at any time. So if you see your quantity running low, then you can always adjust it (this only applies to digital products which have an unlimited quantity).

The 5% Etsy Selling Fee

This will show up as a separate transaction in your payment schedule. It is a flat 5% of the listing price. If you sell the item for $10, Etsy will take $0.50.

Etsy’s Payment Processing Fee

This fee is in addition to the 5% Etsy selling fee and it varies by your country as the seller.

For instance, in the United States, the fee is 3% + $0.25 USD.

This means, the payment processing fee on a $10 item will be $0.55. ($0.30 + $0.25 = $0.55).

To see a list of the payment processing fees by country, visit Etsy’s fee schedule.

In summary, your $10 item will be charged $0.20 for the listing, $0.50 for the seller fee, and $0.55 for the payment processing fee (in the U.S.) You’ll make a net profit of $8.75 for that one item.

While it may seem like Etsy takes a large cut out of your profits, remember the exposure, the tools and the audience you get by using the Etsy marketplace.

Also, think about how time-consuming it could be to set up your own shop, to upkeep it, to market it, to set up payment processing, and to handle the interface.

You pay for the convenience of Etsy taking the grunt work out of your sales. To us, it’s worth it. That is because we are looking to create passive income. We go for simplicity and volume when playing the passive income game.

What is Passive Income?

Before we dig into making passive income on Etsy, let’s take a deeper dive into what passive income is. Passive income is any income you receive without any additional work on your part.

Here’s how passive income is different than regular income:

When you work a normal 9-5 job, you are literally putting in hours of work for your paycheck. Even if a person is salaried, they are getting a set income per hour of work.

On the other hand, passive income doesn’t require additional work on your part for the money to come in. Oftentimes, the work is put in upfront and money keeps coming in long after the work has been completed. Examples of passive income could include income from book sales, rental income, and the growth from your investments, to name a few.

Passive income is often preferred because you can literally make money while you sleep. In fact, when your passive income passes your daily living expenses on a sustainable basis, many consider that an opportunity to go into retirement.

How to Create a Passive Income Stream with Etsy

So maybe you understand what passive income is but maybe you have no idea how to use your skills and talents to create passive income on Etsy.

Most likely, passive income through Etsy will come through you offering a digital download product.

What is a Digital Download on Etsy?

A digital download on Etsy is a product that customers receive digitally, immediately after purchase. You’ll notice right away which products are digital downloads in the listing details:

All Etsy items list their materials. Digital downloads will all be listed as “digital print.”

You can also see it on the listing photo in the upper left-hand corner:

An example of one of our digital listings. The upper left-hand corner indicates “instant download.”

Once a customer purchases the digital download, they will be directed to a link that says “View your Files.” They will also receive an email with the link.

The link will allow them to download the product you’ve offered.

What Types of Products can be Digitally Downloaded

You can find a plethora of products on Etsy for digital download. If you’re looking to start your own passive income stream on Etsy, here are some ideas of products you might offer:

  • Photoshop brushes
  • Clipart
  • Printable financial trackers
  • Inspirational posters
  • Quotes
  • Digital designs/art
  • Printable planners
  • Editable resume templates
  • Business plan templates
  • Digital budget spreadsheets
  • Bible verse designs
  • Printable calendars
  • Goal planners
  • Baby shower printable games

These are just examples I could think of. I’m sure you could come up with your own unique ideas to offer, as well.

You’ll also notice that not all of these require you to be a professional graphic designer. Sometimes, just sharing your methods with other people (think business plan templates) can become successful.

Tips for Success with Digital Products

Do your research first

I can’t stress enough how important it is that you do your research before opening your shop. Without question, our most successful products have always been things we created for ourselves that we couldn’t find anywhere else.

For example, with our financial trackers, we created trackers that we were already using to track our own savings, so we decided to clean them up a bit and share them on Etsy for others to use.

If you find the product valuable, someone else will as well.

Also, it’s important to do research so you aren’t unintentionally copying what someone else has already done. If you have an idea for a goal planner, for instance, search that on Etsy to see what others have done. Chances are you can make your own iteration that’s different than what already exists.

Provide examples of how to use the product

This is HUGE with digital products. Always provide an example of how they are supposed to use the product. Here’s an example with one of our house savings trackers:

The more detail you can provide, the more likely your customers will understand how to use the product you are selling.

Provide a clear description

It is imperative that your description in your listing is filled out completely and clearly. Your customers should understand why they even need the product, how to purchase it, how to use it, and any other details that are important.

Etsy also provides several areas for you to select the size, colors, category, etc. so people can find your product easier. It’s important that your product is in the correct category, so don’t skip over this section.

Images sell your product

You have to find a way to get your product to stand out against all of the thousands of other products like yours. The best way to do this is to make sure your primary photo is descriptive but clear.

Your photo should include:

  • A clear title
  • An example or screenshot of the product(s)
  • A short description/identifying information

Here’s an example of one of ours:

As you can see, we have a clear title (printable debt payoff tracker), a screenshot of the product, and a quick description.

You’ll notice that this isn’t fancy. Oftentimes, simple is best.

We did a quick search of our competitors and made sure our primary photo stood out in some way so at a glance, customers might see ours first. For our niche, we decided a dark background with white lettering would help us stand out from the competitors.

Use strategic keywords

It’s incredibly important that your keywords are in line with what you are offering. When you are trying to tag your listing (located near the bottom when you edit a listing), you want to make sure you are including keywords that someone might search for to find your product.

For instance, if you are offering a goal tracker, you want to make sure you include “goals tracker,” “goal setting,” “digital download,” to name a few.

One thing to note about Etsy’s keywords is that longer keywords are actually best. Similar to website SEO, it’s the long-tail keywords you should be after. Why? Because keyword phrases are less competitive and are more specific to what you’re offering.

In my example of the “goal tracker” keyword, someone who types in “goal,” “tracker,” or “goal tracker” will be able to find your product. If you just have “goal” as a keyword, then only the people looking for “goal” will be able to find your listing.

Additionally, make sure to include plural forms of your keywords in combination with other keywords (i.e. setting goals vs goal tracker.) Synonyms can be helpful to increase your exposure, too.

Things You Should Know Before Creating a Digital Product

There are a few things you should be aware of before jumping into creating digital products on Etsy.

Once they download, customers have lifetime access to your product

The unique thing about digital downloads is that your customer can continue to use the product again and again. They can save the product in the cloud or on their computer to use in the future.

Etsy currently limits 5 files per listing

Etsy limits the number of digital products in each listing. For some products, this isn’t a problem, but for others, you might need to get creative.

Screenshot from the options when creating a new listing on

If you’re creating a digital product with many files in the product, like our finance bundles, you have two options:

Option 1: Limit the number of individual documents in your listing to 5


Option 2: Place your documents in a zip folder and include it in your listing

Option 2 will allow you to include more than 5 documents in your listing.

Check copyrighted materials

This is HUGE. You never want to deal with the legal ramifications of copyright issues.

You must make sure that you have the legal rights to use everything you use to make your products. This goes for every single product you offer.

Fonts: Any font you may use must be free to use for commercial use. What that means is that the author isn’t entitled to any royalty from your sales. Make sure EVERY font you use on any product is completely free for commercial use.

Photos: Make sure you use photos that you have permission to use, especially if you are making money off the use of the photo. The safest bet is to only use photos that you personally took yourself.

Images: Similar to photos, make sure you have permission to use the images for commercial use. One of my favorite sites to find totally free images and graphics is Pixabay.

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Now it’s time for you to go out and create your own shop! Let us know if you created a shop in the comments below!

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