Thinking about selling Digital Goods? There are a lot of considerations from what to sell, where to sell it, and how to sell it. We dive into the details below and analyze 5 platforms in the market right now, including their business model.
What are the top Channels where people sell Digital Goods?
Top Platforms (2023)
Gumroad
Gumroad is arguably the OG (original) of the Digital Goods space. You are encouraged to ‘sell anything’ digital there.
They upped their pricing in late 2022 and opened the doors for a lot more competition in the space. But as their latest financial data shows, they have increased both revenue and profitability tremendously over the last year.
Gumroad Financial Data in Q2 ’23
- Volume Processed: $42.3M (down 13%)
- Revenues: $5.29M (up 99%)
- Gross Profit: $3.76M (up 317%)
- Net Income: $2.56M (up from -$358K)
Looking at some basic Sentiment Analysis via a search for ‘Gumroad reviews’ leads to a mixed bag of feedback about the platform:
- TrustPilot reviews show a heavy dissatisfaction with onboarding and customer service
- G2 Reviews shows a satisfaction with the feature set of the platform, but the new pricing cuts into the profits of many creators
Looking back at certain data sets even to 2020, we can see that the expected Power Laws in the creator economy manifest on Gumroad, where the lion’s share of revenues (& thus profits) come from a small % at the top.
Thus Gumroad seems to have calculated that they have a captive platform ecosystem for those at the top of their platform who would likely not risk the switching costs even with the increase in fees.
Plenty of other alternatives have emerged, however.
Lemon Squeezy
Lemon Squeezy originated as more of a SaaS platform for companies to sell their software subscriptions. It is a ‘built for developers, by developers’ type of platform.
The company became more closely associated with the Digital Goods space when Gumroad raised their prices suddenly in late 2022, with many seeing Lemon Squeezy as the best alternative.
As discussed further in the post, their fees are about half that of Gumroad.
Now their value proposition has 6 layers, at least according to their homepage:
- accepting online payments
- recurring billing and subscriptions
- license key management
- sell digital downloads
- no code checkout forms
- launch your ecommerce store
They have also bundled in a bunch of marketing tools to their core product, such as email marketing, donations, bundles + upsells, etc.
There are many results for ‘Lemon Squeezy reviews’ discussing the Pros + Cons of the platform:
- Product Hunt Reviews show a high degree of satisfaction and a sentiment that the platform is ‘easy to use’
- A more in-depth review shows a satisfaction with the core platform features, but some confusion and frustration with some of the newer more advanced features
One way or another, Lemon Squeezy is a platform that can be used to both start on (they have a free plan available) and scale.
Paddle
Paddle has also entered the conversation around ‘Digital Goods’ in recent months after Gumroad opened the door.
Similar to Lemon Squeezy, it has it roots on the SaaS side of software sales. They were founded in 2012, and the London-based company nearly failed until they dialed in on their core value proposition: serving the B2B side of the market, away from the consumer.
They brand themselves as a ‘complete billing solution,’ and focus more on the operational side of SaaS; however, given the increasing complexity of managing Digital Goods sales in a global environment, a lot of that logistical infrastructure becomes useful especially for things likes taxes.
The ‘merchant of record’ plus the ‘full tax liability’ value prop + the lower, and all-inclusive, pricepoint vs. Gumroad is appealing for many.
Looking at ‘Paddle reviews,’ many have good things to say about the product overall, but there is room for improvement:
- G2 Reviews show how it seems to work well for most SaaS businesses, but some use cases like ‘Subscriptions’ fall short of expectations
- Other sites like Capterra show similarly a ‘hit and miss’ pattern of some features being great and others lacking
Paddle appears to be more SaaS-y, but as will be discussed more below, their pricing model is appealing compared to competitors.
Payhip
Payhip skews more towards the UK/EU market.
They offer a ‘Free’ plan, which is good for new businesses + creators.
As a viable alternative to other platforms listed above – especially for those in Europe and the UK – it seems to be appealing to many due to its ease of use.
Looking at ‘Payhip reviews,’ we can see a few patterns:
- TrustPilot reviews show a mix of many happy users and a significant number of unhappy users due to their accounts being closed for unclear reasons
- A more extensive review shows that it has some very good features for sales and marketing, which may help to separate it from some of the other platforms above
BuyMeACoffee
BuyMeACoffee rose to prominence a few years ago as a ‘donations’ platform. In the midst of the increasing demand and competition for Digital Goods, they are now shifting into some of the same areas as the above-mentioned platforms, such as subscriptions.
It has a completely different setup than all of the above platforms, with far less extensive features in virtually all areas of operations, tax, etc.
But it has proven to be a valuable tool and subscriptions seems to be a niche where there is an opportunity to grow market share for those creators/new businesses who have a small but growing audience.
With quick look at ‘Buymeacoffee reviews’ we can see a few patterns:
- TrustPilot shows a high degree of satisfaction in the platform from the majority of customers, especially in relation to customer service
- There have been a small sample of customers who have failed to be paid out for their earnings (for different cited reasons)
Due diligence is always important for every platform.
Who are the people making money in the Digital Goods space?
The road to starting to sell Digital Goods typically comes from people who have a deep skill in an area like design or something creative. They are typically either employed or freelancing, and thus look to start adding a second income stream.
As we will see further below, margins on Digital Goods are typically 85 – 90%. But that doesn’t mean they are easy to sell.
Here is an example of the mindset from a UX Designer selling on Gumroad who made $15 in 3 months.
It’s harder than it seems, like really, you guys won’t believe how much mental energy it takes me to come up with something from ideation to putting it out.
Bootcamp
Gumroad’s own branding is ‘go from zero to $1.’
However, many successful Digital Goods businesses start from those who have already built out a community or membership base. The Community Business Model starts from a group of like-minded people coalescing in a digital space of some kind and making new connections.
Thus the community serves as a distribution channel for the Digital Goods. Many successful Digital Goods businesses have started where an audience already exists. The same can be said for those who already have a social media following.
Thus when looking at examples or Case Studies of six-figure+ Digital Goods sales, study distribution as much as the product(s) sold.
What are people Selling on these Channels?
There are several categories of potential Digital Goods to sell, but the three most popular right now are:
- eBooks
- Software
- Digital Graphics/Art
Selling courses is becoming increasingly popular, especially in relation to topics like eCommerce as so many people are looking for ways to develop secondary or tertiary revenue streams.
Shopify has it’s own list of its ‘6 Profitable Digital Products to Sell in 2023:’
- Educational Products
- Licenses to use your Digital Assets
- Membership Sites
- Digital Templates and Tools
- Music or Art
- Services
In relation to the growth of platforms like BuyMeACoffee, who now offer Subscriptions, we can see how many freelancers/entrepreneurs are evolving their offerings towards products that generate recurring revenue.
With an explosion in volume of Digital Goods platforms, an increasing intersection with eCommerce, and more participants entering the market everyday, comes much higher competition. With higher competition comes a higher CAC (Customer Acquisition Cost).
Thinking about the business model before entering the Digital Goods space will help to plan out how to mitigate risks relative to:
- spending days/weeks/months on a Digital Good only to get no sales
- maximizing margin per Digital Good sold
- trying to position products and reach customers in order to generate recurring revenue
Creating loyalty is the key to any business model. Word of mouth is the powerful sales multiplier. Understanding how to optimize margins helps create enough profit to reinvest in further growth and create a self-sustaining model.
How Does Each Side Make Money?
Creator Margins
Those who create the digital products, obviously earn the margin between whatever price they sell the product at (multiplied X) by the number of units they sell (minus -) the platform fees (minus -) the payment processor fees.
Platform Take Rates + Payment Processor Fees
Gumroad charges a 10% flat fee on all product sales. This increase was announced to the surprise of many in the indie hackers community in late 2022. Payment processor fees add another 3 – 10% (Stripe vs. Paypal) to Gumroad transactions depending on who the processor is.
Lemon Squeezy charges a 5% fee + $0.50 per transaction. Lemon Squeezy does not charge the same payment processing fees as Gumroad, but there are additional payments fees for international (outside of US) at 1.5%, Paypal at 1%, and subscription payments at 0.5%. Thus, as an example, a creator would be charged 8% for an international subscriber outside of the US using Paypal.
Paddle is priced the same (5% + $0.50) as Lemon Squeezy, with no additional payment processing fees.
Payhip prices at a similar 5% transaction fee, and they have a SaaS pricing model where they offer a monthly plan of $29 with a 2% transaction fee or a $99 per month with a 0% transaction fee. Add on payment processor fees for Stripe + Paypal, similar to Gumroad.
BuyMeACoffee charges a flat 5% fee.
Payments & Tax Infrastructure
Payments, payments, payments.
The more that we look at the platforms above – especially Lemon Squeezy, Paddle, and Payhip – the more they start to look like Fintech businesses.
Stripe is clearly the backbone of a lot of the payment processing activity and commerce across all of these platforms. They are going to make about 3% gross on each transaction:
How does Stripe make money? Plain and simple via payments processing: 2.9% + $0.30 per transaction to the merchant.
Stripe Business Model
Why not just use Stripe to sell Digital Goods?
Taxes, taxes, taxes.
The sophistication of selling Digital Goods reduces the physical footprint that is typically related to eCommerce.
Many of the above platforms heavily market around their ‘tax compliance’ value proposition because for those who sell large volumes of Digital Goods, this becomes very important.
Stripe offers Stripe Tax, so it is not as if they don’t bundle the solution into their core offering as well.
Nevertheless, when you look at the 5+% Take Rate of Lemon Squeezy, Paddle, etc., the additional few % points in fees can be offset by all the efficiencies in tax compliance, reporting, etc.
Thus the decision of where and how to sell Digital Goods needs to be weighted on a mid-term basis. Because if a low-priced Digital Product product blows up in sales, it will create a nightmare to manage compliance-wise.
Alternative Payments Channels in the Future?
When we think about the 3% + fees for payment processing alone, it makes sense that in the future this will be a space ripe for payments innovation.
The potential for Micropayments is one example. Digital currencies is another.
Trust will be the key in any respect. For now, creators and entrepreneurs will launch on channels that they trust.