How does Poshmark make money?

Poshmark is a peer-to-peer network that takes a fee from every item sold on its platform

The tech world is riddled with fasion marketplaces that once were darlings, but ultimately couldn't cut it. Just look at Fab, a company that raised over $336 million, including a $150 million round that valued it at $1 billion. The company eventually sold for a reported $15 million in 2015. 

Yet, one of them, Poshmark, is thriving, having raised an $87.5 million round of funding last month, valuing the company at $537.5 million. It also partnered with Amazon to link its app to Alexa.

So why is the company doing so well in such a difficult space? Because of its business model: unlike many others, it has no inventory, instead acting as social marketplace for fashion, where people can buy and sell their own clothes. Without needing to buy the clothes itself, Poshmark takes on less risk, and has less overhead, than its competitors.

That also means it has to make money in a different way as well; by taking a fee from every sale made by its users.

While it's free to list on the platform, Poshmark will deduct a fee from the listing price once an item is sold. For sales under $15, the fee is a single flat rate of $2.95. For sales of $15 or more, the fee is 20 percent of the listing price. Poshmark provides sellers with a free pre-paid shipping label, free credit card processing and free customer support and Posh Protect buyer protection for your buyers. There is a flat rate of $6.49 for expedited shipping for all orders, which is paid by the buyer.

Once an item is sold, the money will go into the seller's Poshmark Balance. They can either transfer their money to their bank account, request a check or keep their balance on the app to be used toward their own future Poshmark purchases.

While this model isn't typical for fashion marketplaces, it's not wholly unique. There is one company with a model similar to Poshmark: Vinted, a secondhand online clothing store which, until recently, also took a 19 percent fee from each sale. In late 2016 the company switched its model to charge buyers a 5 percent fee on each transaction, plus a $0.70 fixed fee, instead. 

Another way that Poshmark differentiates itself is through Posh Parties, or virtual buying and selling events that happen in the app, which are centered around certain themes or types of clothing.

Founded in 2011, Poshmark is said to be cash flow positive and on track for $100 million in revenue this year. 

The company has raised $153 million in venture funding from investors that include Menlo Ventures, Mayfield Fund, Uncork Capital, GGV Capital, AngelList, Union Grove Venture Partners and Shea Ventures.

(Image source: poshmark.com)