The price of doing business on TikTok Shop is going up — at least for sellers. TikTok will nearly quadruple its commission from Shop transactions as it looks to spark significant growth in its American ecommerce business.
Currently, TikTok takes a 2% cut plus 30 cents from all transactions on its Shop hub. On January 3, the video app announced a change that will gradually bring its commission up to 8%. According to The Information, which cited a note sent to U.S.-based Shop sellers, TikTok’s cut will go up to 6% on April 1 and will reach 8% on July 1. That rate will apply to “most sales.” On sales over $10,000 in some categories, TikTok will apply a 3% commission rate.
TikTok will also reduce the number of subsidies it provides to U.S. Shop sellers. The app has marked down some products while paying out the full item value to sellers, but those offers will now be limited to top-selling items, according to The Information.
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Thanks in part to TikTok’s regulatory battles with the U.S. government, its Shop tab experienced a sluggish start in the West. But as the ByteDance-owned app has rolled out more ecommerce features, creators and vendors have shown more interest in TikTok Shop.
As Shop sales have gone up, some users have made a stink about the hub’s clunky design and substandard product offerings. Those complaints didn’t slow down TikTok’s ecommerce operation during the holiday season, when sales went wild.
To create momentum for Shop, TikTok has incurred major losses. In August, the app projected that its ecommerce venture would lose $500 million in the U.S. in 2023. TikTok is hoping to crawl out of that hole by increasing commission rates and limiting subsidies. Even once it reaches an 8% cut, its commission rates will still be similar to the ones offered by Amazon.
Speaking of Amazon, TikTok sees itself as a challenger to that company’s ecommerce empire. According to a report in Bloomberg, which cited “people familiar with the matter,” TikTok wants to increase its U.S. Shop revenues tenfold in 2024. Its reported targets for its Stateside ecommerce business range as high as $17.5 billion of annual revenue.
A statement from TikTok disputed that report. “The speculated US merchandise sales figures represented by Bloomberg are inaccurate,” the statement reads. TikTok Shop has a cloudy future in the West, but the current commission hikes suggest that the app would like to earn more from its ecommerce experiment.