shopify business model

Shopify Business Model: How Does Shopify Make Money?

Shopify is typically the first name that comes to mind when someone mentions e-commerce stores. With regard to users and revenue statistics, Shopify has been the preferred platform for building high-end stores over the last few years!

But how exactly does Shopify make money, and what is its business model? Let’s look into that!

What Is Shopify And What Are The Services That It Offers?

Shopify is a warehouse for setting up any kind of online business. It provides all the essential elements for serving the needs of a full-fledged business. Everyone can use Shopify, regardless of their knowledge of coding.

Whether you need to build a website from scratch or sell a product through your social media handle, Shopify helps you in and out. It can be described better as a SaaS tool for establishing a successful online venture that can be integrated with relevant apps for different needs like the product, inventory management, content, design, marketing, SEO, sales, and shipping.

Shopify’s wide range of services includes A to Z solutions for a customer who’s willing to launch his own venture but is unable to help himself.

You can hire Shopify developers to build an online store or use services that Shopify provides:

  1. Creating an online store from the beginning
  2. Adding a sales interface to an existing website
  3. Selling through social media
  4. Listing products on eCommerce stores
  5. One-to-one selling at physical stores

Not only the creation but the management of these e-commerce stores (like hoodie stores) can also be easily done through Shopify. Shopify is the most sophisticated yet easy-to-use tool for meeting all business needs. 

It also offers a free trial for a fortnight, after which a customer can choose any of the subscription solutions offered. The pricing starts from as low as $5 and goes as high as $2000 (negotiable). Given the requirements, a user can choose any of these plans and get started.

Shopify Business Model – How Does Shopify Make Money?

Shopify generates revenue from a wide variety of sources, including a comprehensive set of subscriptions and merchant solutions.

According to reports, the revenue from merchant solutions namely transaction fees, referral fees, advertising revenue, and POS solutions is the largest contributor. The other part of the business model i.e. subscription solutions that constitute subscription revenue from platform subscription fees, domain charges, etc adds the remaining amount to the revenue.

Subscription Solutions

Shopify’s business model is focused on onboarding business owners and individuals on its platform for creating an impactful online presence. It has different subscription plans and offers a powerful Shopify mobile app (available on Play Store and App Store) in addition to the desktop one.

Currently, Shopify offers 3 subscription models. All of them are different depending on the needs of the customers. On its subscriptions page, the company suggests that merchants first finish building their online store and then care about taking the subscription. This reflects the customer-centric behavior of the company that has enabled it to grow so big.

An overview of the plans offered is:

  1. Basic: Basic Shopify offers 2 staff accounts and 4 inventory locations. It comes at a very low price and is suitable for beginners.
  2. Shopify: Offers 5 staff accounts and 5 inventory locations. It comes at a significantly higher price than the basic one and is fit for those who want to shift their current business online.
  3. Advanced: As the name suggests, Advanced Shopify comes at the highest price and offers 15 staff accounts and 8 inventory locations.

Merchant Solutions

This is a dedicated payment service enabling merchants to accept payments specifically in the USA. It offers features such as recurring billing, mobile payment capabilities, real-time transaction results, fraud management, etc. Merchant Solutions confines all payment-related operations to the Shopify app, thereby solving the financial needs of the business completely so that the merchant can focus on expanding the business and increasing the revenue.

1. Shopify Payments

Unlike other SaaS tools offering payment gateway options, Shopify Payments is much cheaper and easier to use. With the concept of restricting the area of hunting for various business requirements to a single destination, Shopify provides a payment gateway in addition to the other bundle of services.

The user can simply set up their own payment collection interface depending on the type of service they prefer like net banking, cards, google pay, amazon pay, etc. The pricing is also as affordable as it can be, starting from $1/month.

2. Shopify Shipping

Shopify Shipping makes shipping of products a breeze. This feature can be integrated directly with the users’ online store preventing them from the efforts to set up another app for that purpose. The key components of this service include inbuilt shipping functionality, the ability to fulfill bulk orders with support from logistics companies, thorough tracking of orders, and single settlement of dues.

The plan also offers an insurance scheme that provides $200 as compensation for any product-related harm, like damage, loss, etc

3. Shopify Capital

This is a blessing for entrepreneurs who have young startups and plan to scale to new heights. Shopify Capital eases the process of seeking business investments. The user can directly apply for funding with minimal paperwork and receive it within a few days, post-approval. The fund amount is repaid through the sales made using the Shopify platform via a fraction of the amount earned from that sale.

Shopify Capital has revolutionized the way businesses used to function making Shopify the one-stop solution for all business needs.

4. Shopify POS

Shopify POS or Shopify Point of Sale is a new-age modern device that entitles users to expand their business reach to another level through the Shopify Store. It comes at a highly affordable price and can be directly set up on the users’ devices.

It helps in tracking orders, accepting payments, managing products, and other stuff on the fly. A special POS Go device developed by Shopify can even accept card swipes and generate payment barcodes. It is a highly recommended service for those who want to manually handle their business among their customers.

Revenue, Funding, And Valuation

The company was started in 2006 by Tobias Lutke, Daniel Weinand, and Scott Lake in Ontario, Canada. Shopify affects more than 4 million businesses today and reports tell that ~5% of the top websites in the world are built using Shopify.

Shopify’s major sources of revenue are its paid pricing plans which it offers to its customers for setting up their online stores. The current revenue of Shopify is estimated to be over $5 billion which was $4.61 billion in the last year. 

Here’s a quick view of the biggest leaps in revenue over the years!

YearLeaps in revenue
2019-20 85%

Such is the increasing demand for the company’s product that its revenue nearly doubled during these years.

According to Crunchbase, Shopify raised its last funding in 2013 after which it skyrocketed and never turned back. The company had raised more than $122 million in the starting 7 years of its formation. Its top investors are Insight Partners and  Bessemer Venture Partners.

The company has grown so big that it has completed 15 acquisitions to date.

Shopify is the monopoly holder in its business segment. The company has a whopping valuation of around $40 billion and has been expanding rapidly with massive intensity. The company provides effective solutions which completely remove the problems faced by its customers. This is the primary reason why the company has been on the road to glory since its inception.

Shopify Competitors

Shopify also provides the option of direct selling in physical stores. Entrepreneurs who want to build strong relationships with their merchants by meeting them physically, benefit the most through this smart service. 

This service is possible through a special device called POS-Go. It not only provides a detailed view of the products but also acts as a card reader & bar-code scanner that enables on-spot payments without failure.

There are multiple alternatives available for Shopify. Majorly they differ in the pricing structure they offer. Although Shopify is more convenient to use, merchants often switch to other options due to the heavy charges imposed by Shopify. According to Forbes, the most common platforms used in the replacement of Shopify are:

  1. WooCommerce: A WordPress plugin that is free to use. For users having their websites on WordPress, this plugin can provide a fully operational e-commerce tool. It does not provide hosting and an SSL certificate
  2. BigCommerce: A tough competitor of Shopify that provides the same features to the users. It is more sales oriented and provides an SEO-friendly blog for driving more customers to the website.
  3. Wix: It is the solution for small-scale sellers who are more inclined towards engaging their users through the website’s content and graphics. More than 800 catchy templates are available here but for including a payment gateway, users need to opt for the premium plan.
  4. Squarespace: It has a competitive pricing structure to that of Shopify and offers a free domain and SSL certificate. Users can use it to create beautiful websites with ease. It also offers 24×7 support to customers.
  5. Sellfy: It is specific to print-on-demand (POD) products. Up to 10 products can be sold without any cost on this platform. Paid plans come with better features like white labeling, email marketing, etc.
  6. Shift4Shop: A useful SaaS software enabling merchants to operate their online stores without any subscription plans. Just a small processing fee is charged at the time of every sale. It offers some templates that are even better than the Shopify app. The structuring and looks of the template can be changed using HTML and CSS.
  7. Ecwid: Its full form is an e-commerce widget and is used to integrate with existing websites. It is free for up to 10 products. It is commonly used on WordPress and provides extended functionality like store management, live chat support, digital products, etc with a paid plan.

What Is the Unique Selling Proposition (USP) Of Shopify?

Shopify’s main USP is its ability to provide simple and multipurpose solutions for selling a product. The option to sell on social media is a great boon for influencers who are heavily active on social and want to monetize from it but do not have sufficient knowledge about it.

Shopify’s ready-to-launch templates are so pertinent that any individual can get his first sale within a few hours. With a powerhouse of over 2200 apps, Shopify enables its users to get whatever they want for their e-commerce platform to grow, including specialized services like print on demand, a total game-changer for whipping up custom products without the hassle.

Although Shopify is a bit costlier than other available solutions, users have claimed it to be far better than others in terms of operating simplicity, third-party app integrations, and productivity. Be it adding beautiful photos and crisp content or integrating a  country-specific payment gateway, Shopify provides all the solutions at one destination.

The other valuable aspect of Shopify is the availability of in-built cloud hosting that prevents the user from hosting his website which is a tedious task. The majority of the 4 million+ stores on Shopify exist due to the same reason.

Shopify’s growth history and huge revenue figures are enough to portray its success in the past years. Rather than a service, Shopify has become a demand for users. It is the first recommendation to all beginners who plan to set up an online retail platform for their business.

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