Shopify is an ecommerce platform that allows anyone to set up a digital storefront. Furthermore, it offers extra goods and services like fulfillment or POS systems.
What is Shopify?
Shopify, a cloud-based SaaS solution, is best known for enabling users to open an online store.
In order to add in-person payments, retailers can also use Shopify’s point-of-sale (POS) solution.
Apart from being able to set up an online storefront, Shopify makes sure to offer a variety of other tools and services that would benefit its merchants, including:
- utilizing email marketing to establish contact with customers.
- Merchants can chat with customers using the Shopify Ping tool.
- the ability to advertise on Google and Facebook.
- a shipping and warehousing service for goods.
- Publish a blog to promote your products.
- Reporting to keep track of orders.
Virtually anything can be sold by merchants on Shopify, including physical and digital goods, services and advice, memberships, courses and lessons, rentals, and even ticketed experiences.
Merchants can simply sign up for any of the company’s plans to get started. These offer varying levels of features and support, depending on the subscription tier chosen.
Users can choose from a variety of templates to customize and design their websites in any way they can think of.
On top of that, Shopify has developed its own app store where independent developers offer additional tools to Shopify’s existing ecosystem. Examples include the ability to accept coupons via Honey or have WhatsApp support enabled.
If users get stuck, they can simply get in touch with Shopify’s dedicated customer support team. The website also provides a forum where users can assist one another.
Shopify currently powers the online stores of more than 1.7 million merchants. These merchants sold goods worth $120 billion in 2020 alone.
How Does Shopify Make Money?
Shopify generates revenue from two sources: subscription solutions, a component that is based on recurring subscriptions, and merchant solutions, a component that is based on merchant success. Let’s talk about each revenue stream in detail to understand how Shopify makes such a considerable sum of money:
1. Subscription Solutions
Shopify generates revenue from subscription services through the sale of subscriptions to its platform, including variable platform fees, through the sale of subscriptions to its POS Pro offering, the sale of themes, the sale of apps, and the registration of domain names. About 30% of Shopify’s revenue in 2021 came from subscription services.
As of March 2022, Shopify has three subscription plans for merchants that are designed to meet the needs of current and prospective merchants. Offering various service and price tiers enables business owners to grow without leaving the Shopify platform: as a merchant upgrades to the more expensive options, they get access to more potent tools.
Shopify also provides a different service plan called “Lite,” which enables website owners to incorporate a Shopify store into their current online presence. Monthly fees for the plan are $9. An advanced program called Shopify Plus is available, with prices starting at $2,000, for larger companies like Budweiser, Tesla, or The Economist.
The Shopify Basic and Shopify plans are what the majority of retailers use. Among the well-known 14,000 Shopify Plus merchants using its commerce solution are Allbirds, Gymshark, Heinz, Tupperware, FTD, Netflix, and FIGS.
In order to entice the best developers in the world, Shopify modified its revenue-sharing agreement with app and theme developer partners in 2021 to offer a 0% revenue-share on the first million dollars in revenue they generate each year on the Shopify App Store. App and theme developers pay a 15% revenue share on earnings after the first $1 million.
2. Merchant Solutions
To address the wide range of functionality that merchants frequently need, such as accepting payments, shipping and fulfillment, and securing working capital, Shopify offers a variety of merchant solutions to supplement those offered through a subscription. Approximately 70% of Shopify’s revenue in 2021 came from merchant solutions.
Let’s understand in detail how Shopify makes money through various merchant solutions
- Shopify Payments: Shopify Payments, the company’s payment gateway, is where the majority of the company’s revenue in merchant solutions comes from, along with fees for currency conversion. Shopify charges businesses 2.4% to 2.9% of the gross merchandise value (GMV) of each transaction, depending on the subscription plan.
- Advertising: When merchants click on the apps being advertised by its partners of Shopify App Store.
- Shopify Capital: To expand their businesses, merchants can use Shopify Capital to access loans and cash advances. A store owner is only permitted to borrow a total of $2 million. However, you have a year to pay back the loan or cash advance. Shopify Capital charges a fixed borrowing cost to the loan. The fee that the borrower/merchant must pay in order to obtain a loan is known as the fixed borrowing cost. The merchant pays Shopify Capital a portion of each day’s sales revenue as loan repayment until the full amount has been sent.
- Shopify Shipping: It allows merchants to manage their shipments through available shipping partners on Shopify.
- Shopify POS: Using a mobile device and Shopify’s sales channel, retailers can physically sell their wares and take payments from customers.
- Shopify Email: It is an email marketing tool that enables businesses to control their advertising campaigns. Up to a certain extent, Shopify offers the service for free and charges merchants after that.
Shopify Company History
Founded in 2006 by Tobias Ltke (CEO), Daniel Weinand, and Scott Lake, Shopify is a Canadian company with headquarters in Ottawa.
Lütke, originally from Koblenz, Germany, always struggled with authorities. He would argue with his teachers in front of the class and take short cuts to get his homework done as quickly as possible.
He received a Commodore 64-style computer from his parents when he was six years old. By the time he was twelve, Lütke would start dismantling its software to produce fresh games.
He eventually began to worry even his parents, who took him to see a psychologist to rule out any potential learning disabilities (which, obviously, were never found).
He disliked school work so much that, instead of enrolling at university, he left school after the 10th grade to pursue an apprenticeship program at Siemens.
The program’s goal was to identify and nurture Germany’s upcoming software engineering talent. He ended up working for Jürgen, a highly unconventional manager at Siemens, who had a profound effect on Lütke.
The growth of Shopify’s business model is simply incredible. An obvious example of an inventive response to the issues founders typically encounter. By publishing content on its YouTube channel, Shopify is also doing a fantastic job of encouraging the next generation of business owners.
Any product or service can be sold by a merchant on Shopify, including physical goods, services, consultations, classes, experiences, memberships, etc.