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How Does Shopify Make Money?

Last updated: November 01 2024

Written and researched by experts at Avada Learn more about our methodology

As one of the largest eCommerce platforms in the world, Shopify enables millions of businesses to create and manage online stores. With its reputation for providing an all-in-one solution for merchants, many wonder: “How does Shopify make money?”

It's not just about those monthly subscription fees! In this article, we’ll break down Shopify’s business model, explain its revenue streams, and explore the factors that contribute to its success.

What Is Shopify?

What Is Shopify?

Shopify is a cloud-based e-commerce platform that allows individuals and businesses to create online stores, sell products, and manage their business operations. 

Launched in 2006, Shopify has grown into a global e-commerce giant over 4.5 million active stores in more than 175 countries. It offers a range of tools, from customizable store templates to marketing automation, making it a go-to solution for entrepreneurs worldwide.

How Does Shopify Work? Inside Business Model Canvas of Shopify 

Business Model Canvas of Shopify 

Shopify operates across various aspects of its business model. Here’s a detailed breakdown of how Shopify works. 

Key Partners

Shopify collaborates with various partners to enhance its platform:

  • App Developers: Developers who build third-party apps to extend Shopify's functionality.
  • Theme Designers: Designers who create customizable themes for stores.
  • Payment Providers: Shopify partners with multiple payment gateways to process transactions securely.
  • Shipping Carriers: Companies like UPS, DHL, and others offer discounted shipping through Shopify's platform.
  • Marketing Agencies: Agencies that help merchants improve their marketing, advertising, and sales performance.

Key Activities

The primary activities that Shopify engages in to provide value to its customers include:

  • Platform Development: Continuous improvement of the Shopify platform.
  • Merchant Acquisition: Attracting new users to Shopify through various marketing strategies.
  • Merchant Support: Providing 24/7 customer support to assist merchants with their eCommerce needs.
  • Partner Management: Coordinating with app developers, theme designers, and other partners to enhance the ecosystem.
  • Data Analytics: Analyzing data to provide insights and optimize platform performance.

Key Resources

Shopify’s critical resources include:

  • Technology Infrastructure: The software, hardware, and network systems that keep the platform running.
  • Intellectual Property: Shopify’s proprietary technology, including its platform and related systems.
  • Human Capital: Employees across engineering, sales, marketing, support, and other departments.
  • Brand Reputation: Shopify’s strong brand, known for reliability and scalability.
  • Financial Resources: Capital investments and financial resources used to maintain and expand the business.

Value Propositions

Shopify provides several key benefits to its customers:

  • User-Friendly Platform: A simple and easy-to-use interface for store creation and management.
  • Scalability: The ability to grow with businesses of all sizes, from small startups to large enterprises.
  • Comprehensive Features: A wide array of built-in tools for payments, shipping, marketing, and more.
  • App Ecosystem: Thousands of apps that allow merchants to customize their stores and add advanced functionality.
  • Reliable Hosting: High-quality hosting ensures fast, secure, and reliable service for online stores.

Customer Relationships

Shopify maintains relationships with customers through:

  • 24/7 Support: Merchants can access round-the-clock support for troubleshooting and questions.
  • Shopify Community: An online community where merchants can share tips, ideas, and advice.
  • Shopify Academy: Educational resources and training courses to help merchants grow their businesses.
  • Merchant Success Managers: Dedicated account managers for larger merchants using Shopify Plus.
  • Partner Ecosystem: A network of partners, from developers to marketing agencies, that merchants can tap into.

Channels

Shopify reaches its customers through various channels:

  • Website: The primary platform where merchants sign up, manage their accounts, and access services.
  • App Store: A marketplace where merchants can download apps to extend the functionality of their store.
  • Partner Network: Shopify's ecosystem of partners helps merchants with specialized needs, such as web design or advertising.
  • Social Media: Shopify uses social media platforms for marketing and customer engagement.
  • Online Advertising: Shopify invests in digital ads to acquire new customers and promote its platform.

Customer Segments

Shopify serves several distinct customer groups:

  • Small Businesses: Entrepreneurs and small enterprises looking to sell online.
  • Mid-Sized Businesses: Growing businesses that need more robust features.
  • Enterprise Clients: Large companies that require scalable solutions, which Shopify provides through Shopify Plus.
  • Dropshippers: Merchants using dropshipping as a business model.
  • Service Providers: Agencies and freelancers who use Shopify to provide services to merchants.

Cost Structure

The major costs incurred by Shopify include:

  • Technology Infrastructure: Maintaining and expanding its platform requires investment in servers, databases, and more.
  • Research and Development: Continuous innovation to improve the platform’s features and performance.
  • Sales and Marketing: Spending on customer acquisition through advertising and promotions.
  • Customer Support: Providing 24/7 support requires significant human and technical resources.
  • General and Administrative: Operational costs, including salaries, legal fees, and other overheads.

Revenue Streams

Shopify generates revenue through various streams:

  • Subscription Fees: Merchants pay for access to Shopify’s platform via monthly or annual plans.
  • Transaction Fees: Shopify earns a percentage of each transaction processed through third-party payment providers.
  • Merchant Solutions: Shopify earns from offering payment processing, shipping services, and other solutions.
  • App Store Commissions: Shopify takes a commission from app developers who sell their apps in the Shopify App Store.
  • Theme Store Sales: Shopify earns revenue from theme sales in its Theme Store.

How Does Shopify Make Money?

Shopify’s revenue comes from a variety of sources. Here's a detailed look at how Shopify earns money.

Subscription Plans

Shopify Subscription Plans

One of the primary ways Shopify makes money is through its subscription plans. Merchants can choose from different pricing tiers based on their business needs. Each plan offers more features as the price increases, providing businesses with the flexibility to upgrade as they grow.

  • Starter: $5/month - for selling on social media
  • Basic Shopify: $29/month – includes the essential tools for launching an online store.
  • Shopify: $105/month – offers more advanced features, including reports and lower transaction fees.
  • Advanced Shopify: $299/month – designed for scaling businesses with advanced reporting and features like custom reporting.
  • Shopify Plus: From $2,300/month – targeted at large enterprises, providing more customization and dedicated support.

Each subscription plan provides different levels of functionality, and this recurring revenue forms the backbone of Shopify's revenue.

Transaction Fees

Another significant source of Shopify income is the transaction fees when merchants use external payment gateways (other than Shopify Payments). Depending on the subscription plan, these fees range from 0.5% to 2.0%. This model allows Shopify to earn a steady revenue stream from sales processed through its platform.

However, if a merchant opts for Shopify Payments, these fees are waived, encouraging more users to adopt Shopify’s payment system.

Shopify POS (Point of Sale)

Shopify offers POS systems for businesses with physical stores, integrating their online and offline sales. The Shopify POS Pro - a more advanced version of Shopify POS - costs $89 per month per location and offers more advanced features like custom permissions and in-depth inventory tracking.

Shopify POS (Point of Sale)

Additionally, Shopify also makes sales from selling or giving POS hardware for rent,  here is the price range for some of the hardware on the Shopify Hardware Store:

  • Shopify POS Terminal: $349
  • Card Readers: From $49 to $89
  • Receipt Printers: From $259 to $369.
  • Cash Drawers: From $129 to $139.
  • Barcode Scanners: From $199 and $289.
  • Retail Kits: From $459 to $999.
  • POS Renting: as low as $9 a day

Apps and Themes

Shopify Apps and Themes

The Shopify App Store and Theme Store are critical parts of the platform’s ecosystem. Merchants can purchase apps and themes to enhance their stores' functionality and appearance. 

Shopify earns a commission on every app or theme sale as an additional revenue stream, incentivizing developers to create and sell their products on the platform.

Shopify Capital

Shopify Capital

Through Shopify Capital, Shopify offers loans to merchants to help them grow their businesses. Shopify makes money by charging a factor rate of around 1.1 to 1.3%  on these loans.

Shopify Fulfillment Network (SFN)

Shopify Fulfillment Network (SFN)

The Shopify Fulfillment Network (SFN) is designed to help merchants streamline the fulfillment process by providing warehousing and shipping services. Merchants can store products in Shopify’s fulfillment centers, and Shopify takes care of packing and shipping.

Shopify charges warehousing and fulfillment fees based on the volume and complexity of the merchant’s operations, much like Amazon's FBA (Fulfillment by Amazon) service. These fees are based on the products you’re selling; you can use the SFN calculator to see exactly how much you need to pay.

Shopify Shipping

Shopify Shipping

Shopify Shipping allows merchants to purchase shipping labels directly through the platform, offering discounts with major carriers like USPS, UPS, and DHL. Shopify earns a margin from these discounted rates while providing merchants with a streamlined shipping solution.

Shopify Email

Shopify Email allows merchants to create and send email marketing campaigns directly from their Shopify dashboard. The service is designed to make email marketing easy and integrated with store data.

It offers 10,000 free emails per month for every plan, after which merchants are charged $1 per 1,000 additional emails sent.

This service helps Shopify earn additional revenue while providing merchants with a simple email marketing solution.

Domain Name Registration

Shopify allows merchants to purchase custom domain names directly through the platform, simplifying the process of setting up an online store. 

While this is not a primary revenue source, Shopify earns revenue from the sale and renewal of domain names.

Domain Name Registration

Referral and Affiliate Programs

Shopify has an extensive affiliate marketing program where bloggers, influencers, and other partners earn commissions for referring new merchants to Shopify. Affiliates earn a percentage of the referred merchant’s subscription fees.

Shopify benefits from acquiring new customers without upfront costs, while affiliates earn a commission on successful referrals.

Bottom Line

Shopify’s diverse business model allows it to generate revenue from multiple sources. From subscription fees and transaction charges to fulfillment services and apps, how Shopify makes money by creating an all-in-one platform that caters to merchants' needs. By offering a comprehensive ecosystem for e-commerce businesses, Shopify continues to scale and grow its revenue streams.

FAQs

What is Shopify's primary source of revenue?

Shopify’s primary revenue sources are subscription fees and transaction fees from merchants using its platform.

Does Shopify charge transaction fees on all sales?

Yes, Shopify charges transaction fees when merchants use third-party payment gateways. These fees are waived if merchants use Shopify Payments.

Is Shopify’s business model sustainable?

Yes. Shopify’s business model is highly sustainable due to its diversified revenue streams, including subscriptions, transaction fees, and additional services like Shopify Capital and Shopify Fulfillment Network

Can small businesses afford Shopify’s fees?

Yes. Shopify offers multiple subscription tiers, starting at $39 per month, making it accessible to small businesses with lower sales volumes. Transaction fees and other costs can vary depending on the merchant's plan.

What is Shopify's main competitive advantage?

Shopify's primary advantage is its complete ecosystem approach, offering everything a business needs to operate online and offline, coupled with its merchant-first philosophy.

 

Sam
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Sam Nguyen is the CEO and founder of Avada Commerce, an e-commerce solution provider headquartered in Singapore. He is an expert on the Shopify e-commerce platform for online stores and retail point-of-sale systems. Sam loves talking about e-commerce and he aims to help over a million online businesses grow and thrive.