Shopify lets people who want to build a website pay as little as $29 per month for its services. How does it make money?
Shopify is a business that has been around since 2004. It started out as an online store called Snowdevil for people who liked to snowboard.
Because the founders weren’t happy with how online web developers offered their services, they decided to build their own online store from scratch using an application called Ruby on Rails.
Later, the founders Tobias Lütke, Daniel Weinand, and Scott Lake started their own web development platform for online stores. They called it Shopify. They wanted to make it easier for online sellers to make a website, so in 2006 they started Shopify.
As the company grew, it was able to go public and sell its shares on both the New York Stock Exchange and the Toronto Stock Exchange. Today, Shopify makes $29 billion in sales and helps more than 500,000 online stores stay open.
Then what happened?
From a store to a website
Because the founders were having trouble making a good website for their store, they came up with a solution. They wanted a product that is easy to use, works well, and looks good.
As their number of customers grew, the company’s founders started adding services for sellers and encouraging software developers to make themes and apps so that Shopify, merchants, and software developers could all work together.
Shopify is getting ready to compete with Amazon right now. It said at Shopify Unite in June 2019 that it will set up warehouses or fulfillment centers all over the United States. This means that people who sell on the Shopify platform no longer have to worry about shipping, since Shopify will take care of it.
How Shopify Makes Money
Shopify is not a company that is out for money. It has a lot of services for a small fraction of what they would cost from other providers. For example, hosting your website is already included in what you pay for. You also get a payment processing system, a blog, unlimited bandwidth, a free domain name if you need one, and so much more.
How does Shopify make all that money?
the amount of money made from subscription sales
As of June 2019, Shopify has 820,000 customers. If we assume that each subscriber pays $29 per month, this means that the company makes $23,780,000 per month.
That’s the same as $285,360,000 in a year.
A merchant doesn’t need to look anywhere else if the cost of web hosting is very low. And for $29, what do you get?
Here’s what you get if you use Shopify’s $29-per-month Basic Plan to open an online store:
- A website that sells things and has a blog is called an e-commerce site.
- Site hosting
- Uploads of unlimited products
- Two accounts for staff
- 24/7 support
- There are different ways to sell on social media.
- Free SSL Certificate: You can give your customers discount and coupon codes.
- Recovering an abandoned cart
- System for taking payments
If you buy these features separately, each month will cost you hundreds of dollars. Also, Shopify users don’t have to pay once a year. You can pay every month, and you can also try it for free for 14 days.
Transaction fees bring in money.
Shopify takes a small cut of the total cost of sales from each transaction. This rate varies between 2.9% and 2.4%, depending on your plan.
The following are the fees for each plan:
- Basic – 2.9% + $0.030
- Shopify – 2.5% + $0.00
- Ahead of Time – 2.4% + $0.00
Also, if you use a different payment processor than Shopify, you have to pay an extra fee. Shopify will take a cut of your sales no matter what. One example of a payment processor is PayPal. Shopify will charge a fee for the transaction, and if the payment was made through PayPal, Shopify will charge an extra fee.
Costs include:
- Basic – 2%
- Shopify – 1%
- Getting ahead – 0.5%
Now, if you sell a product for $90 and charge $10 for shipping, a customer will pay $100 for it. Shopify will take $3.20 from that hundred dollars.
Here are the numbers:
- 2.9% X $100 = $2.90
- $2.90 + $0.030 = $3.20
Shopify said in June 2019 that there were 218 million buyers on its platform and that total sales for 2018 were $100 billion.
If each of the 218 million buyers spent at least $10, that’s $10 times 218 million transactions, which equals $2,180,000,000.
This means that 2.9% of $2,180,000,000 is $63,220,000. The transactions alone brought in $63 million. We haven’t yet added the $0.30 per transaction and the extra 2% fee from merchants who used other payment processors.
The Partner Ecosystem brings in money.
Shopify also has something called the Shopify Partner Program, which is another way to make money. It’s a program that lets you:
- Send people to Shopify.
- Make apps that Shopify sellers can use
- Make Shopify themes that people can buy.
People who don’t want to sell in stores but do want to sell apps and features that merchants can use on their Shopify online stores can join the partner program.
For example, you can make a shipping app that automatically figures out the weight and dimensions of the box for any destination in the world. A Shopify merchant who wants to use this app will have to pay you a monthly subscription fee.
Designers, theme developers, software developers, and affiliate marketers can use the program. This means that people can make money in Shopify in more ways than just by setting up a website. They can also make money by selling tools to retail merchants.
If you are a Shopify Partner, you can use the Shopify ecosystem to launch your app or theme. If a merchant buys it, the money will be split between you and Shopify. We call this a “Revenue Share.”
So, how much money does Shopify make from all of this?
It’s hard to say. Shopify charges the developers different fees based on the product. The Revenue Share is different for apps and themes, and it also depends on the Shopify plan of the merchant who bought the app or theme.
The fee is usually between 10% and 20% of the merchant’s monthly subscription, and Shopify will keep charging it as long as the merchant is using that app or theme.
So, if you sell a banner app for $5 per month, Shopify will take $1 off of that.
If 10,000 Shopify merchants sign up for this app, the math will be as follows:
$5 times 10,000 is $50,000 per month in gross app sales.
20% X $50,000 = $10,000 per month Shopify sales
And that’s just for a single app. In the world of Shopify, there are thousands of apps. So, if we try to figure out how much Shopify makes from this and assume that 1,000 people pay $5 each for 1,000 apps, Shopify makes $1,000,000 per month.
Here’s how to figure that out:
$1,000 in app sales comes from 1,000 apps with 1,000 subscribers who pay $5 each. 20% of $5 million is $1 million, which goes to Shopify.
Counting the Money Made
So, we’ve looked at the three ways Shopify makes money. Let’s figure out how much it makes each month.
- Sales of subscriptions times the number of sales = $23,780,000 per month.
- Transaction Fees Bring in $5,268,333 per month.
- The Partner Program brings in $1,000,000 per month.
Shopify makes a total of $30,048,333 each month.
This is, of course, just an average amount of money made. Shopify merchants make more money during the holidays because they sell more items.
Summary
Shopify has grown into a huge business, and now it is ready to take it to even higher levels. The sales from Shopify POS are not even counted in the numbers we used. It is a way for people who don’t want a Shopify store to charge credit cards without using Shopify.
Shopify is now the third biggest platform for selling things online in the US. Amazon and eBay are number one and two. Both were started in the late 1990s, giving them a five-year head start over Shopify. Shopify has more sales than both Apple and Walmart.
Also, our calculations are based on averages instead of the real numbers, which only Shopify could know. Shopify said in June 2019 that its apps have been downloaded 29 million times, but it’s not clear if these are Shopify apps or apps from the partner program.
Now that Shopify has warehouses all over the United States, it can increase sales even more because shipping will take less time. Also, international sellers can send their items to the fulfillment center, and Shopify will send them directly to the buyer.
Because of this, merchants will spend less on shipping and will be able to put more money into advertising.
