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What's your business model?

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How does Shopify make money?

Shopify offers subscriptions and charges fees for payment processing, transactions and referrals

Innovation series by Steven Loeb
August 7, 2015
Short URL: http://vator.tv/n/3f61

The second generation of e-commerce is having a moment right now, with huge amounts of money being invested. There was a total of $11.2 billion put into the e-commerce sector in 2014, an increase of 133% from the $4.8 billion invested in 2013. This is the highest total funding for the e-commerce space in at least five years.

If I had to think of a company that I would consider to be a leader of this movement, it might be Shopify, a commerce platform that allows anyone to sell their goods online at a retail location. 

It offers a professional online storefront, a payment solution to accept credit cards, and the Shopify POS application to power retail sales. Sellers can organize their products, customize their storefront, accept credit card payments, track and respond to orders.

The company, which went public earlier this year, makes its money in two ways.

Subcription Solutions

The company offers three separate plans. The first is its Basic plan, which costs $29 per month, and which comes with the ability to sell unlimited products, a card reader, a discount code engine, fraud analysis tools and 24/7 support.

The other two plans are the Professional plan, which costs $79 a month, and its Unlimited plan, which costs $179 a month. These plans come with the ability to sell gift cards, professional reports, an abandoned cart recovery, an advanced report builder and real-time carrier shipping.

The company also offers Shopify Plus, a subscription plan for merchants with higher volume sales and additional functionality requirements, that was launched in 2014. It comes with a scalable SaaS platform, unlimited bandwidth, and over 70 payment gateways. There is no set price for these subscriptions

Finally, additional subscription solutions revenues comes from merchants that have subscription plans through the sale of themes and apps and the registration of domain names.

Revenue from subcriptions make up the bulk of Shopify's revenue. In 2014, subscription solutions revenues accounted for 63.5% of the company's total revenues. In the second quarter of 2015, Shopify made $25.5 million in revenue from this segment.

Merchant Solutions

There is another difference between these plans, and that brings us to the next way that Shopify makes its money: through merchant solutions, which includes revenues from payment processing fees from Shopify Payments, transaction fees, referral fees from partners and sales of POS hardware

Each plan offers different credit card rates. They are as follows:

  • For the Basic plan, the rate is 2.9% + 30 cents for online payments, and 2.7% + 0 cents for in-person. 
  • For the Professional plan, the rate is 2.6% + 30 cents for online payments, and 2.4% + 0 cents for in-person. 
  • And for the Unlimited plan, the rate is 2.4% + 30 cents for online payments, and 2.2% + 0 cents for in-person.

Each plan offers zero transaction fees if the merchant uses Shopify Payments. If they use an external payment gateway, however, there is 2%, 1% of 0.5% transaction fee for Basic, Professional and Unlimited plans, respectively. 

In 2014, merchant solutions revenues accounted for 36.5% of total revenues. In the second quarter of 2015, Shopify made $19.5 million from this segment.

Founded in 2006, the company currently powers over 160,000 businesses in approximately 150 countries, including: Tesla Motors, Budweiser, Google, Wikipedia, LA Lakers, GoldieBlox, and many more.

There are more than 175,000 active shopify stores, which have done over $10 billion in sales. 

Before going public, Shopify raised $122 million in venture funding, most recently a $100 million funding round from OMERS Ventures, Insight Venture Partners, Bessemer Venture Partners, FirstMark Capital, Georgian Partners and Felicis Ventures in December 2013.

(Image source: shopify.com)


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