How does Shopify make money? – Shopify’s Business Model

Shopify is by far one of the most popular e-commerce software for creating an online store. Whether you are selling candles or dropshipping, Shopify’s interface makes starting an e-commerce business easy for anyone. Today, Shopify powers over one million businesses in 175 countries around the world. So, if you are wondering how Shopify started and how Shopify makes money, you have come to the right place. 

What is Shopify?

Shopify is a Canadian e-commerce software that allows businesses to set up their online stores. This platform provides everything a beginner needs to start an online store, right from beautiful e-commerce templates to order processing.

Shopify offers high flexibility and allows users to add any design element, plugin, or application. Using its intuitive interface, users can create professional-looking online stores that offer full-featured e-commerce functionality within minutes. In addition, merchants can maintain their online store, process sales, accept payments and fulfil orders.

Apart from providing software for building online stores, this Canadian company also offers retail point-of-sale systems and merchant solutions for small as well as enterprise clients.

Headquarters: Ottawa, Canada
Year founded: 2004
Founders: Tobias Lütke, Daniel Weinand, and Scott Lake
CEO: Tobias Lütke
Website: www.shopify.com
Revenue: US$2.93 billion
Company Snapshot

What is the business model of Shopify?

Shopify is a platform business model as it allows third-parties merchants to sell their products on its cloud-based platform. Shopify enables businesses to reach consumers by providing them with e-commerce tools. Its core business involves subscription-based software services.

How does Shopify make money?

With its easy-to-use interface, Shopify is hugely popular among its customers. Over 29% of online businesses in the USA use Shopify, which has the largest market share of all e-commerce platforms. Shopify makes money from platform subscription fees, merchant solutions, payment gateway fees and through its point of sale software.

Platform Subscription Fees

Shopify generates most of its revenue through multiple subscription levels for its software. It offers the following pricing plans:

  • Basic Shopify

For the price of $29 per month, this plan covers most of the basic features that are needed to operate and maintain a small online store. 

  • Shopify

This plan costs $79 a month and includes five staff accounts and reduced transaction fees

  • Advanced Shopify

Premium plans cost $299 per month and are intended for merchants with a high order volume

Moreover, Shopify also has two other subscription plans — Shopify Lite and Shopify Plus

Shopify Lite is a basic plan, which enables users to add products to their website or sell products on Facebook. The plan costs $9 USD per month.

The Shopify Plus plan is for enterprise customers who handle much higher volumes. Besides its additional features, it has a dedicated Merchant Success Manager. This plan is several times more expensive than the Advanced Shopify plan.

Transaction Fees

Shopify makes money not only from platform subscription fees but also from the usage of third-party payment gateways outside Shopify Payments. The fee charged varies based on the subscription level:

Basic Shopify — 2.0% transaction fees

Shopify — 1.0% transaction fees

Advanced Shopify — 0.5% transaction fees

Merchant Solution Fees

Apart from third-party integrations, Shopify offers its own payment gateway, called Shopify Payments. Shopify Payments is an integrated payment processing service that allows merchants to accept and process payments online and offline 

By joining this, Shopify users do not have to worry about setting up a third-party payment provider or new merchant account. However, it is only available in a few countries. Shopify makes money through this as well. The transaction fees differ based on the tiers of subscriptions.

Basic Shopify — Each payment transaction using Shopify Payments is charged 2.9% plus 30 cents.

Shopify — Each payment transaction using Shopify Payments is charged 2.6% plus 30 cents.

Advanced Shopify — Each payment transaction using Shopify Payments is charged 2.4% plus 30 cents.

87 Percent of Merchants Use Shopify Apps to Run Their E-Commerce Business

Point of Sale software

In addition to its online e-commerce solutions, Shopify also offers Point of Sale software solutions. Shopify POS is a point of sale app that merchants can use to sell their products in person. 

Orders, sales and inventory can be tracked in both physical stores as well as online stores using one platform. The POS features vary depending on the subscription plan.

What is the story behind Shopify?

Most startups often begin as a solution to existing problems. The founding story of Shopify is no different. Let’s dive in!

After being burned out as a software engineer in 2004, Tobias Lutke wanted to pursue a passion. 

In 2004, three friends Tobias Lütke, Daniel Weinand, and Scott Lake wanted to open an online store for snowboarding equipment called Snowdevil. The idea was simple. Snowdevil would be an online store where they would sell snowboards from third parties.

But right away, they ran into a huge problem.

When Tobias Lütke and Scott Lake started looking for e-commerce solutions, they couldn’t find a suitable software that worked for them. 

Existing e-commerce solutions on the market such as Miva, OsCommerce and Yahoo Stores were not user-friendly. Frustrated by this, Lütke, a computer programmer, took it upon himself to build the e-commerce platform for Snowdevil from the ground up.

To do this, he used a new programming framework called Rails, which was created by David Heinemeier Hansson at Basecamp.

Snowdevil was launched after two months of development. 

Eventually, in 2006, the platform that hosted Snowdevil became Shopify. The online store builder that we know today.

79 Percent of Traffic to Shopify Stores Comes from Mobile

In the coming years, Shopify released an API platform and an app store. Using the app store, developers could sell their apps and merchants could browse, buy, and install apps directly. As a result, merchants were able to further customize and improve their website quickly and easily.

Then, in 2013, they implemented Shopify payments. With this addition, merchants no longer had to rely on third-party payment gateways. 

In 2017, they went brick and mortar, producing iPads with a point of sale system that directly accepts debit and credit card payments. 

As of now, Shopify hosts over one million businesses, and it is evident that they have made a significant economic impact across the globe.