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Business Operations Business Models

How Does Shopify Make Money (Business and Revenue Model)

The Shopify business model

Shopify logo
Here’s what you should know:
  • What is Shopify, and how does Shopify work?
  • How does Shopify make money?
  • Merchant Subscriptions
  • Processing and Transaction Fees (from Shopify Payments)
  • Sales Commissions (on Apps and Themes)
  • Advertising Revenue
  • POS Hardware Sales
  • Shopify POS Subscriptions
  • Interest from Small Business Loans (Shopify Capital)
  • Shopify subsidiaries, acquisitions, and exits
  • Shopify profit and revenue
  • What is the Shopify business and revenue model?
  • Shopify funding and market cap

How does Shopify make money? Here is a full, in depth, breakdown of their seven (7) revenue streams and the different products and services they offer, as well as the Shopify business and revenue model, how much Shopify makes per year, and how Shopify works.

What is Shopify, and how does Shopify work?

Shopify is an e-commerce platform that makes it easy for business owners to create and manage their online stores and retail point of sale (POS) systems.

Founded in 2004 by Tobias Lütke and Scott Lake, Shopify began trading on the New York Stock Exchange (NYSE) on May 21, 2015, under the ticker symbol “SHOP”.

Since that time, Shopify now has more than 2.06 million merchants selling on the platform and powers over 1.58 million websites on the internet that are built using Shopify.

So, how does Shopify work? To use Shopify, merchants must first get a Shopify subscription plan. Once that’s done, merchants can begin setting up their online store, taking orders, and more.

Some of Shopify’s competitors include Wix, Squarespace, Square, WooCommerce, and other e-commerce platforms for online stores.

Shopify App in Apple App Store | Shopify Business Model | How Does Shopify Make Money? | How Does Shopify Work?
Source: Apple App Store | Shopify

How does Shopify make money?

According to Shopify, Shopify has more than 2.06 million merchants across 175 countries using its platform. As well as Shopify handling more than $175.36 billion in gross merchandise volume (GMV) in 2021.

So how does Shopify make money off of all these merchants and gross merchandise volume?

Below is a breakdown of how much money Shopify makes and its revenue model. Including all revenue streams and how much they charge for their services.

Here are 7 ways how Shopify makes money in 2022

Shopify has a revenue model that makes money in seven (7) ways; through subscription revenue, Shopify Payment fees, sales commissions on apps and themes, advertising revenue, POS hardware sales, Shopify Capital, and more.

#1. Merchant Subscriptions

Shopify makes most of its money from the subscription plans merchants to create a store on the site. In fact, $1.34 billion or 70.9% of Shopify’s total revenue was from subscription revenue in 2021.

Shopify offers five (5) paid subscription tiers for their merchants; Shopify Lite, Basic Shopify, Shopify, Advanced Shopify, and Shopify Plus. All of which offer their own set of perks like lower transaction and processing fees, the number of staff accounts allowed, and more.

As noted above, Shopify has more than 2.06 million merchants using its platform. Of those, are more than 14,000 merchants using Shopify Plus which includes notable brands like Staples, Heinz, Netflix, and more. All paying between $9 to $2,000+ each, as you can see below.

Shopify Subscription Cost:

  • $9 to $2,000+ per month depending on the plan (you can see a price breakdown of each plan, here)
Shopify Subscription Cost | Shopify Business Model | How Does Shopify Make Money? | How Does Shopify Work?
Source: Shopify

Note: 70.9% of Shopify’s total revenue was from subscription revenue in 2021.

#2. Processing and Transaction Fees (from Shopify Payments)

Shopify also makes money from processing fees and transaction fees on every transaction made through a merchant’s Shopify store.

According to Shopify, they transacted more than $175.36 billion in gross merchandise volume (GMV) on their platform in 2021. In which, each transaction incurred either a processing fee, transaction fee, or both.

The way it works is: if the merchant is using Shopify Payments, they will only pay a processing fee. But if they are not using Shopify Payments, the merchant will pay both fees on every transaction. Which you can see the breakdown of how much Shopify fees are below.

Shopify Fees Per Sale:

  • Processing Fee: 2.4 to 2.9 percent plus $0.30 of every transaction
  • Transaction Fee: 0.5 to 2 percent of every transaction (if not using Shopify Payments)

#3. Sales Commissions (on Apps and Themes)

In addition to subscription and transaction fee revenue, Shopify also makes money through the commissions earned from app and theme sales sold on their Shopify App Store and Theme Store. Which you can see the commission structure below.

Shopify Commission:

  • On Themes: 30 to 50 percent commission on all themes sold
  • On Apps: 0 percent commission on all app sales under $1 million in revenue; 15 percent commission on all app sales once a developer reaches over $1 million in revenue
Shopify Commission | Shopify Business Model | How Does Shopify Make Money? | How Does Shopify Work?
Source: Shopify

Note: There are more than 8,000 apps available on the Shopify App Store.

#4. Advertising Revenue

Another way Shopify makes money is through the ad revenue they collect from developers advertising their apps on the Shopify App Store.

Shopify ads run on a cost per click (CPC) model, so advertisers are charged only when someone clicks on their ad.

#5. POS Hardware Sales

For merchants who also sell or only sell in-person, Shopify also sells point of sale (POS) hardware through their online hardware store from which they make money from as well.

Here, retail store owners can find POS hardware like card readers, retail stands, and more that all integrate with Shopify’s software and payment systems. You can see how much POS hardware costs below.

Shopify POS Hardware Cost:

  • Products range in price from $9 to $639+
POS card reader
Source: Shopify

#6. Shopify POS Subscriptions

Another subscription service Shopify offers is for their POS retail merchant stores.

Once a merchant purchases the Shopify POS hardware (as talked about above), they can then choose from 1 of the 2 POS subscription tiers Shopify offers; Shopify POS Lite and Shopify POS Pro. You can see the cost of Shopify POS Lite & Pro, below.

Shopify POS Lite & Pro Cost:

  • POS Lite: credit card rates start at 2.4% + 0¢ USD (plus you need a paying Shopify plan)
  • POS Pro: $89 per month (per location)

Note: Shopify POS merchants need to pay for a Shopify Basic Plan (minimum) plus the Shopify POS plan.

#7. Interest from Small Business Loans (Shopify Capital)

Shopify also makes money as a lender with Shopify Capital.

The way it works is Shopify gives small business loans, or advances, to Shopify merchants based on the merchant’s sales history and risk profile. Once the factor rate and repayment rate are determined, that loan is then paid back to Shopify through them taking a percentage of the merchants gross daily sales until the full loan amount is paid back in full.

An example Shopify uses for this is, “Shopify Capital might advance you 5,000 USD for 5,650 USD paid from your store’s future sales, with a remittance rate of 10%. The 5,000 USD amount that you receive is transferred to your business bank account, and Shopify Capital receives 10% of your store’s gross daily sales until the full 5,650 USD total to remit has been remitted. After you remit over 25% of your total to remit, then you have the option to remit the remaining balance in a single lump sum.”

Note: Shopify Capital has funded over $2 billion to merchants.

Shopify subsidiaries, acquisitions, and exits

To date, Shopify Inc. has made a total of 14 acquisitions, 12 investments, and 2 lead investments.

Mergers and acquisitions business model
Source: Crunchbase | Shopify

Shopify profit and revenue

In 2021, Shopify reported $4.61 billion in revenue.

Note: Because Shopify Inc. is a publicly traded company, under the Securities Exchange Act of 1934, they must file continuous financial filings with the U.S. Securities and Exchange Commission (SEC). You can find all of Shopify’s publicly released financial reports, including annual reports, through Shopify’s investor section on their website.

What is the Shopify business and revenue model?

Shopify makes money through a few revenue models that they combine within their company, they are:

  • Subscription based business model
  • Fee-for-service (FFS) business model
  • Commission based business model
  • Advertising based business model
  • Transaction based business model
  • Referral business model
  • Business-to-business (B2B) business model
  • B2B2C (partnerships) business model
  • Mergers and acquisitions (M&A) business model

Shopify funding and market cap

According to Shopify’s Crunchbase profile, Shopify raised $122.3 million over 4 rounds with a market cap of $40.19 billion as of June 2022.