Before diving into the fintech company Shopify, lets us start with the basics. When was the last time you ordered something online? Is it today or was it just a few days ago? Many customers prefer online shopping, and the number of customers shopping online will increase in the future.
To keep up with the current scenario, it has become imperative for businesses to have an online presence. However, setting up an online store is not an easy task for many small business owners.
Marketing and developing websites are a few of the hurdles faced by businesses. Shopify is one such platform that aims to help businesses around the globe have an online platform.
An Intro to Shopify
Shopify is an e-commerce platform based in Ottawa, Canada. This multinational company provides a cloud-based shopping cart solution that allows anyone to build an online store and sell their product
In 2004, Tobi Lutke, CEO Shopify, wanted to start a snowboarding equipment business. He found it difficult to set up his online store with the existing e-commerce tools. So, Lutke, a computer programmer by profession, decided to use his expertise in building and developing Shopify. Today, Shopify generates billions, and is listed on the New York and Toronto Stock Exchanges.
According to MerchantMaverick, Shopify is popular due to its low startup cost and easy-to-use interface. The all-inclusive online selling platform is a monthly subscription based service that lets business owners choose a pricing plan, thus helping them to create and develop an online store. Businesses can use Shopify to market a wide range of products.
Sources of Revenues For Shopify
Shopify’s mission is to make commerce better for everyone, from aspirational entrepreneurs to large enterprises. The core business of Shopify includes several subscriptions based plans primarily focusing on small and medium-sized businesses. This is what customers pay for using Shopify’s computing tools. There are several plans available for customers to choose from with a 14-day-free-trial period.
The three basic monthly subscription plans are Shopify Basic and the Advanced plan. Apart from these, there is another version called the Plus plan. The $29 Shopify Basic plan is the most subscribed by users. According to AlejandroRioja, between covering the cost of their services, maintaining hundreds of thousands of user accounts, and many more operating costs, the money they generate might not be enough.
Apart from the subscription solution division, Shopify also channelizes income from the merchant solution division. This includes the payment processing fees, transaction fees, shipping charges, Shopify Capital, referral fees from partners, and other additional services offered on the platform. Surprisingly, merchant solutions bring in more revenue and the company expects it to grow faster. The strategic merchant solutions aims to increase the retention rate of subscribers.
So, the company generates revenue from two major sources. Shopify is always one step forward when it comes to introducing technological advancement in their existing services and adding new features to their business model. In 2017, Shopify introduced a new credit card reader, which was a big step in expanding in-person payments. It holds immense potential for growth.
Financial Metrics for Q3 2020
In Q3 2020, the reported total revenue was $767.4 million, a 96% increase from the comparable quarter in 2019. Subscription Solutions revenues of $245.3 million rose 48% YOY. Whereas, Merchant Solutions revenue growth increased 132%, to $522.1 million. New customers joining the platform drove the increase, along with the growth of Gross Merchandise Volume.
The strong financial results of Q3 2020 are because of the highly affordable web hosting rate. You get services and features at $29 that would cost more if you bought them separately. This is the subscription-driven revenue of the company.
Apart from this, other services that it offers to its users drive most of the revenue. Shopify takes a small percentage of the overall cost of sales for every transaction. An ecomelites publication suggests that this rate varies from 2.9% and 2.4% depending upon your plan.
The company takes an additional fee if you use a different payment processor. Either way, Shopify will take part of your gross sales. For example, you may use PayPal as a payment processor. The company will take a fee from the transaction, and an additional fee if PayPal processed the payment.
Overall, Shopify is helping businesses around the world have an online presence and grow their business with innovative tools and assistance from Shopify.