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How Does Shipt Make Money? The Shipt Business Model In A Nutshell

Shipt is a North American integrated delivery service for groceries, home products, and electronics initially funded by Bill Smith, a highly experienced entrepreneur with a history of creating successful start-ups; in 2014, Smith used $3 million of his own money to create the first iteration of Shipt, the company was acquired by Target in 2017 in a cash deal worth $550 million. Membership fees predominantly drive Shipt revenue generation.

Origin Story

Shipt is a North American integrated delivery service for groceries, home products, and electronics.

Shipt was founded and initially funded by Bill Smith, a highly experienced entrepreneur with a history of creating successful start-ups.

After his business selling prepaid Visa cards was acquired in 2014, he started to look for his next idea. At the time, services such as Amazon Prime, DoorDash, Postmates, and Uber were redefining the notion of convenience. Many offered same-day delivery by using independent contractors.

In 2014, Smith used $3 million of his own money to create the first iteration of Shipt. Initially launched to 1,000 customers in Birmingham, Alabama, the service could be found in 27 cities across nine states two years later.

To better compete with the established delivery operations of Amazon and Walmart, Shipt was acquired by Target in 2017 in a cash deal worth $550 million. Today, the company continues to operate as an independent subsidiary.

Shipt revenue generation

Shipt revenue generation is predominantly driven by membership fees.

This fee is paid by users on a monthly or annual basis, giving them access to exclusive discounts and free shipping on orders over a certain threshold.

A monthly subscription costs $14. Alternatively, users can choose to save money by paying $99 annually. There is also a free, 2-week trial subscription to get customers interested in the service and hopefully switch them to a paid plan.

Delivery and service fees

Shipt charges a delivery fee of $7 for all orders under $35.

Services fees are also charged to cover the cost of assembling the orders by the aforementioned contractors. Shipt may also charge a service fee to cover costs associated with the vetting and recruiting of each contractor. This process involves a basic interview process plus a background check, car insurance verification, and job training.

In any case, it is safe to assume Shipt takes a portion of the delivery and service fee before passing it on to the contractor.

Sales commissions

In a revenue-sharing agreement with retailers, Shipt also earns a commission from every sale on its platform.

The sales commission is basically a percentage of the total purchase price agreed upon between each party.

Shipt Pass

A Shipt Pass is a fee charged for a one-time delivery for consumers who prefer not to sign up for a monthly commitment.

A single pass can be had for $10. Alternatively, passes can be bought in packs of three ($27) or five ($40).

Price markups

Prices for goods offered on Shipt will be different from those offered in-store. The differential between these two prices may be as high as 20%.

The exact percentage markup is likely determined by historical sales data and what the company believes it can charge without negatively impacting sales.

Key takeaways

  • Shipt is an integrated grocery, electronics, and home goods delivery platform. It was founded and initially funded by entrepreneur Bill Smith to take advantage of a retail trend toward same-day delivery.
  • Shipt revenue generation is driven by paid subscriptions. After a free trial, users must pay monthly or annually to use the service. All transactions are subject to a commission and markup fee.
  • Shipt also charges a delivery fee for orders under $35. A service fee is also applicable to pay for the cost of order assembly and contractor recruitment, training, and verification.

Read Also: How Does Instacart Make Money, How Does Postmates Make Money, How Does DoorDash Make Money, How Does Uber Eats Make Money, The Walmart Business Model, How Does Grubhub Make Money, Costco Business Model, Who Owns Whole Foods, Last-Mile Delivery.

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Gennaro Cuofano

Gennaro is the creator of FourWeekMBA which reached over a million business students, executives, and aspiring entrepreneurs in 2020 alone | He is also Head of Business Development for a high-tech startup, which he helped grow at double-digit rate | Gennaro earned an International MBA with emphasis on Corporate Finance and Business Strategy | Visit The FourWeekMBA BizSchool | Or Get The FourWeekMBA Flagship Book "100+ Business Models"