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.

Business Model Element	Analysis	Implications	Examples
Value Proposition	Shipt’s value proposition revolves around convenience and time-saving. For Customers, Shipt offers: – Grocery Delivery: The convenience of having groceries delivered to their doorstep. – Time-Saving: Eliminates the need for physical shopping, saving time. – Product Variety: Access to a wide range of grocery items from local stores. For Retail Partners, Shipt provides: – Expansion of Customer Base: Access to a broader customer base through Shipt’s platform. – Technology Support: Shipt’s technology solutions for efficient order fulfillment. Shipt’s value proposition appeals to busy consumers seeking convenient grocery shopping and retailers looking to expand their reach.	Offers convenience and time-saving benefits to customers. Eliminates the need for physical grocery shopping, saving time. Provides access to a variety of grocery items. Helps retail partners expand their customer base and offers technology solutions for order fulfillment. Attracts busy consumers and retailers seeking a broader reach.	– Convenience and time-saving benefits are the core of Shipt’s value proposition. – Wide product variety meets the needs of diverse customer preferences. – Retail partners benefit from access to a broader customer base.
Customer Segments	Shipt primarily serves two customer segments: 1. Consumers: Busy individuals and families who prefer the convenience of having groceries delivered to their doorstep. 2. Retail Partners: Local grocery stores and retailers looking to offer online delivery services and expand their reach. Shipt customizes its platform to meet the specific needs of both segments, providing a seamless shopping experience for customers and an opportunity for retailers to tap into the online grocery market.	Serves two main customer segments: 1. Busy consumers seeking grocery delivery convenience. 2. Retail partners looking to offer online delivery and expand their reach. Customizes the platform to meet the unique needs of each segment. Provides a seamless shopping experience for customers and a channel for retailers to tap into online grocery sales. Focuses on connecting consumers with local stores and retailers seeking digital expansion.	– Catering to two customer segments creates a balanced marketplace. – Tailoring the platform enhances user satisfaction and engagement.
Distribution Strategy	Shipt’s distribution strategy relies on its mobile app and website, which enable customers to place grocery orders and personal shoppers to fulfill them. Customers can browse products, select items, and schedule delivery through the platform. Shipt also partners with local grocery stores and retailers, allowing them to list their products on the platform. The company utilizes a network of personal shoppers who physically shop for and deliver orders. Shipt engages in partnerships with grocery chains and retailers to expand its service area.	Relies on its mobile app and website for distribution. Provides customers with a platform to place orders, browse products, and schedule delivery. Partners with local grocery stores and retailers to list their products on the platform. Utilizes personal shoppers who shop for and deliver orders. Expands its service area through partnerships with grocery chains and retailers.	– Digital distribution aligns with modern shopping practices. – Ease of access encourages user engagement and transactions. – Partnering with local stores and retailers expands product variety. – Personal shoppers ensure efficient order fulfillment.
Revenue Streams	Shipt generates revenue primarily through two streams: 1. Membership Fees: Customers pay a monthly or annual membership fee to access Shipt’s services, including free delivery for orders above a minimum threshold. 2. Delivery Fees: Shipt charges a fee for each grocery delivery, which contributes to its revenue. These revenue streams provide a consistent income source for the company.	Relies on revenue streams from: 1. Membership fees paid by customers for access to services. 2. Delivery fees charged for each grocery delivery. Diversifies income sources through membership fees and delivery charges. Encourages customer loyalty through membership perks like free delivery.	– Membership fees provide a recurring source of income. – Delivery fees contribute to overall revenue per order. – Membership perks encourage customer retention and frequent use.
Marketing Strategy	Shipt’s marketing strategy includes digital marketing, partnerships with grocery chains, referral programs, and customer support. The company employs digital marketing channels, including online advertising and email campaigns, to reach potential customers and promote its services. Shipt forms partnerships with grocery chains and retailers to expand its service area and enhance product variety. Referral programs encourage customers to refer others to the platform. The company provides customer support to assist users with inquiries and issues.	Utilizes digital marketing, partnerships, referral programs, and customer support for marketing. Employs digital channels for online advertising and email campaigns to reach potential customers. Forms partnerships with grocery chains and retailers to expand its service area and product variety. Implements referral programs to incentivize customers to refer others. Provides customer support for user inquiries and issue resolution.	– Digital marketing channels reach potential customers effectively. – Partnerships expand Shipt’s service area and product catalog. – Referral programs drive user acquisition through customer incentives. – Customer support enhances the user experience and builds trust.
Organization Structure	Shipt’s organizational structure includes teams dedicated to product development, technology, marketing, customer support, and partnerships with grocery chains and retailers. Product development and technology teams focus on enhancing the platform’s features and user experience. Marketing teams promote Shipt’s services and engage with the user community. Customer support teams assist users with inquiries and issues. Partnerships teams collaborate with grocery chains and retailers to expand the platform’s reach. This structure supports innovation, user satisfaction, and ecosystem growth.	Employs specialized teams for product development, technology, marketing, customer support, and partnerships. Enhances platform features and user experience through product development and technology teams. Promotes services, community engagement, and partnerships through marketing teams. Assists users with inquiries and issues via customer support teams. Collaborates with grocery chains and retailers through partnerships teams to expand the platform’s reach. Supports innovation, user satisfaction, and ecosystem growth.	– Specialized teams ensure a user-friendly platform with evolving features. – Marketing teams drive user engagement, community growth, and partnerships. – Customer support enhances the user experience and maintains trust in the platform. – Partnerships expand the platform’s ecosystem and capabilities.
Competitive Advantage	Shipt’s competitive advantage lies in its focus on convenience, efficient delivery, and partnerships with local grocery stores. Customers benefit from time-saving and convenience through grocery delivery. Shipt’s partnerships with local grocery stores enhance product variety and allow for the availability of fresh and local items. The company’s network of personal shoppers ensures efficient order fulfillment, meeting customer expectations for timely deliveries. Shipt’s ability to collaborate with grocery chains strengthens its position in the competitive grocery delivery market.	Derives a competitive advantage from: – Focus on convenience and time-saving for customers. – Partnerships with local grocery stores for product variety. – Efficient order fulfillment through personal shoppers. – Collaborations with grocery chains to expand its reach. Attracts busy customers seeking convenient grocery shopping and strengthens its position in the grocery delivery market. Delivers on customer expectations for convenience and timely deliveries.	– Convenience and time-saving benefits are at the core of Shipt’s competitive edge. – Local partnerships provide a wide range of product choices. – Efficient order fulfillment ensures customer satisfaction. – Collaborations with grocery chains enhance the platform’s reach and competitiveness.

Table of Contents

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.

Key Highlights

Integrated Delivery Service: Shipt is an integrated North American delivery service that specializes in groceries, home products, and electronics.
Founder and Entrepreneurial Background: Shipt was founded by entrepreneur Bill Smith, who previously had success with other startups. In 2014, he invested $3 million of his own money to launch the initial version of Shipt.
Advent of Convenience Services: Inspired by the convenience services trend set by companies like Amazon Prime, DoorDash, Postmates, and Uber, Smith launched Shipt to redefine convenience in same-day delivery.
Acquisition by Target: To compete with industry giants like Amazon and Walmart, Shipt was acquired by Target in 2017 for $550 million. It continues to operate as an independent subsidiary.
Revenue Generation Model:
- Membership Fees: Shipt’s primary revenue comes from membership fees. Users pay either monthly or annually to access exclusive discounts and free shipping on qualifying orders.
- Delivery and Service Fees: Shipt charges a $7 delivery fee for orders under $35. Additional service fees cover order assembly and contractor recruitment, training, and verification.
- Sales Commissions: Shipt earns sales commissions from retailers for every sale on its platform. This commission is a percentage of the total purchase price.
- Shipt Pass: For users who prefer a one-time delivery without a subscription commitment, Shipt offers Shipt Passes for a fee.
- Price Markups: Shipt offers goods at prices that can be higher than in-store prices, with a markup that may be as high as 20%.
Subscription-Based Revenue: Shipt’s revenue model primarily relies on monthly and annual subscription fees from users, providing them with access to its delivery services and discounts.
Convenience and Same-Day Delivery: Shipt leverages the increasing demand for convenient delivery services in the retail industry, offering users a way to shop for groceries, electronics, and home products with ease.
Variety of Fees: The revenue structure includes multiple fee types, from delivery and service fees to sales commissions and one-time delivery passes, allowing users to choose the best option for their needs.
Retail Partnership: Shipt collaborates with retailers and earns a share of sales from transactions on its platform, creating a mutually beneficial partnership.
Acquisition Strategy: The acquisition by Target enabled Shipt to enhance its reach and services while benefiting from the resources and reputation of a major retailer.
User-Centric Approach: Shipt’s subscription and fee-based model caters to users seeking convenience, timely delivery, and value-added benefits in their shopping experience.