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.

Connected Last-Mile Delivery Business Models

Deliveroo Business Model

Deliveroo is a British online food delivery company founded by Greg Orlowski and Will Shu in 2013. Shu developed the platform in response to a lack of high-quality food delivery in London. Deliveroo makes money by collecting 25-45% of every order it facilitates. It also charges delivery fees and onboarding fees for restaurants that wish to be featured on the platform. Deliveroo for Business is a service designed for corporate clients needing to order food in bulk. The company also charges a higher commission to businesses that utilize a network of digital kitchens to process orders.

DoorDash Business Model

DoorDash is a platform business model that enables restaurants to set up at-no-cost delivery operations. At the same time, customers get their food at home, and dashers (delivery people) earn some extra money. DoorDash makes money by markup prices through delivery fees, memberships, and advertising for restaurants on the marketplace.

Glovo Business Model

Glovo is a Spanish on-demand courier service that purchases and delivers products ordered through a mobile app. Founded in 2015 by Oscar Pierre and Sacha Michaud as a way to “uberize” local services. Glovo makes money via delivery fees, mini-supermarkets (fulfillment centers that Glovo operates in partnership with grocery store chains), and dark kitchens (enabling restaurants to increase their capacity).

GrubHub Business Model

Grubhub is an online and mobile platform for restaurant pick-up and delivery orders. In 2018 the company connected 95,000 takeout restaurants in over 1,700 U.S. cities and London. The Grubhub portfolio of brands like Seamless, LevelUp, Eat24, AllMenus, MenuPages, and Tapingo. The company makes money primarily by charging restaurants a pre-order commission, and it generates revenues when diners place an order on its platform. Also, it charges restaurants that use Grubhub delivery services when diners pay for them. 

Lyft Business Model

Lyft is a transportation-as-a-service marketplace allowing riders to find a driver for a ride. Lyft has also expanded with a multimodal platform that gives more options like bike-sharing or electric scooters. Lyft primarily makes money by collecting fees from drivers that complete rides on the platform.

OpenTable Business Model

OpenTable is an American online restaurant reservation system founded by Chuck Templeton. During the late 90s, it provided one of the first automated, real-time reservation systems. The company was acquired by Booking Holding back in 2014 for $2.6 billion. Today OpenTable makes money via subscription plans, referral fees, and in-dining with its first restaurant, as an experiment in Miami, Florida.

Postmates Business Model

Postmates is a food delivery service built as a last-mile delivery service platform connecting locals with shops. Postmates makes money by collecting fees (commission, delivery, service, cart, and cancellation fees). It also makes money via its subscription service (called Unlimted – $9.99/month or $99.99 annually), giving free delivery on orders of more than $12.

Uber Eats Business Model

Uber Eats is a three-sided marketplace connecting a driver, a restaurant owner, and a customer with Uber Eats platform at the center. The three-sided marketplace moves around three players: Restaurants pay commission on the orders to Uber Eats; Customers pay small delivery charges and, at times, cancellation fees; Drivers earn through making reliable deliveries on time.

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