shopee-business-model

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

Shopee is a Singaporean eCommerce site founded in 2015 by Forrester Li which employs a typical marketplace revenue-based business model. Sellers are charged a commission fee and transaction fee for every sale they make on the platform. Shopee sells a range of ancillary and complimentary services. The company offers to take care of the fulfillment process for sellers and provides its own digital wallet as a payment option.

Background

Shopee is a Singaporean multinational tech company focused primarily on eCommerce. The company was founded by Forrest Li, a quiet and unassuming gaming enthusiast who owns the online gaming platform Garena.

Witnessing the success of similar C2C service Lazada, Li and his associates at Garena decided to branch out from gaming and enter the lucrative SE Asian eCommerce market.

Shopee was launched in Singapore in 2015 as a socially oriented mobile marketplace for the buying and selling of goods. The platform set about eliminating many of the common issues shoppers have when purchasing items on their smartphones.

A secure payment service, Shopee Guarantee, was introduced to help buyers avoid being scammed by sellers. Shopee also incorporated many features more at home on a social media site, including a buyer-sell chat option, newsfeed, and hashtag-based product searches.

With generous funding from its parent company, Shopee then invested in a distribution service that stores and ships products on the seller’s behalf.

On the back of a high-profile endorsement from football star Cristian Ronaldo, Shopee eventually overtook Lazada to become the most popular eCommerce site in the SE Asia region. Expansion into Chile, Mexico, Colombia, and Brazil followed.

Boosted by the COVID-19 pandemic, Shopee revenue totaled $1.78 billion in 2020.

During the same year, Shopee became the third most downloaded shopping app in the world.

Shopee revenue generation

Through various fees and commissions, Shopee utilizes the marketplace revenue generation model common to many platforms.

Following is a look at how the company makes its money.

Marketplace commission

When a seller makes a sale, they must pay Shopee a commission.

The exact fee charged is dependent on the product category, the total number of sales, and the location where the sale was made. 

Products sold in the regular marketplace attract a commission of 1-2%. Products sold in the Shopee Mall, on the other hand, may attract a fee as high as 6%.

Transaction fees

The company also charges sellers a transaction fee of around 2% to cover the cost of the payment.

Advertising

To increase product visibility, Shopee sellers can pay to promote their products in product searches, shop searches, or within the platform’s Facebook-esque news feed.

Shopee uses the CPC model to make money. When a buyer clicks on an advert, the seller pays a small fee to the company.

Essentially, the fee depends on the competitiveness of the keyword with the seller willing to pay the most occupying the most visible position. 

Fulfillment

Fulfilled by Shopee (FBS) is the name given to a distribution service allowing sellers to have their goods stored and shipped by Shopee. 

The fee for this service is on a per-item basis and depends on the size and weight of the item.

Payment fees

Sellers can also opt to accept the ShopeePay digital wallet as a form of payment. When a buyer uses this service, the seller must pay an undisclosed fee to Shopee. 

Delivery and restaurant commission fees

Shopee also operates a food delivery service called ShopeeFood

Again, the rates for using this service are undisclosed. But it can be assumed that Shopee collects an order commission from each participating restaurant and charges consumers a delivery fee.

Key takeaways:

  • Shopee is a Singaporean eCommerce site founded in 2015 by Forrester Li. The platform was created after Li noticed the success of Lazada in the southeast Asian market.
  • Shopee employs a typical marketplace revenue generation strategy. Sellers are charged a commission fee and transaction fee for every sale they make on the platform.
  • Shopee sells a range of ancillary and complimentary services. The company offers to take care of the fulfillment process for sellers and provides its own digital wallet as a payment option. Shopee has also entered the food delivery market where it charges delivery fees and restaurant commissions.

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