While Merchant services drive most of the revenue for Shopify, in reality, subscriptions have a much larger contribution margin. Indeed, in 2022, on $5.6 billion in revenue, merchants’ services generated $1.6 billion in gross profits. On $1.49 billion in revenues, subscriptions generated over a billion dollars in gross profits. In short, subscriptions have a low cost of revenue compared to merchant services. Thus subscriptions carry a gross profitmargin of over 77%, vs. a gross margin of almost 39% for merchant services.
Shopify is an e-commerce platform that enabled over 2 million merchants in 2021 to commercialize their products. While Shopify works with a subscription-based businessmodel, it makes most of its money via merchant services, which are additional services provided to merchants. The company generated over $5.6 billion in revenue, of which $1.5 billion (almost 27% of total revenue) was from subscriptions and $4.1 billion (more than 73% of total revenue) from merchant solutions.
While Merchant services drive most of the revenue for Shopify, in reality, subscriptions have a much larger contribution margin. Indeed, in 2022, on $5.6 billion in revenue, merchants’ services generated $1.6 billion in gross profits. On $1.49 billion in revenues, subscriptions generated over a billion dollars in gross profits. In short, subscriptions have a low cost of revenue compared to merchant services. Thus subscriptions carry a gross profitmargin of over 77%, vs. a gross margin of almost 39% for merchant services.
Shopify was not profitable in 2022, generating over $3.4 billion in net losses. Shopify’s profitability deteriorated in 2022. Indeed, in 2021, driven by the massive wave of e-commerce throughout the COVID-19 pandemic; Shopify had turned to profitability in 2021, generating over $2.9 billion in net income, while it became unprofitable again in 2022.
In just fifteen short years, Shopify has grown from humble beginnings to become one of the fastest-growing eCommerce platforms online. The Shopify eCommerce solution is perhaps best suited to users who desire an easy, flexible and affordable starter solution for their online store. The provider now has upwards of 820,000 stores accounting for 20% of the total market share. However, the continued success of any company in the dynamic digital market is never guaranteed.
Gennaro is the creator of FourWeekMBA, which reached about four million business people, comprising C-level executives, investors, analysts, product managers, and aspiring digital entrepreneurs in 2022 alone | He is also Director of Sales for a high-tech scaleup in the AI Industry | In 2012, Gennaro earned an International MBA with emphasis on Corporate Finance and Business Strategy.
