Pricing Page Teardown - Shopify: Mission metric or mission impossible?
Can Shopify Grow for 100 years?
This episode might reference ProfitWell and ProfitWell Recur. Some information may be out of date.
Shopify
Shopify is worth over $100 billion and is used by over one million businesses in more than 175 countries. The company was founded in 2006 by Tobias Lutka and Scott Lake, who started an online store called Snowdevil that sold snowboards. Tobi built the site himself from scratch in just two and a half months. The unique design of the Snowdevil website caught people's attention and they wanted to license the software he used to build it. Tobi and Scott realized software was going to be a better business than snowboards, so they founded Shopify. The company revolves around increasing customers' sales and revenue. Although Shopify has been successful, it has lagged behind some of its competitors in internationalization and some fear it will not be able to stave off competition from ecommerce giant Amazon, as well as competitors like Bigcommerce, Magento, and BigCartel.
The question is: Will its focus on the mission metric be enough to continue its growth in a market that’s diversifying rapidly? Does the calculus change when you realize Amazon has everything Shopify has except the storefront, something that appears easy to add? It seems this market is Shopify’s to lose, but we’re going to answer these questions by collecting data from 10, 542 current and prospective Shopify customers. Read on for all the data and answers to these questions.
Shopify's pricing page
Dominating through alignment
Do you remember the days when you were scared to buy things online? And now you can buy everything and anything and it'll get to you in like two days. I think there's some really interesting ecommerce brands, and obviously ecommerce has made it so that anyone and everyone can basically start a brand, which is what Shopify has basically enabled for at least a million stores.
Shopify's dominance comes from their focus on boosting the GMV for their customers by organizing page navigation, optimizing pricing strategy, changing packaging, and building products. Unlike competitors who spent too much time on details, Shopify kept moving forward. By aligning the entire company around this mission metric, even imperfect execution can generate beautiful results in a fast-growing market.
Low barrier to entry
First, it's easy to get started with a low barrier to entry - the free trial button is prominently displayed. The entry point to the paid plan is just $29 a month, which makes it accessible even to aspirational entrepreneurs. After listening to a podcast or watching a YouTube video, many people are pumped to start their business and are willing to pay the fee.
When it comes to subscription companies, relationships are key. It's not just about the initial conversion, but about growing the relationship over time. Focus on making it easy for people to sign up and provide opportunities for growth, whether it's through a freemium model, free trial, or low price point. Shopify is a great example of a company that does this well, catering to big brands and small startups alike.
Pricing page copy
Pricing page copy is key for positioning the entry point for customers. Instead of just offering silver, gold, or platinum plans, Shopify has a basic plan for starting a new business, a main Shopify plan for growing businesses, and an advanced Shopify plan for scaling businesses. Established businesses opt for Advanced Shopify, while high-volume merchants and large businesses can explore enterprise-grade solutions with Shopifyplus. To guide customers to the right plan, put them in a contextual position and ensure they understand what type of business they are. Shopify's design could use some work, but it's important to funnel customers to the right place within the first 10-20 seconds.
Data and analysis
Rally your pricing around a performance or mission metric
To learn from Shopify, focus on pricing based on a performance or mission metric. For example, if you're a marketing platform, charge based on the revenue generated by your CMS system, email marketing, etc. Shopify charges merchants based on how much revenue or gross merchant value is pushed through their platform. They differentiate themselves by taking a percentage of online credit card fees, ranging from 2.9% for the lowest plan to 2.4% for the highest plan.
If you use Shopify payments, they take a percentage cut, which increases with your sales volume. They also charge you a fee if you don't use Shopify payments. This is a significant revenue stream for Shopify, and it's why Wall Street likes them. The more advanced merchants can negotiate a better price because they know about the cut. Shopify payments is convenient and flexible, making it a win-win situation.
Some ecommerce platforms, like Demandware, are transparent about their fees. They charge a 3% fee and offer optimization and store management services. This performance metric is reasonable. Shopify provides tools but doesn't handle fulfillment. They blame the credit card company for fees, which is an acceptable proxy for small businesses. Larger businesses may appreciate their lower credit card transaction fees.
That's a big lesson for most businesses, is to find that particular proxy. We asked what the expected transaction fee was. People who had absolutely no inkling into anything with ecommerce business, they were expecting the transaction fee to be 4%, 5%, 6%.
As a business grows, it can easily fit into industry norms. For example, companies earning over three million a year will likely use Advanced Shopify or Shopifyplus, which typically charge between 2.5% to 2.7%. Small businesses may not have a clear understanding of how many contacts they have, but larger businesses with a database marketer, 17 email marketers, and more, will know that they have 125,000 contacts. Despite this, Shopify does not focus on whether people understand the value metric, but rather uses it as a way to rally everyone around their mission metric.
Freemium can open up the top of the funnel
Freemium could open up the Shopify funnel even more. The Shopify light plan costs nine dollars a month, but its contribution to the bottom line is questionable. Eliminating it would remove friction and allow people to enter quicker. This is important to hedge against future threats to Shopify's success, as big brands such as Google, Facebook, and Amazon have entered the ecommerce market. Amazon could buy Squarespace and power the logistics of online corner stores selling unique products.
Shopify should have a free plan to attract more users and build brand loyalty. This will also align with their mission metrics, although the zombie MRR from non-selling users may be a challenge.
They have this of partners that can help people sell (Privy comes to mind). If Shopify just starts doing that themselves and that becomes part of their value prop where they can help ramp up your store on Shopify, get you in for free and build it up with the marketing resources, or whatever else it is. Put your mission metric where your mouth is.
The mission metric guides packaging conversations
Shopify has a lot of features that can help businesses grow and manage their operations. The top line navigation on the Shopify website follows a path of Start, sell, market, manage, and start selling. This path guides users and helps them navigate to the features they need to help their business succeed.
Shopify offers different features that a business owner can choose from, and they may be included or charged as add-ons. We analyze a value matrix for each segment, such as physical stores which need a POS system like Square, Shopify, or Clover. A POS system is essential for brick and mortar stores, and some of these systems are better designed than others.
Other features like 24/7 support are normally charged extra, but many entrepreneurs appreciate them as they work long hours and need quick solutions. They need to be able to quickly and easily talk to someone if something goes wrong, and having 24/7 support can be a huge help. However, the willingness to pay for this feature may not be high, so Shopify has to decide whether to include it in the standard package or charge extra for it.
Ultimately, the mission metric guides the packaging decisions of Shopify. The company's focus on boosting the GMV for their customers by organizing page navigation, optimizing pricing strategy, changing packaging, and building products is what enables them to continue growing. By aligning the entire company around this mission metric, even imperfect execution can generate beautiful results in a fast-growing market.
Businesses should rally around a mission metric or ultimate performance goal. Packaging decisions should be guided by data and value. If a product's willingness to pay is low, it should be included for the mission. Don't charge for things that help with sales like themes. When rallying around a mission metric, packaging decisions become easier with data analysis.
Internationalization
Shopify needs to improve their internationalization efforts, particularly with regards to their pricing page. While they do localize language and adjust transaction fees based on payment platforms, they do not change the currency symbols or price points. For example, the monthly plan may be listed as $29, but the transaction fee may be listed as 2.9% + 20 Pence.
We're examining willingness to pay for Shopify in various regions. The outcomes are somewhat predictable: India has a lower willingness to pay than the median, and the Nordics and Western Europe are willing to pay about a 40% premium over the year.
Our study on 1.5 million consumers of various products indicates that Shopify is missing out on a big opportunity by not changing the plan price currency alongside the transaction fee currency. Even just updating the currency would improve conversion and ARPU, and eliminate friction for customers in other countries. This is a simple, no-brainer solution for Shopify to make it easier for customers to complete their purchase without any questions.
In conclusion, Shopify has become a dominant player in the ecommerce market by focusing on boosting the GMV for their customers through mission metric alignment. The company's low barrier to entry, pricing page copy, and focus on performance or mission metric have enabled them to continue growing despite the rapid diversification of the market. However, Shopify must continue to improve its internationalization efforts and consider implementing freemium to attract more users and build brand loyalty in order to stay ahead of competitors like Amazon, Bigcommerce, Magento, and BigCartel. By rallying around a mission metric and using data analysis to guide packaging decisions, Shopify can continue to thrive in a fast-growing market.
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