Today we’ll take a closer look at one of the most popular shopping carts out there – Shopify, and specifically address one problem/issue that comes with a Shopify subscription.
Here’s a recent email I received from Dan:
Awesome blog you have, I have learned so much from you! Thank you for the work you do.
I have a question – one that may be suitable for your weekly reader articles. So here’s my story/question:
I’m an eBay seller and have a pretty decent sized business running. But to expand my customer base and to avoid eBay fees, I’m planning on launching my own online shop in the near future. Thanks to your eCommerce Magnates course I realised that I definitely want to use a hosted shopping cart as I’m not that good with HTML and coding so wouldn’t really want to deal with all the hassle carts like Open Cart come with.
I will be using Shopify as feature wise it’s the most suitable cart for me, it also has several important plugins that I will use for connecting eBay and Amazon sales to my accounting software. I have also already found a very good template I want to use for my shop.
The problem I’m struggling with right now is the Transaction Fee Shopify charges on EVERY sale I make via my shop. As I understand it’s 2% and while my margins are good, it still feels not right to pay such a fee, especially when I’m trying to escape eBay & Amazon fees.
Any advice on how to avoid this fee?
I know that there are many carts out there that don’t have a transaction fee but I really want to use Shopify due to compatibility issues and the template I have found.
Any advice would be appreciated.
Thanks for your email & question Dan.
Yes, you’re correct – on top of a monthly subscription fee Shopify does charge a per sale/transaction fee.
The fee rate depends on the type of shop subscription you have, it’s not always 2%. Here are the current rates:
- Basic Shopify – $29 a month + 2% transaction fee
- Shopify – $79 a month + 1% transaction fee
- Advanced Shopify – $299 + 0.5% transaction fee
You’ll most likely want to go with the Shopify plan at $79 as it includes Gift Cards and the Abandoned Cart Recovery function that are not available for Basic shops, which means you’ll be paying the 1% transaction fee.
Or to put that percentage into perspective – this means paying £10 for every £1000 you generate in sales.
So it’s really not that bad considering that we pay eBay & Amazon 10%+ on every sale. But still, I’m not a huge fan of this fee either as I don’t really understand what I get in return? Why do I need to pay a transaction fee when I’m already paying a monthly subscription?
But that’s just the sad reality of it – with Shopify being one of the most popular shopping carts out there, powering more than 300,000+ online shops, they probably just use it as a simple/easy way to generate extra revenue for them.
Or we can also look at it from a different perspective – this small fee of 1% of each sale means that Shopify are ACTIVELY interested in doing whatever they can for our businesses to succeed! As if we sell more, they will earn more money too! So from this point of view maybe it’s not a bad thing at all? Maybe this fee is what drives them to come up with new improvements all the time and in general offer the best service out there, including 24/7 customer service?
Other carts actually also do this, just in a different way. For example – Big Commerce – they have no transaction fees per se BUT if you check their plans in detail you’ll find out that there are turnover limitations in place:
The Big Commerce PLUS plan, which costs $79 and is similar to Shopify’s medium plan, is good only for turnover up to $150k a year. If you go over this, you have to switch to the PRO plan which costs $250 a month with all other features staying basically the same.
That means paying $171 EXTRA per month just because your sales went over $150k for the last 12 months. And that is actually not that big of a turnover, especially if you deal with more expensive items.
That $171 converted into Shopify transaction fees means that you could generate $17,100 in monthly revenue and pay the same $171 but as a transaction fee instead. So even though Big Commerce doesn’t use transaction fees, they will ask you to switch to an expensive plan when your sales go over a certain level.
But here’s the interesting part – you can reduce if not completely ELIMINATE the Shopify transaction fee! It’s not a secret of course as Shopify themselves advertise it on their website that they won’t charge a transaction fee IF you use Shopify Payments on your shop:
And there are no reasons why you shouldn’t use it!
You need to accept credit cards on your shop, right? So why not use Shopify payments and get this sorted PLUS eliminate the transaction fee! You won’t have to bother with complicated 3rd party integration procedures or coding – everything is already built into the Shopify system.
With the Shopify middle plan, at $79 per month, the online card rate is just 2.6% + 30c which is a very reasonable rate, especially for people just starting out (remember that a basic PayPal account with turnover of up to £1500 per month charges you 3.4% + 20p per transaction).
Shopify Payments is right now available to people in the United States, Puerto Rico, Canada, United Kingdom, Ireland and Australia. That should cover most of my blog readers. And it’s not like you have to have this account in USD, no – CAD, AUD and GBP are also supported. I would like to see Shopify roll this out to other EU countries and add EUR currency as well, and I hope this happens in the near future.
Their system also offers various hardware options to use in offline environments – including full scale cashier systems and smart iPad/tablet card swipers which you can use to generate offline sales at trade shows, markets or in your B&M shop.
So – if you’re using Shopify, use Shopify Payments to eliminate transaction fees on card transactions.
But what if you use other payment methods too, like PayPal? Will you have to pay Shopify’s transaction fee on those sales?
Yes, unfortunately you’ll still have to pay that 1% fee (on a $79 a month plan) on PayPal transactions. The same applies to the more than 70 other payment gateway systems supported by Shopify, including:
- First Data
- 2 Checkout
- Amazon Payments
- and many more!
Depending on the type of your business/the products you sell, you could probably expect around 50% or so (in general) to be payments via PayPal and the other half – via cards. This would mean that the transaction rate on EACH sale you pay to Shopify works out at 0.5%.
In some industries this ratio will be totally different – you’ll only know for sure when you actually start selling.
I personally don’t bother with additional payment systems (unless your business is based in a specific European country where cards/PayPal are not that popular) as I truly believe that the standard set-up for any new online shop should be CARDS + PAYPAL payments. This will cover the majority of your potential customers and will keep things simple at the same time.
The Shopify fee of around 0.5% is really nothing when you think about all the features and support you get in return. You know – we pay eBay 10%+ but their support can’t even properly deal with any slightly complex situations. Sure, we pay eBay & Amazon for the traffic, not service, but I hope you get my point.
When you start out, that £5 per £1000 in sales won’t make any difference to you. If you make £100k per month in sales, then you’ll probably pay around £250 or so in those transactions fees. At that stage it’s probably worth negotiating a better deal! 🙂
Ok, that’s it for today – I hope this helps Dan and others who are looking to start their own eCommerce Shop! As promised in last year’s Reader’s Contest, this year I will be doing more eCommerce & Amazon articles so if you have a question you want me to feature in an up-coming post, please get in touch with me via my Helpdesk here.
Have a great weekend everyone!