Shopify: Mission metric or mission impossible?

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Shopify with this move is not living up to its ideals when it comes to its mission metric.

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Welcome to pricing page teardown, where the ProfitWell Crew breaks down strategies and insights on how subscription companies from all corners of the market can win with monetization.

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Welcome to Pricing page Teardown. I'm Patrick Campbell. I'm Rob Litterst. And this week we are talking about the big e-commerce Giant, the winner in the market, at least for people trying to sell things online. Shopify, there are so many products out there to help you sell stuff online. Online, but somehow they were able to win. And I think it's because of their focus, not only on their mission metric, but also their focus ultimately on the customer. But they have done this to such a serious degree that it has caused them rampant success. And it's also cost them the ire of amazon.com, who seems to be slowly moving into their space. We'll explore this as well as what they're doing well, what they're not doing so well. All ultimately, so you can learn what you should be doing for your business. As a great case study in monetization strategy,

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Shopify is worth over $100 billion, but Shopify almost didn't happen. Thankfully. Love and ironic immigration laws brought us this e-commerce juggernaut used by over 1 million businesses in more than 175 countries. Let us explain. Shopify's founder Tobias or Toby Lutke grew up in Germany where his love of snowboarding brought him to Canada, where he met his future wife Fiona, while initially maintaining a long distance relationship. While Fiona finished her bachelor's, Toby moved to Canada when she entered her master's program. While he couldn't work for a Canadian company, he ironically could start a Canadian company. So in 2004, Toby and partner Scott Lake founded Snow Devil, an online store that sold snowboards. Starting an online store in those days was terrible. Most off-the-shelf tools for building stores barely worked when it came to infrastructure, and most of them had terrible design when it came to showing off your products to get customers excited about them.

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So Toby built the site himself from scratch in just two and a half months. This wasn't Toby's first four into building from scratch. At age six, he was already learning how to hack on a Commodore 64, and by 11 he was creating his own games and modifying hardware. He was obsessed to the point his parents had him psychoanalyze for abnormal behavior. He was fine though, just incredibly smart. That intelligence paid off as people took notice of the Snow Devil website's unique design and wanted to license the software he used to build it. Pretty quickly, Toby and Scott realized software was gonna be a better business in snowboards, and they founded Shopify. In 2006, gross took off with some classic company tropes like Toby's mother-in-law doing payroll and accounting, and his father-in-law investing their life savings into the German kid that his daughter met at a ski mountain.

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Everything paid off. Of course, a Shopify now boasts quarterly revenue near 714 million and has showed no sign of slowing down. Shopify success stems from not just the ease of use, but also centering the entire company around what's known as a mission metric. At Shopify, everything revolves around increasing their customer sales and revenue. So everything from the design of the store templates to their pricing structure works to align everyone to the mission of their customers. Not everything's rosy, though at Shopify's lag behind some of their competitors in internationalization and some fear that Shopify isn't gonna be able to save off a battle from e-commerce giant Amazon, especially with plenty of competitors like Big Commerce Magenta and Big Cartel nipping at their heels. 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 gonna answer these questions by collecting data from current and prospective Shopify customers, and we're gonna reveal all the data and answer to these questions coming up.

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I don't know if you remember the days when you were scared to buy things online. Yeah. Parents were like, I'm not putting my credit card online. Totally. And now you can buy everything. Yeah. And anything, and it'll get to you in like two days. What's a unique thing that you've purchased, um, from an e-commerce brand or an e-commerce site? I would say the weirdest thing that I bought is, uh, this powder called Mud Water. It's a coffee alternative sounds made out of Sounds serious. Yeah. Made out of mushrooms and turmeric and yeah. That's cool. Yeah. The one thing I've ever purchased based on a podcast, and it's just because I heard it, oh God, so many different times. Uhhuh Magic Spoon Cereal. Oh, yeah. I dunno if you've heard of this. It's keto. It's like keto, but I love it because they're very much like, remember Fruit Loops?

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Yeah. Um, and so I, I think there's some really, really interesting e-commerce brands and obviously e-commerce has made it so that anyone and everyone can basically start a brand, which is what, you know, Shopify is basically enabled for, I think millions of stores. Oh yeah. It's not over a million stores, at least at this particular point. So why do you think they dominate so much? Everything revolves around the mission metric, but basically how they organize the nav of their page, how they optimize their pricing strategy, how they change up their packaging structure, the products that they build. Everything is focused on basically boosting the gmv, the gross merchant value of their particular customers. Most of the other people in the space, they took a little bit of too much time to kind of nickel and dime around certain things, I think. And basically Shopify just kept going When you have your entire company focused on a mission metric, even if you can't charge perfectly on it.

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Mm-hmm. <affirmative>, it's one of those things that just creates beautiful, beautiful results. Totally. When it comes to basically aligning a company that's fast growing in a really, really fast growing market. Yeah. All right. Let's take a look at their pricing page and then unpack some of the data on their current and perspective customers. Yeah. And we collected this data as well as our looking at the pricing page in order to figure out what they're doing well and not so well. Mm-hmm. <affirmative>. So ultimately you can use this a case study to go back into your business and improve your own monetization strategy.

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So first thing, really low barrier to entry. Absolutely. Super easy to get started. They've got the free trial button right up top, which is awesome. Upstairs, they're kind of saying like, don't worry about this stuff in the bottom <laugh>. Right, right. Exactly. Exactly. Just get started and get going, and you're gonna love Shopify. Go from there. Yeah. And the entry point, even on the paid plan is $29 a month. Even if I'm a, uh, aspirational entrepreneur, which is a, a pretty big like persona of these folks, I'm more than willing to kind of swipe that card after I listen to that podcast or watch that YouTube video that's like, yeah, go start that business. Totally. And I think the thing that not enough people think about, particularly with the subscription company, is that it's all about relationships, right? And relationships are so much more than the beginning.

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Relationships actually pay off as they grow. And too many people focus on that point of conversion, not only in the world of sass, but also in the world of D TOC subscription, e-commerce, right? Where they're like, cool, how do I just get that initial conversion at a high enough price point? And really what you should be thinking about is, well, it's totally fine to start them free. It's totally fine to start them at $29, et cetera, because I'm eventually going to grow them. Or that's, that's the goal, to grow them, especially if we're kind of washing them over with this mission metric, or that's our focus, biggest takeaway. Make it easy for people to sign up in the beginning and give them a way to grow over time. Yeah. And that could be with freemium free trial, low price point, whole host of things. You have to be a little bit more tactical about this than just like, you know, yeah, just do this.

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But it's like one of those things, I think it's something that Shopify does really, really well, especially when they're dealing with not only big brands who want to use their platform, but also one person startups that literally got started yesterday. One other big takeaway is pricing page copy is important for positioning the entry point for people. I think what a lot of people end up doing is they'll just have like, you know, silver plan, gold plan, platinum plan. And I think what Shopify does really, really well here is we basic plan all the basics for starting a new business. Mm-hmm. <affirmative>. So if I'm a, you know, aspiring entrepreneur, I should be with basic Shopify, then there's main Shopify everything you need for a growing business. And then advance advanced features for scaling your business. Right? And no established business wants to think of themselves as basic or small.

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So they're obviously going to be choosing advanced Shopify. And then if you scroll down here and look at Shopify Plus, you're looking at enterprise grade solutions for high volume merchants and large business. Yeah. The important thing here to take away is you want to put that persona or that prospect that's coming to your page, or even to like a sales form, basically in some sort of positioned context. Mm-hmm. <affirmative> so they understand I am this type of business, therefore this is the plan that I should explore further, somebody should know within 20 seconds of being on your pricing page, which plan they should be on. I think it's probably even shorter with Shopify. They should just have an inkling, Shopify's page has a lot of check marks and it suffers a little bit from the too many check marks problem. Oh yeah. I think the design here could be worked on.

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It's Shopify, they do a lot of testing, so I'm not gonna like give them too much, too much baggage for it. They're doing okay. But I think the biggest thing to kind of think about is making sure that you're funneling people to the right place. Mm-hmm. <affirmative>, and they can explore and they can change their mind, but they shouldn't be confused within those first 10 to 20 seconds. So let's get to the data we collected on their current and perspective customers. That's what I've been waiting for. All know you have the fun data. All right, let's jump in.

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So where does our data come from? Here at ProfitWell, our Price Intelligently product combines proprietary algorithms and methodologies with a team of pricing experts who think about this stuff more than anyone else, to help companies optimize their monetization strategy. We do this by going out into the market and collecting data from current and prospective customers. Having the ability to collect data from everyone from a soccer mom or dad in the middle of Kansas all the way to a Fortune 500 CIO in South Africa. We then take that data and run it through our algorithms and analyze it in every direction to determine a company's ideal customer profiles, as well as which segments value which features and which segments are willing to pay more. All in the spirit of determining how a company can use monetization for growth.

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We touched on this a bit already, but the first really big thing that anyone can learn from Shopify is that you need to rally your pricing around a performance or mission metric. A mission metric is basically what is the thing that you're ultimately trying to drive for your customer. Mm-hmm. So if you're a marketing platform, it's, hey, what is the revenue that we're driving with our CMS system, our email marketing, et cetera. For Shopify, it's how much actual revenue or gross merchant value is being pushed through the Shopify platform by our merchants. Now, what's beautiful about this is that when you determine that performance metric, if you can charge based on that, everything is amazing. They haven't been able to just overtly charge for it. They basically have focused most of their effort and most of their differentiation on what is the percentage of online credit card fees that they take, depending on the plan that you're on.

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But what's happening is that if you're on the lowest plan, they take 2.9%. If you're on their highest plan, you're on the 2.4%. And then this is, if you're using Shopify payments, I don't know what their deal with Stripe is, but they basically get, I think half of that for their own actual revenue. And as the, basically the discount goes up, they get less, but also the volume is higher. So if they're Right, you know, as a company that's pushing a hundred million, yeah. The percentage that they get might be 0.5%, but 0.5% of a hundred million dollars a year is a lot of money. Right. Right. Especially when you're, you know, pushing so much volume for them and they feel somewhat indebted to them. Now the other thing that's really interesting here is that Shopify basically says, if you're not using Shopify payments, a k A, if we're not getting our cut based on what you're selling, we're gonna charge you a fee anyways.

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Mm-hmm. It's a little bit of a backdoor revenue stream. Right? Yeah. And this is why Wall Street loves Shopify. They're like more than half your revenue, if not half your revenue basically comes from this percentage cut, but it's kind of shaded into the credit card fee. It's not us, it's the credit card fee. And they're kind of taking a cut and the most, you know, kind of sophisticated merchants, they know what's going on and they can basically be like, cool, I know you have a cut, there's a float. I want a better price for my credit card fees. Cause I'm pushing so much volume in, which is the same thing they could do with Stripe or any other payment gateway that they're using. But Shopify Payments makes it easy to kind of plug and play and ultimately give them some flexibility in order to, you know, basically get kind of a win-win situation that's happening.

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Two things here. One, some e-commerce platforms are actually super upfront about the percentage fee that they're taking. Uh, so Demandware, which is I think bought, was bought by Salesforce for, you know, a couple billion dollars. Yep. They basically focused on the highest end customers in the market and they basically said, you get all of this and we charge a 3% fee. Um, and the percentage I think fluctuated depending on some packaging that you had, but they basically said, we are completely aligned to your success and therefore we're gonna do everything to manage your store. We're gonna do everything around optimizations. And I think that performance metric makes a ton of sense. We do this with Retain, where we do it based on tiers where basically we recover a bunch of money for you over your current recovery rate, and then we charge based on that.

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Now Shopify gives you all these tools, but they're not the ones, you know, fulfilling and packing the boxes at night. And so what ends up happening is you gotta find a proxy for it. And I think that Shopify, what they've done here is they found like the perfect proxy because they can kind of blame the credit card company a little bit with this conversation. And if I'm a small business and I don't even understand credit card payments, I'm totally fine with this because I'm just oblivious. And if I'm a little bit larger, I'm fi I'm fine with it because I'm like, oh, you're gonna give me a better fee. Right. For my credit card transaction fees, that's a big lesson for most businesses is find that particular proxy. What I found really, really fascinating is we went out into the market and we actually collected, we said, what is the expected transaction fee?

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People who had absolutely no like inkling into like anything with e-commerce business, they were expecting, oh, the transaction fee gonna be 4%, 5%, 6%. And then as you get larger here, it snaps right into industry norms. Mm-hmm. <affirmative>, right? So if you look at these companies that are doing over 3 million a year, all of a sudden it's right in industry norms. I'm gonna be on advanced Shopify, or I'm gonna be on Shopify Plus depending on the size of the business, and I know that that's gonna be between 2.5 and 2.7 a small business at HubSpot. I doubt they understand how many contacts they have. No, I highly doubt it. But a business that has a database marketer and 17 email marketers and all kinds of other stuff, they know that there is 125,000 contacts in their database. They don't look at do people understand the value metric.

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Right. Even if it is a good proxy, or even if it is a perfect way to do it, and Shopify's able to take advantage of this in multiple different ways to rally everyone around that mission metric. Next up freemium could open the top of the funnel even more. I think I love, yeah. Yeah. I mean, I think that Shopify light plan, it's $9 a month right now. Yeah. Why does that exist? It can't be contributing that much to their bottom line. I They could. I would hope not. Yeah. Eliminate that. Eliminate all friction. Let people get in the door quicker. Well, and I think this is a really important hedge against the future. Mm-hmm. <affirmative>, because Shopify, they were the first to a million stores, but that doesn't mean that their success hasn't attracted the ire of some pretty big brands. Right. Google, they were kind of toying around with shopping, um, and e-commerce at some point.

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Well, Facebook, yeah, Facebook has kind of had these partnerships and normally Facebook partnerships are preamble to something that they do themselves. And then of course Amazon. Yeah. You know, the giant box in the room here. Mm-hmm. <affirmative> where I would argue they took care of most of the hard things. Yeah. When it comes to e-commerce and they could go buy Squarespace, that's kind of the skin on stores. Right. And kind of tap into this other part of e-commerce where I still like going to a little corner store on the internet. Totally. Totally. And being like, oh, magic spoon, this is amazing. Like Amazon could power that and power the logistics. I think that's, that's the reason that Shopify should have a free plan because this can't be a lot of their revenue. And ultimately if they're pushing all of these people through the product, they're gonna be like, no, no, no.

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I associate Shopify with this. I don't wanna go with big bad Amazon. That's where I buy my toilet paper. Right. Yeah. That's not where I build my business. There's one reason that they might not do this. Why is it, I guarantee you there is an enormous part of their base that has never sold something on Shopify. Yeah. There's some ways around it. Like, hey, if you've already set up your store or something like that, but I think that you got that zombie r probably, that's probably a significant portion, but I think that that would be something that would align with their mission metrics so perfectly, which is like, Hey, if you're not selling something, we're not gonna charge you. Well, they have that marketplace where so many partners like Privy comes to mind, right? Yeah. They have this marketplace of partners that can help people sell.

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Right? If Shopify just starts doing that themselves, and that becomes part of their value prop where, you know, we're gonna ramp your store up on Shopify, get you in for free, and build it up with the marketing resources, whatever else it is. But your mission metric where your mouth is, the marketplace reminds me of something here around their packaging. Mm-hmm. <affirmative>, and this is the next point. The mission metric guides, packaging conversations. If you look at the top line navigation here, it kind of follows this path, right? Mm-hmm. <affirmative>, start, sell, market manage. Yeah. Start, start selling. We're gonna help you market to grow your business, and then your business is so big, we need to help you manage it. Right? Right. And underneath these things, there's so many different features that Shopify has some decisions around, do we include this? Do we charge this as an add-on? Is this something that's connected to the mission metric? And we actually see this in the data.

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You're about to see something called a value matrix here. We collected data from the group comparing feature preferences and plotted those on the horizontal axis, more valued features on the right, less valued on the left. We then collected willingness to pay for the overall product and plotted that base on their number one feature preference on the Y axis. Analyzing data in this manner allows us to determine which features are differential add-ons, core or commoditized. For each segment,

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We actually look at a value matrix. If I have a physical store, I need something like Square or Shopify Clover. Yeah, yeah. Clover or some of these other ones. Mm-hmm. <affirmative> to basically sell into. And some of them are much more well designed than others, but you need this POS system, right? And the POS system basically becomes this, this thing for strictly brick and mortar stores. But then you see things like 24 7 support. Normally that would be something that site unseen, I would say that should be, you know, add-on. That should be something you charge extra for. But notice how a lot of people love it and the willingness to pay isn't high, but mission. Right? Right. You're dealing with a lot of entrepreneurs, you're dealing with a lot of people who are literally staying up all night packing boxes, and therefore they need stuff to get out.

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And if something's wrong, they need to talk to a human being. But that's where I think that a lot of people in a number of businesses need to realize that if you're rallying around a mission metric or the ultimate performance of what you're trying to do, which every business should be doing, even if it's a proxy or it's directly connected, all of a sudden your packaging decisions are very, very much guided by this type of data. Things valued by everyone. And the willingness to pay isn't there. We probably should just include it because it's gonna help with the mission. Things like themes, like I wouldn't charge for themes, right? Themes are the thing like, and this was something that like maybe five years ago I charged for themes, right? Yeah. But now it's like, no, that's gonna help you actually sell. Like get that out there.

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Your packaging decisions, if you're rallying around a mission metric, can allow you to basically make these decisions in a much easier way, especially when you're looking at this data. Okay. Last point. And it's something that Shopify needs a lot of help on. They're really bad at this uhoh internationalization. Oh my gosh, they're terrible at this. When you look at their pricing page and you look at different, uh, regions, or you use your VPN to look at different regions, they localize the language, they change up the percentages in terms of transaction fees. Cause that changes depending on the payment payment platforms in different regions. But the, the currency symbols and the price points don't change. You'll see $29 for the actual monthly plan, and then you scroll down into the payment stuff and it'll say 2.9% plus 20 pence. So we're looking at willingness to pay for Shopify across different regions.

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And ultimately you see some pretty intuitive, or, or at least kind of predictable outcomes here as far as willingness to pay by different regions. Um, India, a lower willingness to pay than median. Here we see on the opposite side of that, the Nordics, Western Europe, um, willing to pay a premium, right? In line with, we typically see about a 40% premium over the years. Yeah. This is pretty, this is pretty close to what we would see if we just kind of generally looked at a bunch of different products. We ran a study on 1.5 million different consumers of a bunch of different products. Kind of normalize. This big takeaway for me is that Shopify is missing out on a pretty big opportunity here. And I think it's ironically because they're so mission metric focused. Yeah. Like when you're changing the transaction fee currency, but not the actual price currency of the plan.

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Um, because even just cosmetically updating currency, not even doing demand based internationalization, like we're talking about here, improves conversion. And it also improves arpu. Ultimately, they like to recognize currencies that Yeah. They recognize and it eliminates friction, right? And it's the thing, we've talked about Amazon so much, and it's like what Amazon did so well is they eliminated friction for buying things. You can literally so much go on a product, click a button, and it's gonna be at your door in a day. So Shopify, it's like in these other countries, just eliminate that friction, make it easier for customers to get through and, and actually purchase and not ask any questions. And it just seems like a pretty easy no-brainer for me.

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All right, let's recap. Yep. First point. Rally your pricing around a performance or mission metric. I think this is super important. Whatever your customer is trying to do, whatever that outcome is, you wanna get as close to that value as humanly possible. And if you can't perfectly charge on it, it's okay. Take one step back and what's the proxy for it? Still track it, find a way to track it, find a way to get that revenue data inside your product. You can basically track, are we doing the things that we need to do from a product perspective, operations perspective, sales, marketing, and everything in between. Perfect. And I mean, that leads into the second big takeaway here, right? Which is, if you have a mission metric, it can help guide packaging decisions a hundred percent. It makes feature packaging so much easier because if you're on the fence about something, you can start to think about, well, does it help drive X?

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And if it does, yeah. Make it available to most of your customers. We do this to profit. Well, we basically say, especially with our retained product, is this going to help us recover more churn? Mm-hmm. <affirmative>, if it helps us recover more churn, it's just included, we're gonna make sure that it is included, that the user, it doesn't even see it sometimes, right? Just because it's just gonna improve that particular number. And we're so focused on that mission metric, and we're trying to orientate all of our paid products around this. And then anything that doesn't do that, but kind of as a second or third order effect on the mission metric, give it away for free. Exactly. Third freemium could open up the top of the funnel considerably. Big thing you have to consider is that because there are so many products out there now, there's so much competition, even if it's not direct competition and marketing channels have dried up.

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We haven't added a new marketing channel since 2015. Maybe TikTok will be one. We'll kind of have to TBD there. Yeah. But ultimately, freemium is one of those things that can basically lower that barrier to entry and give you this pool of leads that you can then kind of source revenue from and kind of fish into in order to kind of boost your revenue into the long term. And if you're using a mission metric, you're totally fine with free because you're trying to get that user on a path to basically whatever that that mission is or whatever that performance metric is. Last takeaway, internationalization. It needs help. Shopify is doing so much well, and it would make a huge difference and help drive expansion internationally as they bring on the next what, thousand 5,000 stores. Million. 5 million stores. 5 million, sure.

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Well, that's all for this week's episode of pricing page. Teardown. If you got value from this, if you loved it, if you learned something, make sure you share this on the socials. We want to get this into as many hands as humanly possible. And of course, if you're not subscribed, make sure you go to pricing page teardown.com. And if you want pricing help, if you want pricing research done with the world's best software for pricing, make sure to reach out to me@patrickprofitwell.com or reach out to rob@profitwell.com. We'll make sure we get you into good hands, or we'll just make sure we answer your questions. We love talking about this stuff. We love helping people learn about this all day. What do we have going on next week? Well, next week we are breaking down why in the world Twitter doesn't have a subscription. And the reason I say why in the world is because the data is so alarmingly positive.

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Mm-hmm. <affirmative> for Twitter, who has struggled to be the size of a Facebook to basically shore up their revenue and basically make sure that they have a subscription and a recurring revenue bundle that basically pushes them into a world of a higher valuation. I am, I'm amped for this. I don't know if you can. Oh, I can't wait. I'm really, really, I'm amped just because I think it takes care of all the privacy BS that's been going on with Twitter, all the toxicity that's been going on with Twitter. And I think ultimately it's one of those things where we as businesses can learn a ton for when you have a lot of people, how do you make sure you monetize them correctly? And with that, we'll see you next week.