TL;DR
– Want to see my face?
– How 4% of Shop brands account for 90% of its GMV.
🧠 The Takeaways
Today, we’re going to break down the market sizes of Shopify brands and how many big brands are actually on Shopify.
Shopify’s North star metric is GMV. That’s the number to watch.
Shopify Plus isn’t actually as big as you think.
Shopify must go Ent. What does that mean for you?
+ Keeping me honest with my calls this year.
LBAB Community – Do I have a Face/Voice for radio?
I’ve been collecting all of the media appearances I’ve done this year and working on presenting more and different media types for you.
For all the readers out there, I’m sure you’re loving all text based newsletters + LinkedIn posts, but I know a lot of you would rather have video/audio to consume (thank you for the feedback) so we’re working on it.
Video/audio is a different muscle with different resources, but we’re working on it and will have more coming soon.
In the meantime, I’m going to share more of my “media appearances,” so the listeners/watchers can get more content in the way they prefer to consume it.
Here’s an ep I did back in April with Brett Curry on his podcast, eCommerce Evolution.
If you don’t know Brett, you should check him out. He’s an eCom OG and has been running YouTube, Google, and Amazon ads for decades. I’ve been on his pod 3-4x over the years, and it’s always a great conversation.
This time we dive into:
The State of eCommerce
Constructing a Healthy P&L and target benchmarks
Fun game of “Would We Buy This Biz?” for Crocs/Solo/others
My maniacal obsession with customer research
Why I believe LVMH will be the first $1T Consumer biz.
We laugh, we cry, we play armchair acquirers. We didn’t actually cry, but it was a great time.
Drop a reply if you want more of this type of content. And if you do, what do you want to see more of?
Let’s Analyze this Ecosystem
There are ~2.8m Shopify stores.
It’s hard to say exactly how many there are. When you break down the data by estimated GMV from the best data sources we can get our hands on, there are:
60k Shopify stores doing $1m+/yr. (2% of total Stores)
17.5k doing $2.5m+/yr. (0.65%)
5k doing $5m+/yr (0.4%)
4.2k doing $10m+/yr (0.2%)
820 doing $50m+/yr (0.03%)
200 doing $100m+/yr (0.01%)
When we put those in percentages of the total number of Shopify stores, it really shows how few “big brands” there are.
In total, only 3% of brands are doing $1m+ in Rev/Yr on Shopify.
The more shocking part about that 3% is that it represents $219B (90%+) of the total ($235.9B) GMV Shopify processed in 2023. Note: These are all rough estimates using averages and are meant for directional, not literal, analysis.
60k brands * $1m GMV = $60B GMV (26% of total GMV)
17.5k * $2.5m = $43.9B (19%)
5k * $5m = $25B (11%)
4.2k * $10m = $41.8B (19%)
420 * $20m = $8.4B (4%)
200 * $100m = $20B (8%)
This is 1 of those ex’s of the power law in action, where it perfectly creates the outcomes you’d expect. And exactly why Shopify’s #1 focus this year + for the next decade is attracting more brands in the $100m+ Segment.
Let’s Talk Numbers
Here are the 3 key insights you need to know about how the Shop ecosystem works:
1) GMV Is Shop’s North Star
Shopify has always focused on GMV growth as their North Star Metric to measure their success. On many levels, this makes sense:
Brand owners look at topline growth first to gauge their success.
As more brands sell more items, Shopify becomes stickier.
They take a 2.9% + $0.30 fee on all sales, so the more $$$ processed, the more Rev they make.
It’s a brilliant customer-Ent value alignment, but when you play this out to its natural conclusion, the path from here becomes obvious:
Eventually, Shopify’s biz will completely revolve around payment processing. Or as they brand it: GMV.
Looking at their 2023 numbers, Merchant Solutions (aka Payments) account for 74% of Rev + 58% of Gross Profits (GP in the table).
While the Gross Profit dollars are closer today (Subs $1.48B vs Merchant $2.03B), they will vastly separate over time. Especially as Shopify continues to target larger and larger brands to join the platform.
A great ex. of this is looking at the Rev over the years.
In 2020, Merchant solutions was $2B, and Sub Rev was $908m—roughly a 2.2x ratio. In other words, Shopify made $2.20 in Merchant solutions Rev for every $1 they make in Sub Rev. In 2023, that delta grew to 2.8x.
Yes, Payments is a MUCH lower margin business (Payments GM% is 31% vs. Subscription is 81%), but Shopify’s Payment Rev is ~3x the size of the subscription biz.
At this scale, the raw number of $$$ is a huge difference. Especially for a biz focusing on profitability.
Takeaway: Shopify will follow the GMV = focusing on bigger brands.
2) Fewer Brands Use Shopify Plus Than You Think
44k brands are on Shopify Plus. That’s up 132% YoY! But that’s also only 47% of the brands in the list of $1m+ brands.
When I pulled these numbers last year, there were only around 19k brands. The Shopify sales team has been cranking.
But there’s a pretty large misconception about Plus. “Plus” doesn’t really mean Shopify’s largest brands.
71% of the brands on Plus generate $2.5m/yr or less.
Now, the absolute largest brands are mostly using Plus. ~100% of the $100M+/yr brands are, but what’s surprising is that an est. 34% of $20-100m aren’t.
That % increases as you move down in GMV: 50% of the $10m-$20m brands and 65% of the $5-10m brands are not on Plus.
There are many reasons why this happens.
There aren’t significant feature differences on Plus vs. Advanced.
Shopify has been rolling out its more Ent features under Commerce Components.
From the Brands I talk to, the major reason they upgrade to Plus is for cost savings on payment processing fees. Not really “new” features.
What if Shopify doesn’t want to upgrade <$10m Advanced accounts, because they collect higher payment processing fees from the “regular” Shopify plans?
It’s counter intuitive, but Shopify might actually make more from Advanced plan accounts doing $10M+ in Rev/yr at 2.5% + $0.30 per transaction than from the same brand at Plus subscription fees but reduced transaction fees.
At the end of the day, Shopify doesn’t care about what plan brands are on. They care about the maximum value they can generate per account.
If Advanced plans are an easier sell, where they will actually make more Net Profit $$$ at the end of the day… Why wouldn’t they prioritize these plans?
Takeaway: Plus is just a pricing plan. Plenty of sizable brands aren’t on Plus.
3) Shopify’s Direction from Here
When you analyze Shopify’s go to market from this perspective, their direction from here is obvious.
They can talk about making everyone an entrepreneur all they want, but the greatest growth + Ent value comes from securing contracts with more larger merchants.
The more Mid-Market/Ent brands they add to the platform, the faster their growth explodes from the power law dynamics of payment processing.
Adding 1,000 more $1m brands adds $62m in gross profits to their P&L from payment processing alone. Adding 10 more $100m brands would have the same effect.
They’d have to add 163k Basic plans at $29/mo. (assuming 0 annual churn) to have the same Gross Profit impact.
It might be up for debate which they’re better suited for, but it’s obviously the more economical, profitable strategy to acquire more + larger brands.
Shopify will continue to roll out more Ent features + services.
These will come with price increases, but up-and-coming brands will get access to features (that usually require 7-Figure annual contracts on other platforms) as a part of a slightly more expensive Shopify plan.
That’s an incredible value for those brands that utilize those features or a perceived tax for the ones that aren’t ready for them.
So what does this mean for you?
Expect more features to be rolled out for larger + larger brands that are also centered around helping the largest ($1m+) brands grow more. It will get more expensive, but the features they roll out will be hard/impossible to replicate at the price point.
That might be worth it for you and it might not.
At the end of the day, this is the biggest lever Shopify can pull to increase their Gross Margin $$$.
Shopify is well-known + needs to continue to solidify its brand around being the platform for eCom growth. GMV growth is their North star. Now is the time to double down on it.
There will be a point where every brand needs to decide if Shopify is providing the right feature set for their goals.
Takeaway: Shopify’s biggest win is hitching their wagon to GMV.
Final Thought
It’ll be interesting to see how Shopify maintains the entry, more affordable price point offering while investing significant amounts of capital into becoming the next great Ent eCom platform (while remaining profitable).
My best guess:
Continued feature support for the $1m+ brands.
Low to no investment in the lowest pricing plans (followed by stagnation there).
Massive Services investments to attract $100m+ brands.
To me, the most interesting evolution will be seeing how long can Shopify coast on the templatized eCom experience for the entry level vs. how long it will take to feature up to truly compete with SFCC/Custom Carts.
Shopify will put their foot on the gas where they can increase GMV growth the most. At Shopify’s scale, that will come from 2 areas:
The current fast-growing brands selling on Shopify.
New larger brands joining the platform.
They will continue to push the power law to its furthest extremes by attracting larger + larger brands.
They will continue to attract new and fast-growing brands, but the greatest challenge with “growth brands” as we’ve all witnessed is so much of growth in this industry is controlled by macro forces outside of Shopify’s control.
What does this all mean for you?
More price increases will be coming.
More features to justify those price increases.
More larger brands “joining the Rebels”.
And probably my boldest bet of all:
Shopify will consolidate Plus + Commerce Components. They will also have a 2-stepped approach around payments over the next 10 years.
What’s the difference between Commerce Components and Plus? Is it really driving meaningful value for Shopify? No.
We’ll see this collapse into more of a traditional Ent offering with 1 brand, 1 sales motion + faster progress. The larger brands will account for the overwhelming majority of Sub Rev, and the Payment Rev will dominate their books.
To get there, Shopify will need to run the classic take-a-market playbook by introducing lower price points on payment processing to take as much market share as possible. (Even at terrible margins, like 10-15%.) Then, once they have the market, raise prices over time.
Payments is a commodity market, so I don’t see it going much north of the standard 2.5-2.9%. But I wouldn’t be surprised if in 5 years, all those sweetheart deals to get brands on Plus—and the entry offers they make to get brands to switch—don’t come back up to that 2.9%.
Then Shopify will be swimming in Gross Profits $$$ + be well on its way to a $1T biz.
