eCommerce, or the ability to sell a product or service to a consumer on-line, is here to stay. ECommerce is not the way of the future – it is, instead, very much a part of the present reality of selling products and will only grow. One of the solutions that many businesses turn to is Shopify, in order facilitate their ECommerce solution. Shopify provides a great service and is quick and easy to use. Sounds like the perfect solution! Or is it? In this article, we look at the pros and cons of using Shopify as an ECommerce solution for business and examine take a deeper dive into some of the less known realities of the platform.
The “Pros” of Using Shopify
There are a number of reasons why businesses choose Shopify for their ECommerce solutions. The following are only a few highlights of the many benefits of using the Shopify platform and is not intended to be an exhaustive list, by any means.
1. It’s “Cheap”
Particularly attractive for small businesses or entrepreneurs with limited financial resources, Shopify has no significant up-front costs – at best, a few dollars and at most, a few hundred, depending on which level of service the business selects. This means that instead of fronting potentially thousands of dollars to have an ECommerce website built out by a web developer, Shopify will provide it to you for free. Shopify also removes the need for a business to host its own website, saving the business that cost, as well.
2. It’s Fast
A business can be up and running on the Shopify platform in a very short period of time, marketing its products to consumers almost immediately. Voila! You’re in business.
3. It’s Easy
No web design experience? No web designer to help you? No problem. Shopify has done all of the heavy lifting for the business, essentially allowing anyone – including those with absolutely no web development experience – to operate an on-line store, without the need to engage a web developer or do any development work by the business owner him or herself.
4. It’s Customizable
One can select the style / look of the on-line store from a number of templates provided by Shopify. Additionally, right from the beginning and/or as the business’ needs grow, the business owner can customize the Shopify platform by simply adding plug-ins to accommodate whatever their business requirements are.
5. It’s an All-in-One Solution
Not only will you be ECommerce capable from the get-go, Shopify will even handle the payment processing for your on-line store by charging the customer’s credit card and settling the funds into the business’ bank account. Bingo bango, Bob’s your uncle.
As you can see, for a company looking to market and sell their products on-line, Shopify provides a rather inexpensive, easy and quick all-in-one solution to be up and running, offering a variety of plug-ins to customize the business’ needs and accept payment. So why would a business owner even consider spending the money to set his or her own ECommerce capable website when Shopify provides a seemingly straightforward, all-in-one, painless, quick and “free” solution? As the title of this article suggests, all that glitters isn’t always gold.
Costs
Especially when a business is in its infancy, the owner of the business will understandably strive to minimize up-front capital investments into the company as much as possible, in order to turn a profit as quickly as possible. Although Shopify will make build and host your on-line store for next to nothing, one has to ask one’s self, “How then does Shopify make money?” The answer to that question is that “free” comes at a cost – and a rather hefty one, over time.
Every purchase via credit card that is facilitated through the Shopify platform is processed by Shopify for the merchant; however, the cost of each transaction is significantly higher than it likely would otherwise be, had the merchant designed its own ECommerce capable website, independent of Shopify. For example, what might cost $2.40 for a $100.00 item on an independent ECommerce platform with a third party payment processor may cost upwards of $3.00 or more for that same $100.00 item using Shopify. It doesn’t sound like a big difference at first glance (what’s $0.60 these days?), but consider that most business’ margins are tight as it is. Also consider that as the business’ ECommerce revenue grows, it won’t be only $100.00 being processed – it can be hundreds of thousands, or even millions of dollars. Using the same metrics as above, a business selling $1,000,000.00 through the Shopify platform will spend $30,000.00 to process its payments, instead of $24,000.00. That $6,000.00 cost differential, multiplied over the life of the business, amounts to tens upon tens of thousands of dollars in lost business profit, and certainly well more than what an independent ECommerce capable website would cost.
So, is “free” really free? When compared to the upfront website development cost of a few thousand dollars by going the independent route and negotiating a better processing rate with a third party provider, it may not make sense for a business to sell and process its payments through Shopify. The upfront web development costs can easily be recuperated – and then some – going forward, putting those savings directly into the business’ coffers as additional profit.
Penalization
In some instances, Shopify will permit a merchant using its platform to use a third party payment processor – but there’s a catch. (There’s always a catch, no?) Shopify will penalize the merchant by charging a levy of 50 basis points (0.50%) or more, per transaction, in addition to the third party provider’s costs – in order to use a third party, payment process provider. In effect, this all but ensures that if the business does end up using a third party service provider, it would be an economically irrational decision on the part of the business owner, as the aggregate processing costs would be likely cost prohibitive. This forces (without technically forcing) the business to continue to use Shopify, even though their processing fees are substantially higher than a third party’s processing fees. That’s like giving a hostage a really, really long leash. You can sort of escape, but… not really.
Conclusion
Although a highly versatile, easy to use and relatively inexpensive way to get into the ECommerce game, Shopify is not without it’s cons and does come with some drawbacks. Higher processing fees (and as a corollary, penalization for anyone looking to deviate from Shopify’s built-in payment platform) come at a price which may outweigh the cost of building out one’s own ECommerce capable website independent of Shopify.
While upfront costs may be mitigated using Shopify, in the long run, a business – especially those businesses that accept significant annual credit card payments – could easily recuperate and well surpass those costs by way of cost savings by using a third party payment processing company offering more favourable processing rates on an independently built ECommerce website, putting those cost savings directly into the pocket of the business owner as profit.
For more information about this topic or to have a complimentary rate review for your business anywhere in Canada or the United States, call PayLite Merchant Services toll-free at 1-877-671-1635 and speak to a representative.