Yes, Shopify takes a percentage of your sales. The cost or percentage varies according to the type of plan that you have. Some would think that this is too much because they are already paying for their Shopify plans. However, Shopify has to pay a lot for the cost of maintaining the websites of its subscribers.
In this article, I will explain in detail how much Shopify charges per transaction. I will also provide a simple calculation on how to best price your products, so you do not lose money as you do business on the Shopify platform.
Cost of Transaction
Shopify charges different types of percentage sales. The percentages depend on two things. The first one is your plan, and the second one is the type of payment processing system that you used.
For credit card payments, here are the percentages:
- Basic – 2.9% + $0.30 USD of the cost of the product and shipping.
- Shopify – 2.6% + $0.30 USD of the cost of the product and shipping.
- Advanced – 2.4% + $0.30 USD of the cost of the product and shipping.
A credit card payment is any kind of payment where a customer used the credit card without having to go through a third-party payment processor.
For in-person credit card payments, here are the percentages:
- Basic – 2.7% of the cost of the product and shipping.
- Shopify – 2.5% of the cost of the product and shipping.
- Advanced – 2.4% of the cost of the product and shipping.
When we say in-person credit card payments, this is a kind of transaction where the sale happened physically between you and the customer. In this case, you took the customer’s credit card and then used it on your Shopify POS.
For payments made with payment processors, here are the percentages:
- Basic – 2.0% of the cost of the product and shipping.
- Shopify – 1.0% of the cost of the product and shipping.
- Advanced – 0.5% of the cost of the product and shipping.
This is a kind of payment where you integrated a payment processor. Some good examples are PayPal, 2Checkout, Skrill, and Stripe. When a customer pays for the contents of her shopping cart, it is the payment processor that takes the customer’s money, and then hands it over to your account.
I just want to add that for in-person sales, you have to pay an extra to Shopify on a monthly basis to be able to use their POS system. The cost of the Shopify POS Pro is $89 per month.
The most common form of payment that Shopify users prefer is third-party like PayPal. The reason behind this is that the money that the customer paid immediately goes to their balances.
How should you price your products?
Now that we know how much Shopify charges, we need to carefully calculate how much we are selling our products, so we do not lose money.
Let us say that we are selling a dress that we are buying from AliExpress for $10. If the shipping cost is $5, then the total cash outlay is $15.
From this cash outlay, we need to add 40% as our profit margin. The 40% is not a magic number, but rather an industry standard.
From here, we can do the math: $15 x 40% = $6. This is the amount of money we want to charge, at the very least, from our customer.
Now, let us say that we are paying for Basic Shopify plan, and we are using PayPal as a payment processor. In this case, Shopify will charge 2% of our sale price. If we sell the product for $21, Shopify will charge $0.42.
Since this is small, we can simply add $1 to the $21. This should be enough to account for the transaction charge.
Of course, this is not a formula that applies to all stores. Remember that you have to pay for your Shopify plan, your utilities, employees, and other expenses. You have to add these factors when deciding whether you will sell the item at a 40% profit margin or higher.
Also, you have to add the fact that if you use a payment processor, that company will also charge you money based on what you received. For example, the standard cost of receiving payments via PayPal is 2.9$ + $0.30.
If the customer paid $21, Shopify will remove 2% or $0.42. Now, you only have $20.58. This is the amount of money that will be sent to your PayPal account. then PayPal will charge $0.90 from you. Now, you only have $19. So, pretty much, $2 was used for paying transaction fees for both Shopify and PayPal.
Can you skip the Shopify fees?
No, you cannot skip these fees no matter what method you use to charge money. The only way you can skip this is if you are merely using your Shopify store as a “display” website where customers cannot checkout. In this case, you will have to ask your customer to pay you by other means.
The problem with this business approach is that it is not reliable. People are not likely to trust you if you ask them to pay you outside the website. For example, if you want them to send money via Western Union, the customer may begin to think that you are a scammer.
Should you still use Shopify? Yes, you still should. Shopify offers one of the most secure platforms in the world. On top of security, it has built an ecosystem of apps and other functionalities that you will never find anywhere else.
This is the reason why Shopify charges you for each transaction that you make. The money they charge helps them give you the best online selling platform. The cost that you pay on a monthly basis merely covers the cost of your server and website maintenance.
If you really think about it, Shopify is doing you a big favour. If you will develop your own app and manage your own servers, you will be spending a whole lot more than $29 per month.