How Does Shippo Make Money? Business Model of Shippo


How Does Shippo Make Money

Shippo is a multi-carrier shipping software that helps e-commerce businesses to process orders, fulfill orders from various marketplaces and manage carriers’ integrations. The company was created with the goal of simplifying order fulfillment for all e-commerce platforms in one simple dashboard. The platform provides real-time rates from different carriers (like UPS, USPS, DHL, or FedEx) and you can choose the cheapest option for your shipments. 

If you’re wondering how Shippo makes money, wonder no more. The goal of this article is to dive deeper into the business model of Shippo and list down all of its revenue streams.

So how does Shippo make money? Shippo operates on a usage-based SaaS business model in the e-commerce sector. Shippo makes money from monthly subscriptions of paid plans and labeling services.

About Shippo

Shippo is a usage-based SaaS for e-commerce businesses. It integrates these businesses as well as online marketplaces and platforms with multiple carriers through web applications.

This means that its users can sell products to their customers and have Shippo find shippers at a discount while handling labeling and other administrative tasks. Basically, all of the shipping-related tasks are taken off the user’s shoulders.

 

Business Model of Shippo

Shippo’s business model is that of a usage-based Saas within the e-commerce sector.

What makes Shippo effective is its shipping-supportive software and what makes that software effective as a business is the fact that it is a usage-based SaaS rather than just another SaaS.

For a typical SaaS, every user would pay a flat rate per month, per year, etc., regardless of how much that software was used or not used.

For a usage-based SaaS, however, the fees are based on how much the software is actually used. This allows shippers and other users that do not use the software often to not be billed too much.

Therefore, they can subscribe to Shippo without committing great financial resources for software that they will not be using too often. If they in fact do use the software on a regular basis, they should not mind paying a higher rate because they will make that money back several times over through the effective use of the software.

It should also be noted that the usage-based SaaS provided by Shippo is a smart shipping platform. Therefore, all shipping information is gathered and stored in proper datasets to be aggregated into presentable (BI) business intelligence: shipping history, email notifications, billings, customs regulations, etc.

The first batch is free.

Usage-based SaaS is the software equivalent of that concept. The “starter package” is marketed as a free service and that widens the sales funnel. Of course, free does not result in sales but it does result in exposure.

That is what worked for Facebook and YouTube and that is how a startup with $2 million seed money was able to grow into a billion-dollar unicorn within five years.

The mid-level service is the “professional package”. This plan is scaled between $10-$200 per month, depending on the number of labels.

Obviously, it has all of the core features that the starter package has but, in addition, it has several added features not available in the starter package:

  • Added users
  • Automation
  • Custom branding for packing slips
  • Custom branding for email notifications
  • Custom text for email notifications
  • Custom branding for tracking packages

Finally, the “premium package” is where the real money is made. The price varies on the volume but is catered to the individual user complete with Technical Implementation Assistance.

The thing to remember is that in a usage-based Saas model, it is not enough to sell a product or service to a customer. In a usage-based SaaS model, the customer has to actually adopt a product or service for the long term. That means that a lot of customers will fall by the wayside but the ones that stay will order in high volume.

In such a long-term, usage-based Saas model, Shippo can focus on its most important customers, the high-volume ones, and minimize the time spent with the “hear today, gone tomorrow” dabblers.

By focusing on a smaller, but more important, group, Shippo can customize its services and elevate the quality of such services in a way that it would not be able to do in a traditional SaaS model.

Shippo’s high-volume, long term customers that have validated this model include but are not limited to the following:

  • Capterra
  • Shopify
  • BigCommerce
  • GetApp
  • Software Advice

Jeremy Levine, a partner at Bessemer Venture Partners, states that Shippo is among a relatively small group of companies in the usage-based SaaS space. Levine expects that space to grow.

 

How Does Shippo Make Money?

Shippo makes money from its labeling services as well as its subscription plans and custom plans. What attracts money to these revenue streams, however, is its software, its integration with platforms and shippers, and its API and web applications.

Labeling Services

To give users a professional image in front of their customers, Shippo offers a wide range of label-related services:

  • Automated label creation
  • CSV upload
  • Label formatting
  • Packing slip creation

Customer Experience (CX) is greatly improved through return labels. That way, if the user’s customer is not satisfied with a package or shipping experience, that package can be sent back with the return label and the money returned, hassle-free, saving the customer the annoying use of time spent in writing addresses, etc.

Even though their starter package is marketed as a free service, users are still charged 5 cents per label. This 5 cents per label arrangement, however, is ideal for first-time users who want to try Shippo on a small scale.

For the subscription plan, users pay a monthly fee, so they are not technically charged per label. The scaling, however, is based on the number of labels used: $10-$200/month for 0-10,000 labels with nine tiers within the scale.

 

As stated earlier, it is the marketing of the premier plan that is the real secret to Shippo’s growth from a $2 million startup to a billion-dollar unicorn.

These plans are not per label, they may be based on shipping weight, shipping volume, or other factors. These plans are a customized arrangement between the user and the sales team.

Any company using more than 10,000 labels per month has to be a premier plan.

The incentives that high-volume, long term users have to use Shippo’s premier plan includes but is not limited to the following:

  • Discounts
  • Address validation
  • Tracking
  • Pickups
  • Manifests and SCAN forms
  • Shared accounts
  • Split orders
  • Complete integration
  • API services

Shippo’s software platform allows its users to scour quickly and efficiently for the best discounts from all of the major shipping companies, including but not limited to the following:

  • USPS
  • DHL
  • UPS

Through the use of Shippo’s software, discounts can be up to 40% less than what one would normally get at the post office.

Through Shippo, users can track their shipments and customize tracking pages to allow their customers to track said shipments. All shipping data is aggregated into an effective UI display for maximum transparency and ease of use.

Users can schedule pickups with USPS or DHL Express. Users can use Shippo to create manifests and SCAN forms in order to meet their carrier requirements. Users can use the address validation feature to avoid failed deliveries, thus preserving the reputation of their businesses.

Users can share their accounts with fellow team members without having to create additional accounts. The split orders feature allows users to split an individual order into “multiple shipments for backordered items” and to inventory those items in different warehouses.

It should also be noted Shippo was never an isolated island. It has always had relationships with shippers, platforms, and other sectors.

Its technology partners include:

  • Shopify
  • Square
  • Wix
  • BigCommerce
  • WooCommerce
  • Squarespace
  • Weebly
  • GoDaddy
  • Webflow
  • Magneto

Its carrier partners include:

  • USPS
  • UPS
  • FedEx
  • DHL
  • AxelHire
  • CDL
  • GLS
  • Canada Postes
  • Australia Post
  • Deutsche Post
  • ePost Global

Its fulfillment partners include:

  • ShipBob
  • Soapbox
  • ShipDaddy
  • Wizma
  • Growthjet
  • Cahoot
  • Flexe
  • Deliverr
  • Baja Fulfillment

Shippo’s API (Application Programming Interface) services allow Shippo’s software and the user’s software to communicate with other software up and down the supply chain and sales pipeline.

Through their API services, Shippo’s software can take over and execute tedious, time-consuming tasks that the users would otherwise have to perform themselves, such as:

  • Researching carriers
  • Negotiating with carriers
  • Integrating carriers
  • Building shipping functionalities
  • Verifying and complying with international capacity
  • Ongoing maintenance

Shippos API services are also integrated with:

  • Warehouse management software (WMS)
  • Inventory management software (IMS)

One of the most easily understandable selling points of Shippo is that once you connect with Shippo, you, as the user, can bypass all of the intermediary steps.

Connect with Shippo and it is just one step to go live.

 

Shippo Funding

Funding is not a problem for Shippo, especially during their series A-D rounds. Over the course of five years, total funding for Shippo has increased over 40x. Notable investors have included Union Square Ventures and Bessemer Venture Partners.

DateTotal Funding (Rounds A-D +1 Unattributed)
Sept 2016$7 M
Oct 2017$27 M
Apr 2020$57 M
Feb 2021$102 M
Jun 2021$152 M

Shippo’s valuation has increased over 6x to $1 billion in a little over a year. Bloomberg implies that this is due to the boom in e-commerce.

DateValuation
Apr 2020$150+ M
Feb 2021$495 M
Jun 2021$1 B

 

Is Shippo Profitable?

Shippo has a profitable business model that ensures a sustainable growth rate. Their smart shipping technology creates value for everyone including the company, shipping carriers, online sellers, and small businesses.

According to TheBurn.com, Shippo’s gross margins are at around 80%. The fact that their funding and valuations have been increasing exponentially, is also a good sign.

 

Conclusion: How Does Shippo Make Money?

To sum up, Shippo has a lot to offer its users at an extremely affordable price. With this, you can integrate with various shipping carriers across the US, so it is easy for the sellers to find affordable carrier options and facilitate the process of shipping and tracking for their products.

The demand for a service like this remains significant and we’re expecting to see Shippo grow much more aggressively over the next two years.

This was a gigantic article that we spent more than 8 hours on researching and putting together, all for the sake of answering one question: How Does Shippo Make Money? We hope you found it informative. If you have any questions, drop us an email. We’ll try to answer as soon as we can.

Thanks for visiting and have a great day!

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