Access To Your Own Customers = 7% Fee

So many of you use Shopify. I've spoken at length about the day when Shopify is an AI-infused marketplace. Those days inch closer (click here).

In my work, there is something called the "Profit Factor" ... it is the percentage of sales that flow-through to profit/contribution prior to fixed costs. I have clients where the percentage might be in the upper teens ... I have other clients where the percentage is 45%.

The goal of any service provider / vendor is to take as much of your post-profit-factor contribution as possible without compromising your business ... if they take too much, you lose too much money and stop working with them (which harms them) ... if they take too little, they aren't profitable enough and they cannot "#scale" their businesses to the level they desire. There is this teeter-totter effect that is constantly being balanced.

Let's pretend you are one of my clients with a 35% profit factor. You generate a $100 order, and with a profit factor of 35% this means you generate $35 of contribution. Shopify/ChatGPT believe they deserve $100*0.07 (it's 6.9% plus a few pennies of a fixed fee) = $7 of the $35 of profit you just earned.

You have 200 employees for your $60,000,000 business ... you work so darn hard ... and then a third party is entitled to 7/35 = 20% of all profit/contribution dollars you generate.

Of course, this means nothing today ... ChatGPT generated orders are a rounding error. In five years? In five years, all of your search-centric orders will be AI-generated orders, all with a toll applied ... the days of organic search will be no more.

From a vendor perspective, tolls are best collected under three circumstances.

1. Tolls are variable, they apply to every order. Fixed charges are limiting.
2. Tolls are necessary, meaning the vendor makes the case that without the toll the order doesn't happen, even though the order likely happens without the toll.
3. Tolls are easy, they require very little additional work per order.

From a "brand" perspective, tolls are necessary when the brand is unable to generate orders organically via storytelling and/or merchandise the customer must have. The best "brands" don't have to discount, and they don't need a third party interjecting themselves into the customer relationship.

So that's the balance we're all fighting. Some of us do it better than others. Don't get stuck on the high end of a teeter-totter.