Shopify Digital Product vs Physical Product: Which Should You Sell?

If you’re starting—or scaling—a Shopify store, one of the first big decisions you’ll face is what type of products to sell: digital or physical.

Both models can be profitable. But they operate very differently when it comes to costs, fulfillment, scalability, and long-term growth.

In this guide, we’ll break down digital vs physical products on Shopify, compare their pros and cons, explore profit margins and scalability, and help you decide which model fits your goals best.

What Is a Digital Product on Shopify?

A digital product is something customers can download or access instantly after purchase. There’s no shipping, no inventory, and no physical handling involved.

Common digital product examples on Shopify:

• Software license keys
• Ebooks & PDFs
• Online courses
• Templates (designs, resumes, Notion, Excel)
• Music, photos, videos
• Memberships & subscriptions

Delivery is usually handled through a digital delivery app like Digitally, which automates fulfillment and sends files or license keys instantly—24/7, hands-free.

What Is a Physical Product on Shopify?

A physical product is a tangible item that must be manufactured, stored, packed, and shipped to customers.

Common physical product examples:

• Clothing & accessories
• Electronics
• Home décor
• Beauty products
• Printed books
• Dropshipping items

This model involves logistics such as inventory management, shipping carriers, returns, tracking, and sometimes fulfillment centers.

Pros & Cons of Selling Digital Products on Shopify

✅ Pros

• Instant delivery (24/7)
• No inventory or storage
• Near-zero fulfillment costs
• Very high profit margins
• Easy to sell globally
• Perfect for automation and passive income

❌ Cons

• Easier for competitors to copy
• Requires trust-building (branding, previews, demos)
• File protection and license control matter

Pros & Cons of Selling Physical Products on Shopify

✅ Pros

• Customers instantly understand physical products
• Harder to copy than digital goods
• Strong branding and lifestyle potential
• Lower piracy risk

❌ Cons

• Inventory and storage costs
• Shipping delays cause abandoned carts
• Returns and damaged goods
• Lower profit margins
• Harder to scale internationally

Cost Breakdown: Which Is Cheaper to Start?

Digital Products

Typical costs:

• Shopify plan
• Digital delivery app
• Time or tools to create content

💰 Startup cost: Very low

Once created, digital products cost almost nothing to sell again.

Physical Products

Typical costs:

• Manufacturing or supplier fees
• Storage and inventory
• Packaging
• Shipping
• Returns and replacements

💰 Startup cost: Medium to high

Every sale adds ongoing expenses.

Profit Margins: Digital Wins by a Mile

Digital Products

Digital products have exceptionally high margins because there are no per-unit costs after creation.

Margin reality:

➡️ 80–95% profit margins are common

You can sell the same file, license key, or course unlimited times with zero extra cost.

Physical Products

Physical products incur costs on every sale.

Margin reality:

➡️ 20–50% margins, often lower after refunds and shipping

Even successful stores see margins shrink due to logistics

Scalability: Automation vs Operations

Digital Products

Digital products scale effortlessly.

• Sell 10 or 10,000 units with the same setup
• Instant global delivery
• No warehouses
• No extra staff
• No shipping delays

Once automated, digital products run 24/7.

Physical Products

Scaling physical products adds complexity.

• More inventory
• More suppliers
• More customer service
• More shipping issues
• Higher risk of errors

Growth often means higher overhead and stress.

Refunds & Chargebacks: Fewer Headaches with Digital

Digital Products

Refunds depend on setup—but done right, they’re usually lower.

Why refunds are reduced:

• No damaged items
• No shipping delays
• Clear product descriptions
• Instant delivery

Best practices:

• Offer previews or demos
• Set clear refund policies
• Use secure, automated delivery

Physical Products

Refunds are more common and costly.

Common reasons:

• Late deliveries
• Wrong size or color
• Damaged items
• Buyer’s remorse

Each return costs money in shipping, handling, and restocking.

Customer Support: Low-Touch vs High-Touch

Digital Products

Support volume stays low, even at scale.

Common questions:

• “Where’s my download?”
• “How do I access my file?”
• “My license key isn’t working”

Automation solves most of these instantly.

Physical Products

Support grows with sales.

Common issues:

• Order tracking problems
• Shipping delays
• Damaged items
• Returns and exchanges

Support scales linearly with order volume.

Which Should You Sell on Shopify?

Choose digital products if you:

• Want passive or semi-passive income
• Prefer automation
• Sell knowledge, software, or files
• Have a global audience
• Want higher margins

Choose physical products if you:

• Want to build a lifestyle or brand business
• Sell unique tangible goods
• Enjoy sourcing and logistics
• Need a more defensible product

Can You Sell Both on Shopify?

Absolutely—and many successful stores do.

Popular hybrid examples:

• Software + paid upgrades
• Physical product + digital guide
• Online course + merchandise
• Ebook + coaching package

Hybrid models increase average order value and customer lifetime value.