Zerodha forgoes ₹25,620 crore in potential revenue, sticks to zero brokerage model

Zerodha Founder Nithin Kamath Reveals Cost of Sticking to Zero Brokerage Policy

Nithin Kamath, the founder of discount broking platform Zerodha, has revealed that the firm's decision to avoid squeezing more revenue from customers has cost it around ₹25,620 crore in the last nine years. In a post on X on April 16, Kamath explained that Zerodha remains among the few brokers that still charge zero brokerage on equity delivery trades.

According to back-of-the-envelope calculations, charging even 0.3% per trade could have generated significant revenue. However, the company's core philosophy has kept it from doing so. Most full-service brokers charge 0.3-0.5% as an equity delivery fee.

Kamath emphasized that the broking business is precarious, with revenues heavily tied to stock market performances and facing regulatory risks. Despite this, Zerodha has not only refrained from charging a fee but also avoided new ways to extract revenue, such as pushing to trade more, cross-selling financial products, and advertising.

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This approach has likely increased customer trust in the company, with 25 to 30% of its accounts still coming from referrals. Traders and investors who use Zerodha like what they see and tell their friends and family, which is a number that means more to the company than most metrics.

Kamath stated that the temptation to make small tweaks, to nudge users a little harder or squeeze a bit more revenue, exists. However, the company's philosophy, which has stayed unchanged since day one, is to "don't do unto others what you don't want done unto you."

The company's bootstrapped nature has also helped Kamath stay on the zero brokerage path. Without investors to show growth numbers to and no pressure to justify revenue targets, Zerodha has been able to stick to its philosophies, including not spamming users, not tracking behavior, and not having different pricing for different people.

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Note: The table above compares the potential revenue generation of charging 0.3% and 0.5% brokerage fees, highlighting Zerodha's approach of avoiding new ways to extract revenue.