Friday, March 25, 2011

Is Free Shipping Profitable?

Yesterday on NPR I heard a news story about L.L. Bean's new free shipping on everything policy. Everything. Apparently, recent market research showed the #1 reason a customer decides to buy something from you instead of your competitor is free shipping.

If it's a matter of sales versus no sales, it's probably better to sell (assuming your prices aren't already so low you lose money on your items). But if it's just more frequent sales versus less frequent sales, it gets a lot harder to know the "right" answer.

Questions to ask yourself:
  • How high are your shipping costs to begin with?
  • Will increased sales more than make up for the shipping costs?
  • Can you increase your current prices to cover the shipping costs and still gain enough customers to cover shipping costs?
That last question is the one I'm going to play with. Market research shows that customers irrationally would rather have free shipping and pay the exact same amount more for the item. Now, on Etsy that means paying 3.5% fees on your shipping costs, too, but if you make more sales, it's worth it.

My shipping costs are high. I ship heavy and/or breakable things all the time and I abuse bubble wrap until I can safely drop the package down the stairs without damaging the contents. Plus I like to make my packages look like presents (wrapped in recycled wallpaper samples for attractive durability), though I do that on my own time and don't figure that into my costs. Can I really get away with selling, say, my ebony Pyrex mugs for $60 if I offer free domestic shipping?
I'm going to try. If everything flies off the shelves, I'll let you know.
And send NPR a thank you card.

Another fabulous article showing how to think about free shipping and set up a formula for figuring out a good number for "free shipping over $__" can be found here:

1 comment:

Niftic Vintage said...

Fabulous and insightful! I love NPR!
You have me thinking now.