Consumers love social media because it allows them to compare prices of any good between dozens of competitors and determine who sells what at the best price. A common tactic ecommerce companies use to boost sales is to provide free or reduced shipping rates. While good for the consumer, it can put strain on the ecommerce company.
The Paradox of Free Shipping
Most consumers underestimate the price of shipping on the seller. For most packages, it costs anywhere from $5-$20 (or more) to ship a package by standard shipping, and even more depending on the weight of the item. These costs do not factor in the labor and packaging costs required to ship each item to where it needs to go and transport the packages to the shipping company.
So, ecommerce businesses often find themselves in financially uncomfortable situations. Not only do they have to compete with other sellers on price, but consumers also expect free shipping, even though shipping is anything but free for the seller.
Ways to Take Advantage of Free Shipping
However, there are ways around this issue. There is a way that ecommerce companies can still offer free, efficient shipping while retaining a significant profit margin.
One way they can do this is by offering free shipping only if a buyer agrees to purchase above certain monetary amount. This way, the buyer buys several items at once and the ecommerce company will only need to ship one package. Overall, the ecommerce company will earn a higher profit margin because their shipping costs per unit will be far less. Also, the overall profit for the package will more because a consumer may be inclined to place a big order. Since only one package must be shipped instead of several, it puts less work on the shipping department at the ecommerce company when processing the order.
Another popular method is to offer a subscription fee for consumers if they choose to do free shipping. For example, Amazon offers its buyers free expedited 2-day shipping for a $79 annual fee. The $79 will likely be close to the cost Amazon incurs for handling its shipping per each customer for a year. Having unlimited free-shipping may also convince buyers to do all their online purchases through Amazon.
A third method is to be efficient in packaging. For example, if an item being shipped is a non-fragile item, such as a DVD, it doesn’t need much bubble wrap or a heavy duty case. A basic package should be fine.
While shipping costs are problematic to ecommerce companies, it is possible to take advantage of consumer expectations to retain profit margins and also increase business with customers.