Should Shipping Be a Profit Center or a Marketing Tool?
The holiday season starts early for us marketers. We should be busy finalizing our holiday season email promotions, sprucing up landing page creative, coordinating upcoming promotions with affiliates and customer service department, such as Black Friday and Cyber Monday specials.
One of the nagging question ecommerce businesses struggle with is whether shipping should be considered a profit center or a marketing tool. With the highly competitive retail holidays fast approaching, I thought I’d jump in and add my two cents to this conversation.
Retailers that give free shipping away use it as a conversion tool and an advantage over the competition. Retailers who haven’t given free shipping often wonder if they should. Some give free shipping over a certain dollar purchase threshold and others charge a low flat fee, as low as $2.95, from what I’ve seen.
Two years ago, I viewed shipping charges as a profit center. It definitely added to our bottom line and helped us recover the ever-increasing costs of shipping we pay to UPS, FedEx and the U.S. Post Office. But the competitive nature of my industry changed my view about this. We tried different formulas like a flat rate charge of $9.95 when the order was under $100.00, and free shipping on purchases over $100.00.
Eventually, we figured out that we broke even around $150.00, because some of our products are pretty heavy when purchased in bulk. I was fine with breaking even on shipping, and even subsidizing it a little bit, so we could grow our sales. The tricky part can be figuring out your top line sales growth if you’re giving away free shipping.
As I said above, this is a good time to test this theory. It’s different for every retailer and it’s based largely on profit margin, conversion rate, AOV (average dollar purchased), amongst other metrics. With the holidays fast approaching, your site will experience increased traffic, and this is the best time to check (test) where your break even point is, or if your profit level will increase if you give away, or subsidize, free shipping.
Below is a link to a free shipping calculator, compliments of Mike Ober, Senior Manager, Merchant Developer. Check it out and give us some feedback on what your findings are. Would you share your opinion or experience with regards to Free Shipping?
Mike Ober’s free shipping calculator http://bit.ly/b2QupJ it opens as an Excel spreadsheet. You can also follow him on Twitter by clicking this link: http://twitter.com/MikeOber
By: Shirley Tan
