GUEST POST BY PULSE TV’S CO-FOUNDER & COO, ANISA
Let’s get this out there…I’m old! I’ve been a marketer for over 30 years. I started my journey in flea markets, but found my niche in direct-to-consumer marketing via Catalogs, TV and now the Internet.
I’ve seen a great deal. Gone are the days when you could actually make money on your shipping. Now marketers are all too willing to move to a Free Shipping model without being aware of the entire cost of shipping a package.
I’m here to tell you if you are offering Free Shipping it is probably costing you 30% MORE than you think.
I’ve talked to many companies who offer Free Shipping, and I ask them:
“How can you afford this”?
“I work the shipping into the product.”
I then ask, what is the average number of items per order you ship? Most tell me the answer is less than two items per order.
Keep this in mind. It’s an important number which I will delve into later.
Sure There’s Postage, But What About Other Carrier Costs?
Most people have a pretty good idea, or they can easily find out, what the postage rate is. But what most people don’t account for is the fact that there are many other costs involved in shipping a product.
- Are you monitoring your DAS or EDAS? This stands for Delivery Area Surcharge and Extended Delivery Area Surcharge, and most carriers have these charges. For us at PulseTV, this affects about 28% of our packages. And the “published” rates for DAS can range from $1.85 to $4.65 per package. Notice I say “published” because you can, and should, negotiate these charges.
Quick math tells us you’re likely incurring a minimum of an extra 52 cents cost on EVERY package going out of your building.
- How about Dim Weights, Non Machinable Packages, Peak Surcharges, Address Corrections and Fuel Surcharges? When was the last time you went through your bill, line item by line item? There are a host of charges (many of which are unwarranted, but that’s for another article) many people are not aware of.
What about packaging, labor and credit card/PayPal fees. These are all hard costs that need to be accounted for. In the past, this was the “handling” part of S&H.
Even a packing slip is a cost if you’re not using the free ones FedEx and UPS provide.
So when I say “Free Shipping” is probably costing you 30% or more, you can see that’s a relatively conservative estimate, as unanticipated costs add up quickly.
Try This – A Good Exercise
- Look at your average monthly packaging, warehouse labor and credit card fees
- Divide that total by the number of packages you sent out
- This is your cost to ship a package – it’s not a perfect, solid number, but it should give you a quick idea. Surprised?
What happens when there’s a price increase?
Every January, there is a postal increase. If you offer Free Shipping, how do you add the increase into every item? Seems to me this would be a lot of man hours. This past January saw 4% increase! Did you raise the cost of everything you sell by 4% in January?
“But I Have To Compete With Amazon!”
If you’re trying to compete with Amazon as far as pricing and shipping, you will lose. You can, however, offer better customer service and better product descriptions.
Make no mistake, Amazon wants your website to fail! Bezos’ dream is that Amazon be the only destination for all products.
“But as an Amazon shareholder or analyst will tell you, profit, frustratingly, is not something that Bezos or Amazon are after. They’re after customer loyalty. They want to lock up the market. They want customers to make Amazon their destination for all of their shopping. So he’s had this long-term view of that’s the way to conduct his business, and profits are very low down on the list of his priorities.” – Brad Stone, The Everything Store – Jeff Bezos And The Age Of Amazon
Competing with Amazon has turned into a race to the bottom price where only Amazon can afford to go and win.
“But Anisa, Studies Show Customers Want Free Shipping!”
If you ask people: “would you like Free Shipping?” Who is going to say no? It’s all in the way you ask the questions.
What if you ask: “Would you be willing to pay for shipping if it actually lowered your overall order total?”
Remember when I asked you about your average items per order? This is where you can beat Amazon and gain profitability. For PulseTV.com we cross-sell and offer additional discounts to add more items to an order. Our average shipped items is just under four.
After all, it’s the first item that costs the most to ship because of the labor and packaging costs. Actual shipping cost on the first item to the fourth is negligible. The customer sees the shipping charges barely go up as they add items.
Our goal is to break even with costs and what we collect from the customer. Even with charging shipping, we have a net loss.
How can we do this? We use the shipping module in Freestyle Solutions M.O.M. & SiteLink’s products to do two things.
- We still charge a handling fee which is $2.00. We like that ship methods in M.O.M. allow for this. This charge is where we try to cover our labor, packaging and other non-carrier charges.
- We upload our actual carrier costs into our own zone chart and make some modifications on the under-one-pound packages. We do lose money on shipping if someone orders just one item.
The flexibility of it and how it works with SiteLink allows us to change and adjust rates easily and quickly!
To sum up, there really are many factors that should be included in your free shipping pricing. My talks with fellow retailers have almost always shown that they come up short in figuring the costs.
Anisa Co-Founder and COO, PulseTV