Pros and Cons of Offering Free Shipping on eBay, Amazon, or eCommerce
Should I offer free shipping? This question crosses many sellers’ minds when they’re creating their listing on eBay or Amazon. While there are many reasons to offer free shipping, there are also some reasons why you should consider charging customers for shipping.
We’ll go over the pros and cons of free shipping in this article. eBay sellers may find this article more useful. If you’re an FBA seller, then all Prime customers already get free shipping.
1. Free Shipping Icon or Emphasis
Free shipping is generally emphasized in some way. Take a look at these Amazon and eBay products with and without free shipping.
Notice that for both Amazon and eBay, the word free is somehow emphasized so that it stands out for customers. On Amazon, it’s written in all capital letters, while eBay bolds the free shipping offer.
In Amazon’s case, the Prime logo adds value to the listing since Prime members know that they can use their Prime subscription to get free shipping.
Sellers with a shipping charge may be turning away Prime subscribers who believe they should receive free shipping since they’re paying for a service that advertises it.
2. Simplifies Shopping Process and Price Comparison
Sellers should make the shopping process as simple as possible for customers. That means reducing the work a customer has to do in order to purchase a product.
In our example above, it’s clear what the totals will be for customers on Amazon and eBay. Adding shipping charges makes shopping a bit more difficult.
Sellers are asking customers who are shopping on price to do some mental arithmetic. This introduces at least one more step in the shopping flow. Consequently, it reduces the likelihood that customers will purchase the product if they’re having to do more work.
3. Free Shipping Filters
Many online retailers, including Amazon, give customers the option to filter out all sellers with shipping charges. If customers click on this, your listing or offering will disappear from the results even if your total combined price and shipping is lower than other sellers.
4. More Views
As a result of offering free shipping across your products, you’ll get more views on your listing. Customers won’t simply bypass your listing because of a shipping charge. Naturally, some of those views will convert to sales.
5. Customers Love Free Things
Customers love knowing that they’re getting something for free even if it’s not quite free.
For example, a $100 item with free shipping is more appealing to customers than an $85 item with $15 shipping. Even if the total amount is $100, the appeal of getting something for free is powerful.
Another point to consider is that some states charge tax on shipping. For instance, Washington state charges sales tax on shipping, while California doesn’t (handling charges are taxed). As a result, items may be cheaper for residents in some states.
Using our example above and a sales tax rate of 10%, a resident in California would pay a total of $110 on a $100 item with free shipping. But with an $85 price and a $15 shipping charge, he’d pay $108.50, for a savings of $1.50.
1. Lower Profits if you Miscalculate Shipping Charges
If you offer free shipping and don’t accurately combine the shipping cost into your product price, you could end up earning very little, if any, on your sale. Sellers new to eBay make this mistake regularly: they offer free shipping or price into the listing a flat shipping rate to drive sales. But they’ll fail to factor in shipping costs to customers across the country or to residents of Alaska or Hawaii.
When sellers go to purchase postage, they’ll be surprised to see a larger-than-expected shipping fee. Some sellers may even lose money on the sale.
Canceling the transaction isn’t a good idea for new sellers since that would affect their metrics more than a seller with a lot of sales volume.
2. Fewer Views
As with the advantage above, you’ll get fewer views for your listing simply because customers will ignore your product or they’ll filter it out completely.
3. Difficult to Calculate Profit
Whether you’re selling domestically or internationally, you won’t have a clear idea of how much you can expect to earn until the product sells. That’s because how much you pay for shipping will vary greatly depending on where the customer is located. If you have an international customer, then you’re likely to spend even more on shipping.
A bonus is that sellers who are located near you may be more likely to purchase from you since their shipping costs would be lower than purchasing from a seller across the nation.
With a shipping charge, you’ll always know what your profit is for any given product. This is helpful to sellers who need to be able to estimate their profit or cash flow for inventory purchases.
4. Refunds and Returns
Return shipping fees may be your greatest consideration when deciding between charging for shipping or offering free shipping.
If you sell a product with free shipping and a customer requests a refund, you’ll have to refund the entire amount. That’s because shipping was free. You’d lose money on shipping to the customer and on possibly on the return shipping cost.
However, if you included a shipping charge, then you’d refund the amount, less shipping. Depending on the reason for the return, the customer may be responsible for return shipping.
Of course, your loss on the sale depends on the reason for the return and eBay’s or Amazon’s policies. Many sellers choose to refund the complete amount to avoid any negative feedback or review.
Whether or not you should offer free shipping depends on your business situation. Many small businesses can’t afford generous shipping policies since even a return rate of a few percent can quickly erode profits in today’s competitive retail landscape.
If you’re selling items that are small and light, then free shipping makes sense since costs for those can be accurately estimated. But for sellers of large products, free shipping may be a bad idea since customers who are farther away will significantly increase shipping costs.
Consider using Amazon FBA for some of your larger products. Amazon’s fulfillment fees don’t change often, so you’ll have a better idea of how much to expect from each sale.
Read other SellerZen articles: