Some business owners have chosen to ship purchased products to their customers at no additional cost with the idea that such generosity could mean the difference between landing a sale or not, all other considerations being equal.
I would caution that you be very careful in implementing this strategy.
If you choose to offer free shipping, that’s certainly your prerogative as the business owner; but if your business can’t really afford this luxury, it could become an awful drain on your capital.
Now, don’t get me wrong – I’m not saying you should never employ this strategy.
In fact, some businesses have used the “free shipping” tactic to differentiate and set their company apart from all the other competitors in their niche.
Just be careful to study the numbers and understand exactly what this option is costing your business on a weekly, monthly, and annual basis.
One of the nice features of selling digital information is that your product can be sent digitally (either by downloading or as an email attachment) and shipping will cost you “nothing.” (Of course, there really are costs associated with emailing, digital delivery, etc but they are often “expensed” as general admin costs since you will use these tools for many business related tasks.)
You may also decide to offer a printed copy of your information product that your customer can opt to pay the shipping and handling charges on.
But in all cases where there is only a physical product to be delivered upon purchase, there is a very real expense associated with this task.
Here are some of the ways shipping affects your cost of business:
1. There is a human cost to preparing the product for shipment. Someone has to find the item, wrap it so that it won’t be damaged in transit, and box it, and prepare the return and address labels.
2. There are material and supply costs to this handling task. Most shippers use bubble wrap, Styrofoam “peanuts,” or wrapping paper for the task of protection and padding. Newspaper is not advised because it looks “cheap,” doesn’t pad very well, and the ink often becomes a mess on the hands and the product. Be sure to figure in the cost of packing tape and also the box and labels that are used.
3. Once the package is ready for delivery to the Post Office, drop off point, UPS store, etc, there is the human cost of time involved in making this delivery run. If you send a lot of packages out, you may be able to get a pickup service to stop at your home once a day, which can save you significant time and money if there is no charge for the service.
Don’t forget to estimate the cost in gas and upkeep of your car or truck in delivering your packages.
There could be a further human cost you ought to consider if you spend long periods waiting in line to weigh or pay for your shipping, or if you have to drive long distances in order to deliver your goods to the shipper.
4. Of course there is the actual cost of shipping itself, which varies greatly depending upon the method of shipping, the weight of the package, how fast you want it to be delivered, the geographic location of the buyer, and what options you choose (like insurance amount, express delivery, return receipt, etc).
5. You should include the cost of returns, as well, in your decision about what it costs you to send out products.
There will be some amount of returned merchandise that you need to account for because this is a very real expense for most businesses.
6. Depending upon how “picky” you want to be, you may also want to assign some amount of cost to actually locating and purchasing your shipping supplies, printer ink and time in preparing labels, order confirmations, sales receipts, etc.
If you take orders over the phone, you may want to add a human cost to your time spent in taking customer shipping preferences and delivery information.
You may think this level of detail is “going overboard” to identify your business expenses, but just understand that there is a very real cost that you will be paying for all of these materials and employee tasks. If you are a solo operator, your time is valuable and you must know how it is spent on a daily basis.
In our next installment, we’ll look at some other considerations you should keep in mind as you decide whether or not to offer free shipping to your customers.
To your online business success,