We`ve just now gone through this analysis, mostly having it forced on
us by eBay`s insane new policies. Thanks to Bert, we initially
converted to flat-rate shipping last year, and it`s been fabulous. But
now we`re seeing there are hidden benefits to going with Free shipping!
First of all, FREE SHIPPING looks terrific on the Web site. Secondly,
ONLY $10 to ship anywhere in the world! looks very good as well. Third,
we don`t have to do a second invoice for unusual shipping. The customer
clicks, purchases, pays, and that`s the end of it. They just order and
get their flags.
We ran some numbers, and what really gets interesting is that we first
decided what are we happy with in terms of unit profit. That should be
a fixed number. If we hold that number, then by adding $2.50 to our
unit price (up from $7 to $9.50), we cover all shipping costs to the
lower-state US and keep our initial "happy profit" number.
However, as soon as we sell 1 flag over our basic 5-flag order, we begin to make a significant more amount of money.
What it comes down to is a psychological problem. Let`s say that at $4
you get $1 in profits (just call it that, and let`s not get complicated
on how profit`s determined). If you raise the price to $5, you now get
$2 in profit.
Then if you absorb mailing costs, you`re back to $1. So you get to
thinking, yeah, but if I raise the price to $5.50 and deduct mailing, I
get an additional 50-cents! Why not raise it to $6, since I`ll be
raising the price anyway?
You can`t look at it that way. You have to examine how much you`re
happy with in terms of your share of each product. Hold that number
intact when analyzing the cost-benefits of embedding free shipping.
AFTER you`ve made that adjustment, and time has passed, THEN you can go
back and examine whether or not you want to increase your own share.
Say in a year, depending on the economy, cost of living, materials, and
We`ve raised our price $2.50/flag to cover a blanket $12.50 UPS rate.
Our typical order is between 5-8 flags. Shipping anywhere in the US is
$11 UPS, pretty much. If it goes over, we lose, but most orders are
closer to $8, so we make $4 out of our allowance.
We do not state what carrier we`ll use. If it`s a PO box, rural route,
or APO box, we`ll choose to ship USPS First Class Insured. To ship our
own product overseas, USPS First Class comes to around $14. Priority
Flat Rate is $38. Again, we`ll lose on one or two orders for something
like 20 flags, but in most cases, we`ll make money.
For a 20-flag order, we`ll be making so much money on the $2.50, we really aren`t losing anything.