Free Shipping is Not so Free

02H30455One of the most successful selling techniques used today is to offer “free” shipping for mail and internet orders. But shipping is never free. So why is it such a popular offer to buyers of goods and services?

The average order size play. The classic way sellers pay for the shipping is to get you to increase your average order size. The hope is that your increased purchases will not only cover the cost of shipping, but will enhance their per order profitability. Amazon does this with their $35 order size requirement and their annual Prime fee.

Upcharge shipping. Another way to get free shipping is to entice you to pay for more expedited shipping. Remember, part of your cost of free shipping is paid for in the slower shipping time. If enough customers pay to receive their orders sooner it can cover the seller’s cost of free shipping to everyone else.

It is in the cost. Don’t be fooled. Shipping charges are built into the cost of what you are buying. Even worse, if you live in a state that does not charge sales tax on shipping charges, you actually pay more money for free shipping as the buried shipping costs are now being subjected to sales tax.

What are companies paying for shipping? Companies like Fed Ex and UPS offer large discounts to major customers like Amazon. Small companies’ shipping costs can be much higher. In addition, Fed Ex and UPS add fees onto deliveries such as fuel surcharges, residential delivery fees and non-urban delivery fees. A minimum undiscounted, one pound ground shipment (with tracking information) can easily range from $5.75 to well over $8.00.

So what? If you have a small business and wish to try free shipping, you need to understand your costs and what the lift in business sales free shipping will yield. As a consumer, don’t be fooled. You are paying for shipping. Try to calculate the trade-off on this popular consumer hook with the value of a discount offer on your desired purchase. You may be surprised at what you find.