Offering Free Shipping on eBay Does NOT Increase Your Profits!

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💡 News Flash: Offering Free Shipping Will NOT Increase Your eBay Profits!

What it will increase, however, is the amount that you pay eBay in fees.

There has been a bit of discussion about this on the SaleHoo forums, so I thought I better throw my 2 cents worth in. As you can see, I believe that offering free shipping might not be as profitable as some sellers think. Here's why:

Sure, buyers love free shipping, there's no denying that. However, they don't love it as much as eBay does, and that's because eBay makes money when sellers offer free shipping.

How Exactly Does eBay Benefit?

eBay encourages offering free shipping. Because most sellers will increase the price of the item to offset the cost of shipping, eBay collects a fatter Final Value Fee on each sale.

To put it simply, eBay makes more money because the Final Value Fee is calculated as a percentage of the total sale price. When the sale price includes the shipping cost, the fee is higher.

But just because eBay encourages free shipping, it doesn't mean it will increase your profits. Allow me to explain myself a little further.

Doing the Math

Let's break down the numbers to illustrate how offering free shipping affects your profits.

Scenario 1: Charging for Shipping

If I were to sell a pair of slippers for $9.99 on a fixed price listing and charge the buyer an additional $3 for shipping, I would pay $1.69 in eBay fees and get $8.30 in hand.

Scenario 2: Offering Free Shipping

If I want to offer free shipping and include the cost of shipping in the listing price, selling the slippers for $12.99, I would pay $2.05 in eBay fees and get $7.94 in hand.

The Difference

Although that amounts to an arguably small amount per sale, it certainly adds up when you are selling dozens of items every week! So even if buyers are enticed by your free shipping, it doesn't matter how much they bid; you will still be losing money because eBay fees are based on a percentage of the final sale value.

The Long-Term Impact

Over time, the incremental loss per sale can significantly impact your overall profitability. For instance, if you sell 100 items per month, the difference in fees can add up to a substantial amount. In the example above, offering free shipping would cost you an additional $36 per month, which totals $432 annually.

Top Rated Seller and PowerSeller Benefits

If you are rated as a Top Rated Seller or a PowerSeller, you might have more luck using this strategy because you can receive up to 20% off your final value fees. This discount can mitigate some of the increased fees from offering free shipping.

How the Discount Works

The discount for Top Rated Sellers and PowerSellers is applied to the final value fees, which can help offset the additional costs incurred by including shipping in your item price. For example, with a 20% discount, the fee on a $12.99 sale would be reduced from $2.05 to $1.64, resulting in a take-home amount of $8.35. This can make the free shipping strategy more viable for high-volume sellers who qualify for these discounts.

The Pro Free Shipping Argument

Now to be fair, I should point out that the other camp would argue that, yes, their takings on individual sales would decrease slightly, BUT by enticing buyers with free shipping, they will increase their overall number of sales, and therefore their take-home profits.

Increased Sales Volume

Another benefit is that your listings will edge closer to appearing on page 1 of search results. This is because Best Match, eBay's search algorithm, favors listings that offer buyers free shipping, so it can result in an overall increase in your number of sales. Therefore, while offering free shipping can potentially increase your sales volume, it will not increase the profits you make per item.

Best Match and Free Shipping

eBay's Best Match search algorithm takes several factors into account, including the relevance of the listing to the search query, seller performance, and the listing format. Listings that offer free shipping often receive a boost in visibility because eBay promotes listings that are more attractive to buyers. This can lead to higher click-through rates and more sales.

Case Study: Increased Visibility

Consider a seller who previously struggled to get their items on the first page of search results. By offering free shipping, they noticed a significant increase in their listing visibility, resulting in a 25% increase in sales volume. While their profit margin per item decreased slightly, the overall increase in sales led to higher total profits.

My Unbiased Conclusion

The truth is, whether or not you should offer free shipping depends on your niche. If all your competitors are offering free shipping and you are not, you will struggle to attract buyers.

Competitive Niche Example

For example, most sellers on eBay who are selling iPods are offering free shipping—well, at least the sellers who are making any sales, anyway! This means that anyone who tries to sell iPods without offering shipping will struggle because their listings will not rank well against all others who do.

Additionally, buyers who are easily lured by free shipping will potentially ignore your listings.

How to Analyze Your Competitors

To check out what sellers in your niche are doing, keep a close eye on their listings by searching for the item you are selling and viewing their shipping information. Another method is by doing an advanced search of eBay's completed listings and checking the "Completed listings" and "Free shipping boxes".

Advanced Search Tips

  • Completed Listings: By analyzing completed listings, you can see which items sold and whether they included free shipping.
  • Free Shipping Filter: Use the free shipping filter to see how many of the sold items offered free shipping and compare their prices to those that did not.
  • Seller Performance: Look at the seller's overall performance, including feedback ratings and the number of items sold, to gauge the effectiveness of their shipping strategy.

Niche with Low Competition

If you are lucky enough to not have many competitors in your niche, and they are not offering free shipping, you can probably get away with doing the same (or offer it and undercut your competitors!).

Undercutting Competitors

In a niche with low competition, offering free shipping can give you a competitive edge without significantly impacting your profits. For example, if your competitors are charging $15 for an item plus $5 for shipping, you can offer the item for $18 with free shipping. This makes your listing more attractive while still maintaining a reasonable profit margin.

Surrender to eBay's Free Shipping Recommendation?

What works best for you? Is your niche so competitive that you must admit defeat and offer free shipping, along with everyone else? Or can you get away with charging buyers for separate shipping, and therefore pay eBay a lesser percentage of your profits?

Considerations Before Offering Free Shipping

Before deciding whether to offer free shipping, consider the following factors:

  • Product Margins: Calculate if your product margins can absorb the additional eBay fees.
  • Shipping Costs: Consider the variability of shipping costs based on weight, dimensions, and destination.
  • Competitor Analysis: Evaluate your competitors' shipping strategies.
  • Buyer Behavior: Assess how your target audience values free shipping versus product price.

Product Margins

Your product margins play a crucial role in determining whether you can afford to offer free shipping. If your margins are slim, absorbing the shipping cost might not be feasible. However, if you have healthy margins, offering free shipping can be a strategic move to attract more buyers.

Shipping Costs

Shipping costs can vary significantly based on several factors, including the weight and dimensions of the package, the shipping destination, and the shipping method. It’s essential to understand these costs and factor them into your pricing strategy.

Competitor Analysis

Analyzing your competitors’ shipping strategies can provide valuable insights into what works in your niche. Look at their listing prices, shipping policies, and feedback ratings to understand how they are positioning their products.

Buyer Behavior

Understanding your target audience’s behavior is key to making an informed decision about offering free shipping. Some buyers may prioritize lower product prices over free shipping, while others may be more inclined to purchase if shipping is included.

Practical Tips for Managing Shipping Costs

Here are some practical tips to manage your shipping costs effectively:

  1. Negotiate with Carriers: Get better rates from shipping carriers based on your volume. For example, USPS, FedEx, and UPS offer discounts for high-volume shippers.
  2. Use Shipping Discounts: Take advantage of eBay’s discounted shipping labels. eBay partners with carriers to offer sellers discounted shipping rates, which can help reduce your overall shipping costs.
  3. Optimize Packaging: Use lightweight and efficient packaging to reduce shipping costs. Avoid overpacking items, which can increase the weight and size of the package.
  4. Batch Shipments: Combine multiple orders into a single shipment when possible. This can save on shipping costs and streamline your shipping process.
  5. Offer Local Pickup: For larger or bulkier items, consider offering local pickup as an option. This can save on shipping costs and provide added convenience for local buyers.

Real-World Examples

Example 1: Electronics Seller

An electronics seller on eBay decided to test the impact of offering free shipping on their profits. They found that by offering free shipping, their listings received more views and higher search rankings. Despite the increased eBay fees, the overall increase in sales volume led to a net profit increase of 15%.

Example 2: Clothing Seller

A clothing seller noticed that their competitors were offering free shipping, so they decided to follow suit. Initially, they experienced a slight decrease in per-item profits due to the higher fees. However, by negotiating better rates with their shipping carrier and optimizing their packaging, they were able to reduce shipping costs and maintain their profit margins.

Final Thoughts

In the ever-competitive world of eBay selling, every decision counts. Offering free shipping can be a powerful tool to attract more buyers and increase your sales volume. However, it’s essential to carefully analyze the impact on your profits and consider alternative strategies to manage shipping costs effectively.

Additional Resources

For further guidance and tools to help you manage your online business, consider exploring the following:

By following these guidelines and utilizing the resources available, you can focus on growing your eCommerce business with confidence and peace of mind.

Have you experimented with free shipping? What has your experience been? Share your thoughts and strategies in the comments below!

 

 
About the author
Simon Slade
CEO of SaleHoo Group Limited

Simon Slade is CEO and co-founder of SaleHoo, a platform for eCommerce entrepreneurs that offers 8,000+ dropship and wholesale suppliers, 1.6 million high-quality, branded products at low prices, an industry-leading market research tool and 24-hour support.

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27 Comments
  • Simon Slade 15th of April
    Great post! It is definitely something worth testing as one can be better than the other in different niches (as you pointed out). It can clearly give you a huge advantage over sellers by offering free shipping. Imagine offering free shipping on a pool table worldwide - that's a massive competitive advantage if your price is the same for the table. But you have to be very careful it doesn't swallow up your profits so much that the advantage becomes void and you end up loosing money.
  • Tom 15th of April
    Well, it depends on what you are trying to do. If you are just selling to sell and not build a long term customer or trying to build your customer list then I would seriously have to look at whether FREE Shipping really makes sense. If however you are trying to build a list, and a real sustainable ongoing business, then getting a paying customer with just a few cents difference on the front end profits makes a whole lot of sense. It is the ideal list building scenario - A paying customer that you can then segment into a particular buying category which by the way you can sell to over and over to and increase your backend sales and make the most in profits is well worth those few cents up front to me. My backend profits will easily make up for the small amount of upfront profits I gave up to gain a long term customer. Try doing that with PPC - gonna cost you a whole lot more with at best about a 5% (very optimistic) shot of making any kind of sale first time around. Well worth it if your sales funnel and business is set up to upsell backend items - which it should be and if not, that is when you are really leaving money on the table everyday. Happy Selling! Tom Waldon GetGo Marketing
  • Chad Taylor 15th of April
    Hello, I agree with this but......As you are correct about eBay fees. I still find myself looking for free shipping. Just a habit. In most cases customers look at the shipping costs, so with that said i believe that offering free shipping does draw more buyers even if your price is a little higher. I think it is the fact that a seller can offer free shipping makes the customer think that they are a real dealer and not just someone selling something. Best Wishes
  • Alice Delore 15th of April
    Well said, Tom.

    I think you have highlighted an important point; it depends what kind of product you are selling.

    If it is something disposable, or something that buyers will come back for, free shipping and lower margins for you might make sense. However, if your business model revolves around selling a niche item to the seller once, and milking it for all you can get, then offering free shipping won't work for you.
  • Marcelo 15th of April
    Hello, In my view, if you really want your listings to rank well on eBay, there are 2 things your should consider : positive feedback + inventory control. If you have a product, which is restockable, I mean, it can always be restocked, you should look after this item very well, like a baby. More you sell this item, more positive feedback this item gets, more well ranked this item will get on eBay pages. That's what matter. eBay likes this pattern. Therefore it is important inventory control, if the quantity of your item starts to get lower, you should restock it and also revise your eBay listing, updating its stock level. Never ever leave this item run out on your eBay store! Remember, more you sell, more positive feedbacks, more well ranked on eBay pages! To conclude, I don't offer free shipping on eBay, because I believe buyers look at the price first, if they see a cheaper price first, they will click on your listing then later they will see shipping fees. If postal fee is reasonable, I think there's great chances you will get a customer. Also, I charge postal fee in order to pay less eBay final sale fees. regards, brazilianlink
  • Rich Curto 15th of April
    I offer 3 ways. Free shipping, regular shipping and Cheapo shipping. I thought awhile back, what if shipping was really cheap. Would that be good enough as a attraction? Well it has worked well for me and I save on the Ebay scam fee (where they charge fees for the total with free shipping) and I feel my customers think they are getting a good deal because they are. buildersstuff @ Ebay
  • Eruwan Gerry 16th of April
    I believe providing free shipping is a great way to encourage initial purchase from your visitors. Once the visitor gets to know you better as a seller, they will be more inclined to purchase more from you in the future even if you don't offer free shipping for all your future selling to that person.
  • Cedez 16th of April
    A very interesting point on selling for a decent profit has been illustrated well. Thanks guys.
  • Catherine Howard 17th of April
    thank you guys! I am new to ebay...
  • Mel 18th of April
    I though that by offering "free shipping"ebay ranked you higher making you more likely to be found than your competitor who did not offer free shipping. Overall I'm sure it suits some sellers and for the more serious seller it may pay to test the market by including items with free shipping and items with regular shipping rates in your listings.
  • Woodchuck 18th of April
    I have been selling on Ebay for 10 years now. I only offer free shipping when I have an item that hasn't sold in 2 listings. To just get rid of it I will adjust the price where it is cheaper than anyone else has it listed for and go with free shipping. It is better than having a bunch of stuff just piling up in some corner of a room. I had to pay for the stuff and I need to get something back in return for it. I buy all of my stuff from private indivuals, yard sales or public sales. I have not been able to come up with a supplier for something that will sell for me yet. But I really do not like free shipping. Anybody who buys from the internet or mail order knows that they are going to have to pay the shipping cost of it to get it. That is just the way it is.
  • Alice Delore 18th of April
    @ Mel

    Yes, you're right. When buyers search using the default search method (Best Match), your listings will rank higher than those who are not offering free shipping... or doing anything else that Best Match prefers
  • Uncle Joe Adamson 28th of April
    It's also a good idea to use your market research to identify instances where Free Shipping will yield a _premium_. Have you ever tried to figure out the best deal in a Search return, but you're in a hurry or you've got a headache, or you're tired, it's late, etc.? You get all these odd prices with odd shipping amounts and you add them together in your head. Then you try to remember the odd price while you do it over and over and over again? Here comes your listing with this radical, easy price. Free shipping, nothing to add. Yeah, you're a couple bucks more, but you're easy. Simple. Convenient. You get it. You can not only rope in sales, but you can actually get MORE for your sale. Sure, eBay gets a little extra, but you can account for that and still make a little extra change.
  • Richelle Monfort 1st of July
    Nice way of putting it, UncleJoeAdamson :)
  • Noura 13th of August
    I am very new to ebay. I really like these ideas guys. Thank you!!
  • Alan 11th of November
    Guys you are all forgetting about seller standards and top rated, if you offer free shipping buyers are blocked form marking down in Pnp making easier to get to top rated, meaning you get a 25% discount on eBay, so you may need to pay an extra 2% to start offering free shipping but the discounts make you 23% back, so major profits are to be had!
  • Emmanuel Kariuki 4th of September
    Does "free shipping" mean free to any country and not just the seller's?
  • Ary 22nd of December
    Ebay has been charging commissions on shipping as well I think over a year now. It does't matter you offer free shipping or high shipping with lower price products, they look at the total of product + shipping. They are doing that for those sellers who tried to sell at very low price and high shipping cost to escape the ebay commission fees.
  • Either or, plus neither 6th of January
    You will still lose money either way. eBay is a money hungry corporation that loads their sellers with fees just for selling on their site. Its all a façade.
  • powerseller 28th of February
    Wait what?? This article would be relevant if it was printed 4 years ago.. eBay charges final value fee on the items selling price PLUS the shipping. PLUS THE SHIPPING. So you get charged on the shipping amount as well. Please do more research before rendering an opinion that is missing a HUGE part of the puzzle.
    • Melissa Johnson SaleHoo Admin 5th of March
      This article is one of our older ones. We'll be updating it with correct information soon! Thanks for pointing it out.
  • eBay Master 9th of May
    OLD info with math that does NOT add up. Your fees are out of whack. 10% charge on FVF for lower priced item and Shipping is EQUAL to 10% charge on FVF for higher priced item with Free shipping. You have to use the hierarchy rules of math.
    • Justin Golschneider SaleHoo Admin 10th of May
      Hello! That's why we have the "Warning: This Lesson Contains Out of Date Content" message at the top of this article. :-) We'll keep this in mind if we update the article.
  • Eric 13th of June
    Maybe it would make sense to take it down until you can bother to correct it? Given the "new" fee structure pretty much makes "high price free shipping" and "low price high shipping" the same , maybe it doesn't even need a correction as the point of the article just doesn't mean anything any more.
  • Bmk 5th of July
    Your wrong
  • Nadja Hughes 25th of September
    Good article, not sure how it helps me though. I sell nearly new women's designer clothing. In my experience, free postage is not an enticement to my buyers. If they want a particular garment, if priced correctly, they will buy it regardless of whether free shipping is offered or not. The key I have found is to price a garment up to $20.00 more than it is worth, because buyers, with very few exceptions, will always negotiate down at least by $10 - $15.00. There is just no getting around it, nobody wants to pay full price anymore. As an Ebay store holder all my items are Fixed Price. If I wanted to use the Auction facility, Ebay charges me a fee. So I compromise and use Best Offer, which is nearly as good. Say for instance I am selling a dress for $45.00, if I am very lucky, I may get $25.00 for it! I just have to bear this in mind when I am listing my items so that I never lose money on anything. It's sad but unfortunately, this is the way it is these days. Rarely do I get a buyer who doesn't haggle and just pays the asking price!
  • Haley Lex 15th of November
    Ebay takes fees for shipping costs now. So they take a chunk of everything the seller pays you. I'm a long-time Ebay store oener.
  • 30th of August
    Ebay charge a commission on postage charges so what's the difference?
  • Rick 27th of July
    Free shipping can really kill your profits depending on what you are selling. I have been selling for over 20 years on ebay and one example I will give is weight. Lets say you are selling glassware etc. ( a serving platter for $15.00 ) weight 4 lbs 4 oz with box & bubble wrap free shipping. From the East coast to almost any destination on the East coast is: US $7.71 $7.29 and if you paid $2.00 for the plate you are left with $5.29 before final value fees are taken out
    Economy Shipping (USPS Parcel Select Ground®) or US $10.80 Economy Shipping (FedEx SmartPost®)
    But now you get a West Coast buyer Calif for instance it now jumps to $20.05 for
    Economy Shipping (USPS Parcel Select Ground®) or $14.10
    Economy Shipping (FedEx SmartPost®) so now if you pay $20. or $14.10 for shipping you are not making a profit. In order to offer free shipping the $15.00 platter now has to be sold for $35.00 in order to make a profit. I do not offer free shipping at all & another reason if the buyer changes their mind (buyer remorse) and returns the item you are also out $14. to $20. in shipping forward shipping fees.

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