On this page
💡 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:
- 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.
- 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.
- Optimize Packaging: Use lightweight and efficient packaging to reduce shipping costs. Avoid overpacking items, which can increase the weight and size of the package.
- Batch Shipments: Combine multiple orders into a single shipment when possible. This can save on shipping costs and streamline your shipping process.
- 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:
- SaleHoo's Learning Academy
- eBay's Fee Calculator
- Negotiating Shipping Rates with Carriers
- eBay's Best Match Search Algorithm
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!
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.
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
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.