(This post originally appeared on Inc.)
According to a report in Retail Dive this past week, Etsy – the online marketplace for the arts and crafts crowd – is gently, but firmly nudging its sellers to offer free shipping for their products.
In addition to certain “tools and support” offered to resellers, the company will have a new policy – effective July 30th – which will give priority placement in U.S. search results to those sellers who are offering free shipping on orders of more than $35. After September 1 the company will be actively marketing on behalf of those merchants who comply.
“Priority goes to people offering free shipping, so again, they’re backing you into a corner if you choose not to,” one merchant said on Twitter in response to the announcement and according to the Retail Dive report with another saying “I’m supposed to be Amazon now.”
Yes, you’re supposed to be Amazon. That’s just the fact and good on Etsy for realizing this and taking action.
Buyers have changed and we have Amazon, Walmart and other giant online markets to thank for that. People don’t just desire free shipping on their orders. They’ve come to assume it. That’s why 75 percent of consumers today now expect their delivery to be free even when orders are less than $50 according to a survey published by the National Retail Federation earlier this year. That number has increased from 68 percent last year.
Gone are the days of “$19.99 plus shipping and handling!” Today’s savvier consumer now figures in shipping even before getting to the checkout page, the NRF study found. 45 percent of those surveyed said they actually look up whether or not shipping is free during their initial search for a product and exclude those products where shipping is charged additionally. And don’t try to cut corners, merchants: many of those same consumers also expect their products within two days and will back out of a purchase if that promise can’t be made.
You can grumble and blame Amazon and lament the loss of the good old days when there was no “free” shipping. Or you can adjust. How? Don’t worry. It’s not as difficult as you may think. Shipping costs – even for a small merchant – can be absorbed by spreading them over your entire overhead. What you need is some history. And a calculator.
Let’s assume you’ve got a couple of years of operations and (simple example) in your first year your total shipping costs were $1,000 and the next year they were $1,500 because of your growth. So your average costs were $1,250 over those two years and let’s assume that was one percent of your sales. What you need to do is include that one percent on your projected income statement for the coming year as part of your variable costs, just like you include payroll, rent and other utilities. Shipping has become overhead and must be treated as such.
To hit your targeted profit for the year you’ll have to then adjust your sales estimates to cover that additional overhead by nudging up pricing just a bit. Or maybe not if you’re able to cut overhead elsewhere. If you do have to increase prices, you’ll want to make it across the board. I’ll bet it’s pennies per item – an amount that shouldn’t lose you the sale. But it should be enough so that it adds up when you’re looking at your operations as a whole.
This is what Amazon and all the other big ecommerce merchants do. Sure, Amazon has it’s “Prime” membership which offsets those costs. But most merchants don’t have this. They just spread the cost of shipping across their entire operations and make small, overall adjustments to pricing to reflect that increased overhead or find some other area of overhead to cut. The bigger your operation gets, the more you can absorb and the smaller your price increase. That growth is up to you.
Nothing in life is free and that’s the case with shipping. The cost is usually spread out as overhead and passed through. Most consumers don’t realize that – nor do they really care. Smart business owners do realize this. And they care a lot.