Offering Free Shipping on eBay Does NOT Increase Your Profits!

by alice-salehoo - 14 Apr 2010

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? eBay encourages offering free shipping. And 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.

Anyway, just because eBay encourages free shipping, it doesn't mean it won't increase your profits, so allow me to explain myself a little further.

Doing the Math

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 the hand.

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

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.

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.

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.

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 which offer buyers free shipping, so it can results in an overall increase in your number of sales. Therefore, while offering free shipping can potentially increase your sales volume, it will not increase your profits you make per item.

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.

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

To check out what sellers in your niche are doing, keep a close eye on their listings by searching for your 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".

Check through the results and see how many sold when they were shipped for free.

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!).

Surrender to eBay's free shipping recommendation and give them more of your profits, or take the risk and do it the old fashioned way?

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?

Post your comment below.

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Comments

simon-slade
SaleHoo Staff

Commented at 00:36 15 Apr 2010

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

Commented at 01:19 15 Apr 2010

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

Commented at 01:27 15 Apr 2010

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-salehoo
SaleHoo Staff

Commented at 01:40 15 Apr 2010

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

Commented at 02:12 15 Apr 2010

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
buildersstuff
New SaleHoo Member

Commented at 12:01 15 Apr 2010

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

Commented at 07:55 16 Apr 2010

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

Commented at 12:25 16 Apr 2010

A very interesting point on selling for a decent profit has been illustrated well. Thanks guys.
gizt33
New SaleHoo Member

Commented at 02:39 17 Apr 2010

thank you guys! I am new to ebay...
Mel

Commented at 13:19 18 Apr 2010

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

Commented at 20:12 18 Apr 2010

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-salehoo
SaleHoo Staff

Commented at 21:13 18 Apr 2010

@ 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
UncleJoeAdamson
New SaleHoo Member

Commented at 02:33 28 Apr 2010

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.
richellemonfort
SaleHoo Staff

Commented at 05:18 1 Jul 2010

Nice way of putting it, UncleJoeAdamson :)
Noura

Commented at 05:01 13 Aug 2011

I am very new to ebay. I really like these ideas guys. Thank you!!
Alan

Commented at 11:22 11 Nov 2011

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!