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?
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