Why Free Shipping is Not Free

Etsy CEO, Josh Silverman 7/9/19

Today, Etsy CEO Josh Silverman sent out an email to all shop owners that listings with “Free Shipping” will be given priority in searches. The justification? “Online shoppers expect free shipping everywhere they go. Etsy is no exception.” Sadly, this is becoming truer every day. What shoppers don’t realize is that they are actually paying MORE when purchasing listings that offer Free Shipping. There are winners with the free shipping scenario, but it’s not the shopper and usually not the seller. Here is why….

First, let’s separate the perception of value with free shipping and the actual math. Everyone loves a deal. This is why concepts like “Sale”, “We Pay the Sales Tax”, “Discount” and now “Free Shipping” give the buyer the perception of scoring some kind of shopping win. It’s that feel good moment in the transaction that gives the shopper comfort that they received a better value for their money. However, the reality, and math, does not support this perceived value.

To get real, no seller absorbs the cost of shipping and takes that hit to their profitability. It’s not a sustainable business model to eat, what is often one of the largest, expenses of operating an online store. The cost of getting that purchase to the customer is either charged separately or factored into the price of the product. However, how shipping costs are passed along to the shopper effects the final price paid by the consumer. Here is the math behind why.

Here is the scenario for a simple online purchase. Let’s start with and use round numbers for simplicity.

Susie finds a cute gift idea for a friend’s birthday online. It’s perfect! Item X is available for $20. Shipping is a flat $5. Sales tax is 8%. Not too shabby, but she is hesitant because she has to pay for shipping and feels that shipping should be free because that’s what Amazon offers. Here are the costs for the transaction if she decided to proceed.

Now, here is the same purchase with shipping rolled into the price of the product so that “Free Shipping” can be offered. Notice that the taxable subtotal is higher, meaning that the entire purchase is now subject to sales tax. This results in a final cost to the shopper being $.40, or 1.5% higher compared to the transaction with shipping separated. All because of what total sales tax is calculated while projecting the illusion of “Free Shipping”.

Here is the side by side comparison.

Don’t worry, it does get worse. With a purchase that includes multiple items, that 1.5% increase can easily become 5%, 10% or more!! The why is a two-part explanation. First, the taxable portion of the purchase is larger as explained above. However, the biggest hit comes from the absence of discounted, or combined, shipping for additional items. Typically, a seller charges a flat shipping fee for the first item, then for each additional item a small increase in shipping. So, it if costs $5 to ship one item but you want to purchase two, the seller will give you a discount on shipping that second item in the box. For example: $5 for the first item and $2.50 for each additional item on the same transaction. Shipping cost for two items is $7.50, not double. However, with shipping rolled into the purchase price, the shopper can’t realize that multiple item shipping discount. Here is the comparison for a three-item purchase.

So, free shipping is not free and, in most cases, costs the shopper more. Yes, there are a million variables that can affect the calculation. Sales tax state, no sales tax state, is sales tax applied to shipping costs or not, will a seller eat all or part of the shipping costs, sales, discounts and whatnot. Regardless, in the end, someone is paying for shipping. It all comes down to who and how much. Chances are it’s the shopper whether they know it or not.

Who is the real winner with Free Shipping? It’s not hard to deduce that the shopper is not the true winner here. So, who is and why have large online retailers really been pushing this concept for “Free Shipping”? That’s easy, money. For every online sale there are three entities benefiting from this additional sale amount.

#1 – Selling Platforms. Transaction fee, or a % of the total sale going to the online platform. Be it Etsy, Amazon, Ebay or others. The higher the final cost for the sale, the more the selling platform makes.

#2 – Payment Processors. Payment processing fee, or a % of the total payment processed for the transaction. Again, the higher the final cost for the sale, the more the payment processor makes.

#3 – Sales Tax States – Most state sales tax rates are only applied to the purchase price, not the shipping. But when shipping is rolled into the purchase price, then the entire amount is taxable. More money for the state.

True, for Susie’s purchase, a % fee on the extra $.40 is a pittance. But charging the fees on that additional amount over millions of transactions or hundreds of millions of $$… well you do the math.

Author: Jef Spencer, Owner/Craftsman of Refined Pallet. Shops on Etsy, Amazon and Ebay.

Tips for Selling Online – Three Viral Post Mistakes

final-viral-post-mistakesThere are many online platforms; Facebook, Twitter, Instagram and more. Each offering you a means of connecting with your potential customers and promoting your online business. You post, tweet, like, comment and reply on a regular basis and then BAM! Something you put out there goes viral! Were you prepared and did you do it right to maximize the effect on your business and sales?… I didn’t. In this article I’m going to share what I should have done differently to harness the power of “going viral”. Not how to make something go viral as that is not really something you can fully control, but what I could have done in my standard posting practices to tap into the viral potential.

adobe-spark12First, let’s discuss what “Viral” means. It will be different depending on who you talk to, what business they are in and their current presence online. The base definition of viral is, “A picture, post, or video that becomes popular through an organic process of Internet sharing, typically through media sharing websites, social media and email.” But how do you determine if something has gone viral as it applies to your online activities? My gauge is to look at how my online activity is currently received by the online community on average. Don’t let the Coca-Cola definition of millions of likes per post be your benchmark, look at your own activity. A good rule of thumb for a smaller business is to take the average of your current activity and multiply that by 100 to determine your benchmark for going viral.
• Example: On your Facebook page you typically get 52 interactions to your posts on average. This can be likes, shares, comments or whatever. So your benchmark for “going viral” is 52×100 = 5200. Let’s say you posted some sort of announcement and it gets shared, comments and likes in excess of 5200 times, consider that a “viral post”.
• Another Example: If you are basing your viral status on the number of eyes that see your post the same formula can be applied to view stats. If your Instagram photos average 102 views, then viral would be: 102 x 100 = 10,200 views.

A little background of my post that ended up going viral. The setting is a page I manage for my shop on Facebook. I have a small following of 105 individuals and the average post gets seen by 106 with 13 interactions. (It’s possible to have more people see your post than you have followers)

My Viral Post: I posted three pictures of a project that was just completed. Here is the post.

That’s when things got crazy over the next few days. The post ended up being viewed by 108,653 people, shared 526 times, receiving 4927 interactions and just over 18,000 post clicks. Although this generated a lot of interest in my products with a tiny flood of email, Facebook messages and post questions, had I done a few things differently there would have been a lot more. Here is what the activity looked like after one week.

What I screwed up! Standards to put into place for all future posts.
Make it easy to be found!
First of all, in the original post I did not include any type of link to my online shop, website, YouTube Channel or email. After the first day I edited the post and added my Etsy shop address and views of my store exploded. Basically I missed out on the first day, or about 23,000 views worth of interest. If someone is interested in what you have posted, make it as easy as possible to find you!

Watermark Your Pictures!
It really can make a difference in directing interested parties back to you if what they are looking at has the information they want. In today’s social media, visual impact is huge and many don’t read the text attached to a post. They are looking at the pictures and videos to get information. I really wished I had taken the time to insert my shop address along the edge of each picture attached to my example post. You never know how many will “right-click-save” that image to paste it into an email to a friend or to a post on their own social sharing sight. More and more of the younger crowd are saving pictures or snapping screen shots on their mobile devices so they don’t have to search through old posts to find it later to show a friend. No watermark and you have missed countless opportunities to be found.
More on watermarking to come in a future article dedicated to the subject.

Be Ready to Respond
fb-autoreplyIf you are lucky enough to have a post go viral, chances are you will have a flood of inquiries come in. These could be in the form of email, Facebook messages, Twitter DM, other social media conduits or any combination thereof. Some of these platforms have the option to set up autoresponders and if they do, use them! Luckily I figured this out long ago with Facebook and set up an autoresponder for all the pages I manage. The auto response does not need to be anything complicated, but at the minimum you should include something to keep your potential customer occupied or interested in what you have to offer while they wait for a response. Including a link to your online shop is a perfect example. However, the most important thing you can do is RESPOND as quickly as you can to capture that interest in what you have to offer. An autoresponder buys you some time, but not days or weeks.

That’s it. Three simple things to harness the potential of going viral. I’m no expert on how to increase the chances of having a post picked up and propagate like wildfire, but I sure learned a lot when it did. I hope that by passing along my experiences/mistakes, your online business can be better prepared for when it happens for you.

Author: Jef Spencer, Owner/Craftsman of Refined Pallet. Shops on Etsy, Amazon and Ebay.