martyt - 8:58 pm on Sep 30, 2003 (gmt 0)

We offer free shipping on all orders within the US. We sell a niche craft product that comes in nearly 1000 colors (hope that's generic enough to avoid the mod's wrath... ;-)

Fortunately, our product is physically small enough that we can ship many orders by first-class mail. Larger orders go either by Priority Mail or UPS Ground service, whichever is cheaper. While I still don't understand how they can do it, the US Postal Service provides free Priority Mail packaging in a bunch of different sizes - so our packaging costs are almost non-existant when we use Priority Mail. And it's generally cheaper and faster to send 2lb and smaller packages by Priority Mail than by UPS.

For a very small order (one item), we end up with very little profit left after the cost of shipping and packaging. For the larger orders, the UPS Ground charges cut into profits but not enough to really cause a problem.

Our products sell at the MSRP or slightly below (approximately 100% markup), and we have a sale every month that makes the customer feel like they're saving some money - sometimes it's a percent-off sale, sometimes a flat dollar-off sale, with purchase minimums of course.

This last month, however, we simply offered $5 off a $50 or more order and ran a special on an accessory product that doesn't sell that much anyway. We had near record gross sales this month with the average order around $75.

These results indicate that customers are willing to pay MSRP for our products since we offer a complete selection of colors they can't get at any retail store. The free shipping is an obvious selling point when compared to our internet competitors.

The other side of the equation, however, restricts the kinds of products we can offer for sale -- they necessarily have to be inexpensive to ship relative to their selling price, and the markup has to allow us to make up for the shipping cost. If we decided to discontinue free shipping, we could expand our product line quite considerably. But then we'd just be another run-of-the-mill internet retailer.

So maybe if you can increase your markup, you can offer free shipping without losing too many sales? Or maybe you can offer subsidized shipping - rates that are obviously below the actual cost of shipping, but not quite free? And you might consider getting rid of those items that don't have enough margin built in to absorb shipping costs.

But the real question is, do you think you're missing out on sales now because of the shipping charge? Or can you increaes sales more by dropping your selling price a bit while retaining shipping charges that keep the shipping from becoming a cost center?