Etsy has been encouraging sellers to offer free shipping for a couple of years now via various initiatives and changes. This strategy has been met with fierce opposition from many sellers who feel that free shipping will only help grow Etsy’s profits at the expense of their own.
If you are a seller who has been an opponent of free shipping up to this point: keep reading. We show that if implemented thoughtfully and carefully with a select set of your products, having a free shipping strategy can be an excellent way to drive traffic and sales to your products - without sacrificing your profits.
Reprice your products to retain (and improve) your margins
Firstly, it’s important to realize that to offer “free shipping” means you’ll still need to factor the cost somewhere in your pricing - otherwise, you will most definitely be losing money with this strategy.
To do this, you’ll need to be completely aware of your current margins for each product you sell - this requires calculating your actual costs of production (Craftybase Inventory + Bookkeeping Software can generate these in real-time for you).
For each product, you’ll also need to calculate the average cost to ship the product in your country (and overseas, if you will extend your offer internationally). This cost needs to be factored into your pricing as a fixed overhead cost. In a traditional “bricks and mortar” shop where the customer comes to you, its good to remember that every item in that store has an inbuilt markup that includes overheads like the shop rental, staff and the cost of transporting the item to the store. As an online retailer, you bring the product directly to the customer (DTC) on an individual basis. This means that although you can avoid significant costs like shop rent and sales staff, you may need to now factor in shipping into your business and pricing model.
Also, keep in mind that your profit margins can be different per product, so you can tweak this to create a competitive sale price: you might raise prices on some of your products to cover the margin lost on others - they don’t all need to have the same.
Increase your traffic with free shipping
It’s no secret that Etsy heavily promotes listings that have free or low shipping offers: since July 30, 2019 Etsy has provided “priority placement” to shops that offer free shipping in the US for orders over $35.
Not as widely known is the fact that other marketplace sites, like Google shopping, also provide a hefty boost to listings with free shipping offers. If your marketing strategy involves external advertising on google, then this is most definitely something to factor in.
Many Etsy customers are now exclusively using the “free shipping” filter when browsing products, so without offering at least a couple of products with this option, your shop will be completely invisible to this subset of buyers.
Customers prefer free shipping
Etsy has, over the years, undertaken a vast amount of research on what motivates online customers. They have found that free shipping is a massive incentive to converting browsers to buyers: higher than expected shipping costs are the top reason for cart abandonment.
Instead of seeing “free shipping” as a significant discount off your products that you are reluctantly making to appease the Etsy gods, you could start to reframe this approach. Try thinking more along the lines that free shipping provides the customer with more clarity on the total cost of the purchase and thus brings your store closer to how an item in a traditional shop is priced.
Increase your revenue with free shipping
Research indicates that free shipping business models can increase your revenue by up to 20%. Let’s look at an example to see how your profits can be increased by making some very carefully planned, minor changes to your pricing:
Let’s say your selling price on your product is $40, and your average shipping cost to a customer located in the US is $10.
The total price to the customer without “free shipping” is $50.
Taking another look at our production and overhead costs, we’ve determined that we can sell this product at a minimum of $38 and still maintain a reasonable margin. Adding the average shipping cost of $10 brings us to a listing price of $48.
| Charged Shipping | Free Shipping | |
|---|---|---|
| Item Price | $40 | $48 |
| Shipping Cost | $10 | $0 |
| Total Price | $50 | $48 |
Let’s hypothetically say that the free shipping option will increase sales by 20%, so for every 100 sales at the usual price, we will be making 120 sales. Let’s project the revenue and costs between the two scenarios:
| Charged Shipping | Free Shipping | |
|---|---|---|
| Sales | 100 | 120 |
| Item Revenue | $5000 | $5760 |
| Average Shipping Costs | $1000 | $1200 |
| Revenue after Shipping | $4000 | $4560 |
We have made $560 of extra revenue in this scenario due to the extra sales our new free shipping marketing tactics have driven - even after your estimated shipping costs have been factored in. Keep in mind that this gross revenue figure is quite simplistic, so be sure to factor in any other costs that are applicable for your shop to ensure you have the margins you need).
From here, you can then experiment with your pricing - you might find that you can increase your price without impacting your sales volume.
Minimum Orders
Free shipping also tends to encourage more items per order - customers don’t need to worry about increasing shipping costs as they add to their cart. This has an obvious benefit: if you are building in the cost of shipping to each of your items as you’ll be making more revenue on the sale overall.
Including the $35 USD order minimum requirement with your free delivery guarantee will also encourage customers to try and purchase more. To see if a free delivery guarantee will work for your shop you’ll want to calculate what your current average order value currently is. To do this, you can download your Etsy Orders CSV file, open in a spreadsheet and then run the average formula function (or alternatively use Craftybase Inventory + Bookkeeping to generate this tally). You’ll want to be tracking this metric on at least a monthly basis to see if this strategy will work for your shop.
Run a Free Shipping Test
After reading this article, you certainly don’t need to decide that you need to do free shipping immediately and switch it on blindly for all of your products. Consider running an experiment for a month or two on a small set of your suitable products to see if it impacts sales, then analyze the results and then continue to roll out slowly if it is working.
Good products to begin testing with are those you have a significant sales history for (so you can compare sales volume and popular shipping destinations) with predictable shipping costs.
