Free Shipping Isn't Free
A closer look at how offering free shipping impacts our business and why we want to keep doing it!
Ever since Amazon took over the world of e-commerce, people's expectations for free shipping has grown in lockstep with Amazon's profits. It’s no surprise, because getting something for "free" is addictive!
But nothing is free; when a merchant offers "free shipping," someone has to pay for it. Either you are paying for it through a price increase, or the merchant is paying for it through reduced profits.
This is where Amazon was genius; they realized that they could afford to reduce profits and absorb the cost of shipping, which undercut the competition. This has made them one of the world's largest and most powerful companies. It has also, naturally, made the marketplace much more difficult for anyone else.
New Mexico Tea Company doesn't begrudge Amazon for being fierce competitors, believing that competition, especially strong competition, leads to better ideas. We have a saying around the store: "The best idea wins", whether it comes from the owner or the newest hire. Many years ago, we tried to follow suit by instituting free shipping on tea for customers who subscribed to the newsletter. We were able to do this because tea can be packed in a padded envelope, which is the least expensive way to ship something.
In order to try and make back as much shipping costs as possible, we did not offer this program to new customers or people who bought teaware (because these often need to be shipped in boxes). Despite these "tricks" shipping quickly became one of the largest expenses we have. In 2019 the shipping costs took 22% of the profit for online sales.
"Free Shipping" is probably the best idea in terms of eCommerce marketing that has ever existed. There is no doubt that many of you reading this are customers today because of free shipping. We believe there is an even better, by being sustainable, idea that will work for both small and large companies, and benefit customers too!
On March 17th 2020, it seemed clear that in-person retail sales were going to collapse with the impending Covid-19 pandemic “stay at home” order. Luckily, we already had a thriving online business that could take the brunt of this decline while continuing to allow our local customers to buy tea, and maintaining employment for staff. However, there was a problem. The profits from in-store customers were subsidizing the profits lost when offering free shipping online. Something had to change; and fast.
We did not want to cancel the free shipping program. After all, everyone was going through a similarly stressful time in their own lives. Good tea for many people is not a luxury, it's what gets them through the day! Just when you needed us the most, we did not want to pull the rug out from under you.
So, for a lack of any other brilliant idea, we decided to just ask people to pay for shipping if they could. We also gave the option at check-out to get free shipping (like before), or even to "pay it forward" (paying double) if they were in a good place financially. At the same time, we ceased the former restrictions. Now, the free shipping could apply to any shopper and on any order.
This new program could have failed spectacularly. We were offering more, without a guarantee that anyone would choose to pay for shipping. However, it didn't fail; in fact, it worked just as intended!
Since March 17th, the amount we have had to pay for shipping represents just 3% of profits. It still costs us money to offer free shipping, but at 3% it's sustainable, and we don't have to limit the program or raise prices.
Those of you choosing to pay for shipping, and to pay it forward, are actually really making the whole system work! It's not some abstract idea of kinda-sorta helping someone in the future. It's helping out your neighbors and fellow tea drinkers right now by allowing them to choose free shipping!
It is also helping us by allowing us to attract new customers for whom shipping costs are the determining factor behind whether they order or not. And it's helping yourself by enabling a system which will allow you to choose free shipping in the future, if you ever need to.
This post is not here to shame anyone who chooses free shipping! The purpose is to explain how and why the new shipping system works the way it does; We don't treat the free shipping orders any differently than the paid shipping orders, and we don't make any judgments about why someone might have chosen free shipping. Maybe you just had a hard week (or a great week!), and you know what? You deserve it, treat yourself to free shipping! Or, treat yourself to the warm-fuzzies of paying it forward. The choice is yours!