MBA1920 Q&A Wednesday: Do I Need to Offer Free Shipping?

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Foreign. Welcome to the Hundred Dollar MBA show, the business podcast that's always got your back every single day with our daily 10 minute business lessons for the real world. I'm your host, your coach, your teacher Omar Zenholm. I'm also the co founder of Webinar Ninja, an independent software company I started with my co founder back in 2014 and today's episode is Q and A Wednesday. On Q and A Wednesdays we answer a question from one of you, one of our listeners. If you got a question you want to ask, just go ahead and email me over at Omar MBA Net and we'll answer it right here on the podcast. Today's question is from Henry and Henry asks, hey Omar, I run an e commerce store that offers high end iPhone accessories. I wanted to ask you if I had to offer free shipping, is this a standard I need to offer all my customers? Am I losing customers because of shipping not being free? Would love to learn more. Any advice would be helpful. Thanks so much. Love the podcast Henry. Great question Henry. I am so happy that you asked this question because it's a topic that gets talked about a lot in the e commerce space, in the business space. I have extensive experience actually on this topic because one of my first businesses was an e commerce store. So we're going to get into the psychology of free shipping when offering it actually works and encourages your customer to buy and when it doesn't actually matter and how you can find out which path to take for your business. Can't wait to get into this one. So let's get into it. Let's get down to business if your.

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Podcast so on Q and A Wednesday today, Henry asks if he should offer free shipping. He mentions that his e commerce store sells high end iPhone accessories. And this is actually an important piece of information in making the decision to offer free shipping or not. Why? Well, like I mentioned, I had an E commerce store myself. I had custom tailored clothing for men when we first started out. The first six months we're actually, I would say low to mid tier. We weren't so expensive. And then we rebranded, relaunched and became a high tier exclusive brand. We never really sold a shirt, for example, less than $100. And we played with shipping a lot as a low cost brand and as a high end brand. And I want to share with you what we have learned and how you can apply to your own business when it comes to offering free shipping or not. First of all, it's really important to understand your customers. A lot of people hear this a lot and they're just kind of like, okay, I get it, I need to know who my customers are. No, when I say that, I mean talk to them, get on the phone with them, get on a video call with them. And you don't have to talk to hundreds of people. You could talk to half a dozen. But the point here is that you need to understand your customer, what they value and what they're happy to pay for. By speaking to them, you might find out that shipping is really low on the priority list. They don't really care. They're willing to pay for shipping as long as the quality of product's great. Or maybe that the shipping is fast. Or maybe they're just concerned about being able to find their size. Your customers have needs and not all needs are created equal. A lot of us think that our customers want everything and they all have the same value. No, you need to understand what they value and at what priority, at what level do they value each thing. And you're not going to know this unless you ask them. And one of the easiest things is just to ask a current customer that has bought from you before. Ask them what their buying journey was like, how they found out about you, why they bought from you, and then you can get into the details of what they value. Is it price of the product itself? Is it shipping? Is it the speed of shipping? Is it the process of buying? How much of each of these things do they really care about? Is what you want to find out? We like to just make things simple, ensure our gratitude to our customers that we interview and give them a Starbucks gift card. Or it could be an Amazon gift card if you like. Whatever you like, it's just a little gift to say thanks for your time. If you're an E commerce store, you can even give them some store credit. But my first piece of advice is talk to your customers. Schedule these calls. Now I'm talking about today. So by the end of the month at the latest, at the end of the quarter, you know exactly what your customers value. Now when we did this and when I had an E commerce store and we started to sell high end products, we learned that our customers really don't care about shipping. Like they're happy to pay for shipping, but what they really cared about is the convenience and the consistency. People that value their time and value convenience really are happy to pay for it. Money is not the biggest factor. Now the thing that took me a while to understand as a new entrepreneur is the way I buy and the things that I value when I buy are not the same for everybody. Some people are happy to pay and it really has nothing to do with finances. It has a lot to do with what you have value. A lot of people think, oh, I'm not that rich so I'm not willing to pay for that has nothing to do with that. In fact, I know people personally, family members that are not considered wealthy according to western standards and they will pay top dollar for the most expensive thing because they believe expensive is the best and they won't pay for anything less. They do not buy clearance items, do not buy things on sale. They value something that is expensive and they value convenience and they value their time. And of course if somebody can afford it and money's no object, then this decision is so much easier. But what we learned about high end products and high end customers of high end products is that the consistency and the actual shipping itself matter the most. So what we learned is that people really want to know what they're going to pay for shipping every single time, regardless of what they're buying. And they Wanted to know when they're going to get it. So what we did is we guaranteed two day shipping and charged $20 for shipping on all orders. So it doesn't matter how big or small the order was, you charged $20 flat fee and they always got it within two days. For an international order, we actually charge $50 for shipping as a flat fee. Okay. And we found that was really, really successful because our buyers were not price sensitive. They're buying expensive products. Their shopping cart is $300, $400, $1,000. So $20 really doesn't make a big difference. And they know they're going to get guaranteed two day delivery. But I want you to base this on the total car amount, how much they are spending at your store because it's all relative. If a typical, let's say iPhone case costs $20 and you sell it for $80, the customer that's willing to pay for a case is not price sensitive about shipping. So you can charge for shipping, but you need to verify this with your customer interviews. Now, the flip side is that if you do have a price sensitive audience and you're selling competitively priced products, the free shipping angle and the free shipping promotion actually works where you have spend at least $100 and you get free shipping. Those types of promotions, they actually work. We actually tried that in my premium e commerce store where we said spend at least $250 and get free shipping. It didn't matter. It didn't make a difference because our average car size was $350. Accustomed to paying for shipping. So it really didn't make a difference. So to answer the question directly, do you need to offer free shipping? Need is a very strong word. And the only way you're going to find out is if you speak to your customers and understand their values. Think about expensive products you've ordered online or even in person. Nothing is free. Okay? For example, if I were to buy a piece of art, a painting that costs maybe $300,000, shipping is not going to be free. It's going to take a lot of effort to transport this carefully. And you're willing to pay for it. They understand the buyer is willing to pay for extensive shipping. When you buy a car, they have all these fees. That's the delivery charge. They have delivery and prep charges, all these things. This is the charge that they're passing on to you that they had to pay to take that car from the manufacturer and bring it to the dealership. There's fees for preparing the car for delivery. Delivery to you. And we're not even talking about delivery to your door. We're talking just give you the keys, all right, so you can take it off the lot. So it's all relative to the buyer. There's no cut and clear answer. Hey, free shipping works. No, free shipping is a better move. When we charged a flat rate for shipping, we actually made money on shipping because we had negotiated great rates with our shipping providers like a FedEx to get that two day delivery because we were delivering so much product that actually made money when I was charging $20 for shipping. So book those customer interviews as soon as possible. Email your best customers and say, hey, can I jump on a call with you? I would really appreciate it if I can learn a little bit more about how you found out about us, why you chose us, a little bit of your buying journey. It would be super helpful for us to attract great customers just like you. And to show appreciation after the call, I would be happy to send you a $50 gift certificate. Whatever it is you want to give them, it's going to be well worth it for the knowledge you're going to gain from that customer.

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Wrap up today's Q and A, Wednesday's question and episode, free shipping or allowing the customer to pay for shipping, depends on your customer. Now, the one caveat I would say is that some industries are highly competitive. Meaning, let's say, for example, you sell a product that Amazon sells and that seller on Amazon offers free shipping, and you have to stay competitive in terms of total price of that product with shipping. And one way for you to do that is to offer free shipping. Then that's a different ball game, okay? Because now you got to compete on total price. My advice is that you want to avoid that as much as possible because that's a deadly game. That's a race to the bottom. The race is zero on price because you're constantly competing. What you want to do is add more value to the actual transaction. So even if you're selling the same product. Maybe how you deliver it, maybe how you present it, maybe what you include with it. Maybe you offer some sort of instruction or onboarding or tutorial. Or maybe simply you offer it in unique sizes or colors allows you to stay much more competitive and you don't have to compete on price constantly. Thanks so much to Henry, who asked today's Q and A Wednesday's question. And thanks to you, yes you who's listening right now for being a part of today's episode. As a listener, I hope you found it useful. If you had a question you want to ask right here on Q and A Wednesday, just go ahead and email me over@omar00mba.net and I'll make sure to answer it right here on Q and A Wednesday. You don't have to go at it alone. We'll do our best to help you along the way. Before I go, I want to leave you with this. A lot of people see shipping as kind of like an extra charge, something that they have to deal with. Not necessarily. I think that shipping is actually part of the experience and that's what I learned in my experience with my E commerce store. If I can guarantee fast delivery, if I can guarantee that my products are packaged really nicely and the presentation is beautiful, people kind of just see this as one experience. Oh, I bought from the store. I paid for shipping, but it came earlier than expected. It came in this beautiful box. It was protected from the rain because it was covered in plastic. I opened the box, it was amazing. Had a great manual to show me how to get started. People just perceive this all as a part of the experience of buying from you. So even if you charge a little bit more, people are going to be like, this is a first class experience. I want to have that experience again when I want to buy a similar product. Thanks so much for listening and I'll check you in tomorrow's episode. I'll see you then. Take care. Of.

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