Free Shipping vs Charging for Shipping

You've curated a beautiful subscription box. Your website's almost ready, but the one decision that you're struggling with is, do I offer free shipping or do I add it on? We're gonna talk about it today on this episode of the Launch Your Box podcast.

Welcome to the Launch Your Box podcast with weekly tips, tricks, and strategies to start, launch, and grow your subscription box. Now here's your host, Sarah Williams.

Welcome back to the Launch Your Box podcast. Today we're talking about an interesting topic, and interesting only for us because we are subscription box owners or subscription box hopefuls. But we're gonna talk about to charge for shipping or not to. It was a little bit of a debate that came up last week inside of the Launch Your Box membership. I was doing our monthly Q&A and the question came up. Do you charge for shipping or not? And we started to have this conversation and I, I dug a little bit deeper inside the group and did a poll. But really the question is, I'm starting my subscription box. Do I wrap shipping charges into my cost of my box or do I charge for them separately? And I get asked that question probably every 3 or 4 months. Somebody will ask me that question. So I thought we should talk about it because I have thoughts. I have thoughts. I'm gonna tell you what I do. I'm gonna tell you what a majority of our members do. I'm gonna tell you when you should and when you shouldn't. So we're gonna talk about it so that we can have a clear-cut answer once and for all for you, because it is not clear. It is a very gray area, but there are things that you do in your business that will make it clear for you whether you should charge it and why you would want to charge for it separately or not. And I found a recent report, so I was prepping for this podcast episode, and I found a report on Shippo. Now, Shippo is a shipping platform. It's much like ShipStation. So I use ShipStation, but I found a report on Shippo, and it said 49% of customers opted for lower costs and paying for shipping versus 40% of our customers want free shipping. So 49% say, I'd rather pay a lower price for the products and pay for my shipping, versus 40% that said, I want free shipping. Now the other 11% on this report say they want their purchase fast and they're willing to pay extra for expedited shipping. So when you look at that report, 49%, which is the majority, would rather have lower costs and pay for their shipping, because we all know that free shipping is not actually free. Our customers know that free shipping is not actually free. There's also another report that I found in the worldwide web that is recent that said people prefer paying for low-cost shipping with their lower-cost products. So let me say that again. They prefer paying low-cost shipping and getting the discount on their products. So if you're wrapping shipping costs into every single item, the cost is inflated, right? The price is inflated because you're offering free shipping, and we know that that's not free. And so people would rather pay a cheaper price, seeing the value of the product and not an inflated value, and pay a little bit for shipping, not a lot for shipping. They want low-cost shipping. So we're going to talk about that too. And that same report showed that 93% of shoppers will reach a certain threshold to receive free shipping if it's offered. So that's interesting because that's me when I do online shopping. There is a bar at the top or some kind of note on checkout that says, you know, orders over $75 receive free shipping, and I got $65 in my cart, I'm gonna go find something else to buy. I don't know why, even if shipping was only $6, I'm gonna go buy another $40 shirt. Like, that's just what's gonna happen. So I want you to think about your own buying behaviors, and does a threshold like that influence your buying decision? Because we're gonna talk about this in 2 different scenarios. We're gonna talk about it one-off products that you might have in your e-commerce shop right now. We're also gonna talk about it in the way of subscription boxes. So we're gonna talk about those scenarios. And when I started to dig into this, it was very eye-opening for me, and I'm actually gonna change some stuff. But that threshold can directly impact your average order value and your revenue. If I am the person that's always gonna go buy another $40 shirt so I can get free shipping, I'm gonna spend $40 extra every time, and I want you to think about how many customers come through your shop. And if you have a threshold like that, does that influence their buying decisions? It's also gonna help you in a lot of ways, because if I'm sending one shirt and shipping one shirt and shipping one shirt and shipping every time, that gets costly for me. But if somebody buys 2 or 3 shirts, I'm more profitable. Because I can pack them all together. I'm sending them at once. They feel like they've got a good deal, and they're not coming to my shop bringing down my average order value by only ordering one shirt at a time. So I want you to consider that. But really, there's no, like, one-size-fits-all for your business. So in the sense of having an online business, having an e-commerce business where you're selling one-off products, I think offering a threshold for free shipping is 100% what you should do, and that doesn't mean you can't build in some buffer into some of those costs so that when they hit the free shipping threshold, you're not out all of the shipping expense. But this way you don't have to tack in the complete shipping cost to every single product. That's gonna lower your product price, and it's going to create more value because they're going to see the price and the value, and they're going to perceive that that cost and value matches. It's the problem when we have to spend, say, $10, $12, $16 for shipping, and we have to tack that on to one item at a time, and that really inflates the cost, and it also probably cuts into your profit margin. I can think about, for me as an example, I like to keep things under a certain price point. So if I want to price something under $45, or I want to price something under $50, and I really should be pricing it at $54 to account for shipping, I will probably price it at $49 all day, because I know that that's a sweet spot for me. Anything over $50 really lowers the sell-through on items in my shop. Shop anything under $50, they'll sell really, really well. And it's, it's a simple difference as $49 versus $51. So if I can say, okay, I don't have to wrap in that entire cost of shipping into that item, I can still sell it at $49 the way I want to, and I can do a $6.99 shipping or free shipping over $150. I've just increased my order average order value, because remember I said 93% of all consumers look for the threshold and meet the threshold for free shipping. They're going to get to that threshold if you give them a threshold. If there's no threshold, they're going to buy one item and be done. Like me, I'm always going to meet the threshold. I would rather not pay shipping, but also free shipping doesn't mean anything to me. There's no perceived value for free shipping. Free shipping, if I get this versus me having to pay for it, that has value to me. It's one of those mindset things for our consumers. So we should create a threshold in our online shop, charge a lower cost. So I'm not gonna charge $10 or $15 if you don't meet the threshold. Maybe that's $6.99, maybe that's $8.99. And then if you meet the threshold, it's free. But I'm also gonna take that dollar amount and I'm gonna wrap in a little bit of money into the total cost. So now I'm more profitable. Now my average order value goes up. Now I'm making more sales just by having that threshold. I can price things the way I want to for my own profit margin and not be tied to where I need to price them and have to pay for shipping on that item. So I definitely think that if you have an e-commerce store, you should not just do everything free shipping. You should have a threshold. Okay, and that's something I'm going to change about my store. Because I'm tying in the total cost of shipping to every one of my items. And because of that, I have items that are not online because it makes them too costly. So I only sell them in store. So that could definitely be something that we look at. Now let's talk about your shipping strategy for your subscription box business, because that's different. Okay? And we did a poll inside Launch Your Box recently, and out of 100 subscription box owners, here were the results. 76% said that they charge shipping on their subscription box. 34% said they wrap it into their costs. Okay, so the scales are tipped a little bit inside Launch Your Box, and that could be because I charge shipping for my subscription, and so they are just replicating or emulating what I do. As their coach. But I'm gonna talk through some of the reasons why you would charge shipping and some reasons why you would wanna wrap that into your cost. Okay? So every strategy is different. Everybody's business is different, and your strategy should be different when it comes to shipping. And I definitely want you to test it. I want you to test things. Your customers will respond in different ways. So here's my questions for you. When, when you start to ask that question, Sarah, should I charge shipping on my box or not? Do you only ship? That's my first question. So do you only ship? You don't have any local pickup? That would be a consideration to charge for shipping. Okay, if you have the option, do you have the option for people to pick them up? So I have a very heavy customer base in my local town. About 40% of all my subscriptions are local, and so I want them to come pick up. I want them to save some money and not have to ship. Also, when they come in the store, that's a personal connection for me and my team. So they get to say hi to my team. Sometimes they buy some things as they're walking into my warehouse. So I'm creating some foot traffic into my location and I'm also creating a connection point between me and them. So because of that, I'm not going to charge everybody shipping. It doesn't make sense. So I need to have the option of pickup or shipping, and that is the reason that I charge shipping on my subscription box. The other reason, and this is the thing that I really want you to consider as a subscription box owner, the perceived value of your subscription is the cost of your subscription. Okay? So say your box, say you wanna price it at $49. That gives you a nice profit margin. But you still have shipping on top of that, and you've averaged out your shipping. Maybe it's going to cost you $11 on average to ship it across the U.S. So now you need to charge $60 for your subscription box. Okay, so the value that this item is a great deal at $49 is much higher than if you have to sell that at $60. When I tell you this subscription box is $49 plus $11 in shipping, you see the value at $49 and have a great deal. Now you're comparing that value at $49, which I know is my sweet spot, to $60. It doesn't mean that people won't pay $60. It doesn't mean that people don't see the value at $60, but they are asserting everything in that box to that $60 value when $11 of it is shipping. And so by separating them, you're showing the value. Okay, now on the other side, Some people don't pay shipping. Some people live in this Amazon Prime world where when they get to checkout and they see that the amount has changed from $49 to $60, they're bouncing and they will refuse to pay that $11. And you might lose a customer because now they feel duped, right? Well, I filled out all the things on the checkout page, it was $49, and now I get to go put my credit card in at $60. And now it's gonna charge me $60 a month. So that could be a barrier for someone. So that's what you need to consider. Do I charge it all up front? Is my perceived value greater than the $60 and it's not gonna be a problem and it's gonna cause a lower barrier when they go to checkout? Or is it better to show that my value is greater than $49 and there is shipping on the backend? We pay shipping, consumers pay shipping, whether they realize it or not, they're paying for shipping. So it's just that perception of what you're doing, and there's no right or wrong way to do it. But I'm telling you that you can try both and see what works. Go with your gut. What is your gut telling you to do? Try that first. If there's no issues there, no, there's no issues. I have never ever had someone email me upset about paying shipping, not once. I have shipped 64 different subscription boxes. That's 64 different months. Thousands of subscribers every single month, and not one person has ever been upset over shipping. Now, have I lost a customer when they got to checkout and realized there was shipping added? Possibly. I wouldn't doubt that. But what is the bigger deterrent, the $60 price point to begin with or the $60 price point to end with? That's what you need to consider. For me, they're already invested in the checkout process when they get to the checkout screen. They've already gone through the steps. They've picked the box that they want, they've put in their information, they're ready to check out. To me, they're more likely to check out when they see the $11 extra than if that $60 was an issue for them going for in the front. So that's how I view it. But there's no right or wrong way. There are several super successful subscription box businesses inside our community that add shipping in. There are mega subscription boxes that add shipping in to their costs. Okay, so I don't want you to say, well, Sarah says I need to tack it on at checkout. That's what Sarah does. But everyone is different. If you're shipping all your boxes, it might make sense. The other thing that might make sense for you is to half it. Okay, let me tell you what I'm talking about. If you're on the fence listening to this, you're like, I just don't know what I should do. Say that's $11. Okay, it's $11 in shipping. You put 4 of it in the cost of the box, so you increase it to $53, and you add a $5.99 shipping on the back end. Then it doesn't feel like the shipping is costing so much. It feels better. Your price point is closer. Okay, you could do that as well, and I've seen people do that as well. But you can't eat the shipping. You either have to wrap it into your cost, so you need to increase the price. Or you need to add it to the end, period. You cannot eat the shipping costs. Anyone— nobody can do that. You've got to make sure you're profitable. Remember that free shipping is not actually free. It's not free to your customer and it's not free to you. So you need to make smart decisions about it. Show the value of your product and either wrap it in or add it separately. There's no right or wrong way. Make sure you subscribe to the Launch Your Box podcast. I'd love for you to take a minute to rate and review it. Let me know which episode is your favorite so far. Don't forget to join me next week right here.