Say you are an online shop selling widgets for $10.00 each and they weigh 1 pound. You’ve done the homework and figured out that the average shipping cost for one widget is $5.00.
You then decide to do what other sellers do and advertise free shipping for orders over $100.00. In order to not lose money on the free shipping, you embed that into your pricing structure, so you set the price of widgets to $15.00.
So then a customer places an order for 10 widgets; the order total is $150.00.
But this order of 10 widgets weighs 10 pounds. You’d have to know what your shipper charges for a 10 pound box to know if you’ve made or lost money on the sale.
Same thing if the next customer placed an order for 100 widgets; their order would weigh 100 pounds (assuming it was in one box at this point) and you’d have to know how much your shipper charges for that.
Which all comes down to: how do online sellers who do the “free shipping on orders over $X” ensure that they don’t lose their shirts? Do they do some sort of business/contractual negotiations with the shipper before advertising this kind of thing?
Also, generally, it’s cheaper to ship ten widgets or a hundred widgets instead of one. Either the things are small enough that you can fit more in a box (and given that the OP talks about a one-pound widget, it’s probably something small) or you get a discount for having multiple boxes sent to the same address. Or you palletize the shipment with all hundred boxes on one pallet.
Re: the bolded assertion: how so? If the shipper charges for weight, more widgets weigh more. None of the shippers charge per box, they charge for the combination of weight and package size.
I can see the USPS flat rate boxes possibly working. But not UPS. Or does UPS have a flat rate program also? I’ll have to check into that.
UPS and Fedex shipping, the first pound costs more than each additional pound, and for a while each additional pound costs less than the pound before it. In addition, 100 packages of 1.5lbs costs the price of 100x2lb package price, while 100 widgets costs the price of 2-75lb packages. And finally, the price a schlub off the street gets quotes at Fedex and UPS is nothing even close to what Amazon or very large retailers pay. Costs amazon something closer $1/lb than the usury they charge a walk-in customer.
But as to your initial query, basically they make very little or nothing off 1 widget, but make a lot if you have a big order.
Shipping costs are not linear. Does it cost twice as much to deliver a two-pound package as a one-pound package? No, because either way, the package has to be picked up, transported and delivered. There is a marginal increase in cost for the heavier package (because slightly more fuel needs to be consumed).
Is this all theoretical? If you have real dimensions in mind for the hypothetical widget, you can go to the Fedex/UPS/USPS websites and get quotes for hypothetical deliveries.
It’s more efficient to ship more at once, in terms of the shipper’s labor as well as actual freight costs. As order size increases, at some point the profitability of each widget within a large order, with shipping included, overtakes the profitability of a single widget with shipping added.
It’s sort of theoretical and sort of real. I have a small online shop so I’m trying to figure out how other small (NOT Amazon who can wheel and deal with shippers) businesses do this type of shipping. I realize that the costs are not linear but it’s hard to figure out how the math works out in order to estimate future shipping costs. In order to offer free shipping, you have to estimate average shipping and then tuck that into your pricing structure so you don’t take a bath on it. I can’t figure out how that estimation works.
I even called one of my suppliers and asked for their advice based on their business experience. They told me that the fastest way to go out of business is to offer free shipping. They said that carriers now charge on the combination of weight, size and distance. I looked at the UPS rate tables, which are something like 50 pages. It seems impossible to me, so I’m wondering how other businesses do it and stay profitable.
Personally I would brute force it if you have a very limited selection of widgets of not too variable sizes. Put one widget in a box. Calculate. Put two widgets in a box. Calculate. Put three widgets in a box. Calculate. You’ll start seeing how the price changes with more widgets and how many widgets fit in a box, if you can put them in flat rate boxes, and so on. This becomes much more difficult the larger variety of widgets you have and if you have some widgets that are very large, or hard, or very fragile, or complicated to pack. But if you only have a dozen styles of widgets and they’re all about the same size and weight, you can get a rough idea of your shipping costs this way.
I’ve probably sold maybe 10k worth of stuff over the last 10 years via Amazon and Ebay. My strategy is and was generally: USPS only. Except for very high margin items, only items that are light enough for First class mail parcel, or that qualify for media mail. All other items, sell on craigslist or don’t sell at all.
If I were able to source a decent amount of something heavy, I’d probably use amazon fullfillment (which you can use to sell and ship from other websites too, but once you do that you want to list on amazon too anyway). You have to have a decent margin to go that way though, but frankly to compete with amazon you have to have good margin anyway.
Unless you have your own website, locations that host small sellers usually have automated shipping labels and cost calculators. Ebay has “shipping rules” a seller sets up (search for it) that are used to price shipping of multiple items. As posted before, it’s WAY NOT linear!
The USPS.com site will let you play with shipping size, weight, and method to give real shipping costs that could help you with pricing. UPS and Fedex are tricky, they give “estimates”, ask for a lot of information, and are slow to work through. I don’t recommend them.
This. Also, cost is not linear either. When you factor in the cost of labor, packaging material (boxes and bubble wrap aren’t free), etc, putting 10 widgets into 1 box and shipping it to one buyer costs much less than putting 10 widgets into 10 separate boxes and shipping them to 10 different buyers.