Shipping more, making less

One of the dangers of this business is doing more for less. Unfortunately, it’s an easy thing to do when you are working on thin margins and/or changing how your processes work. Unfortunately, in this case, we made a few mistakes and ended up doing the above – the worst case scenario possible for a business like ours. It’s why we moved Free Shipping to $175 from $150.

The Setting

In January we managed to request a lower rate on our Canada Post shipping.  This was predicated on a certain volume of items shipped, which we expected to hit with a minor increase in our shipments.  At the same time, we noticed a decrease in our shipments to the East Coast due to the increasing competition we saw.  So, to hit both the increased number of shipments we needed and to pass on the savings, we decided to lower our Free Shipping threshold to $150 from the original $175.

What Happened

Well, unfortunately we didn’t hit the shipment numbers that we required, which meant that our rates bumped back up to our old rates.  That meant that for each free shipping order that went out, we were losing more than we were previously.  Combine that with the fact that we did see an increase in free shipping orders, our total losses had increased.

Now, this would have been fine if we saw a significant bump in shipments (thus generating more total revenue even if we made less per order); however this wasn’t the case.  We saw more shipments certainly, but not enough to cover the increased cost of shipping all the free shipping orders.

If you are having trouble imagining it, look at it this way – if we free shipped 10 orders previously and it cost us $15, we lost $150 for the 10 shipments.  Now, if we free shipped 12 orders now at $15, our total loss is now $180.  However, our revenue numbers are $1,750 to $1,800 – a $50 revenue increase.  That’s a net loss in profit, not a net gain.

Thus – more work, less money.  It’s why we shifted back to the $175 free shipping level.  Will we ship less? Probably.  We might even lose a few customers because of this – but the gain in profitability should balance this out.

 

6 thoughts on “Shipping more, making less”

  1. For me, either of these thresholds is high enough that I wouldn’t do it more than a couple times a year if at all. Instead, I tend to only order from SC when you have something I can’t get locally and there are enough things I want at once that your cheaper prices cancel out the shipping cost – usually in the $50-75 range. Otherwise, it

  2. Sorry, I accidentally posted before I finished. Here’s the complete post.

    For me, either of these thresholds is high enough that I wouldn’t do it more than a couple times a year if at all. Instead, I tend to only order from SC when you have something I can’t get locally and there are enough things I want at once that your cheaper prices cancel out the shipping cost – usually in the $50-75 range. Otherwise, since I can’t generally afford to spend $175 at once, it is more cost and time effective for me to just walk down the street and buy it at my FLGS. I love your service, but I love theirs too, so it comes down to what’s easiest for me.

    I have no idea whether this would be even remotely feasible for you, but I expect that if you had free shipping at $80 or $100 I might even make orders monthly (which is a substantial increase for me), and I suspect many other people would be more likely to buy from you as well. Lowering the threshold from $175 to $150 changes the shopping patterns of your existing high-volume customers, as you saw; lowering it more substantially would change the shopping patterns of many more customers and probably draw more in too.

    Like I said, I don’t know if that’s possible; it could be a pretty expensive experiment if it didn’t work. Just thought I’d throw it out there.

    1. It wouldn’t be viable at all. The only way it’d make sense is if we started charging at MSRP because then we’d make a decent amount after shipping cost.

      Oooh, if you want to read why in more detail; you can look at this post. I use an average of $90 per order and a 100% margin here, which is a MUCH higher margin than what we get. Still, add $15 in cost and you can see how ridiculous that proposition becomes. – http://www.starlitcitadel.com/helm/2014/04/22/mathematics-of-the-business/

  3. The formatting for the table in that post isn’t working for me, and I don’t understand all of the terms, but I get the gist. I certainly don’t envy the position you’re in, and I want you to know that even if I can’t afford to shop at Starlit Citadel as often as I’d like, I really appreciate the niche you fill in the market and your superb customer service and interface.

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