We provide a Free Shipping Promotion on the site for orders over $175. It seems quite high when you consider that in the United States, it’s often at $100 or $125. Of course, we do live in the 2nd largest country in the world with a tiny population, making our overall cost of shipping much higher.
In fact, it generally it seems takes between $8-10 to ship across the United States (with a business discount) while in Canada we’re looking at a minimum of $17 from edge to edge.
Our $175 Free Shipping Offer
So, let’s discuss the $175 free shipping level. On a $180 order, we make about 37% in gross profit – or $66. The rest goes direct into paying for the stock to replace the games purchased. Now, on this order we have to pay our gateway fees for the credit card charges of approximately $6. So, we now have $60 total in gross profit.
A Free Shipping order is generally quite a large order so our average shipping cost is about $18 per order. On top of this, we need the box and packing material, an estimated $2 per order. Total cost of shipping is about $20 for each shipment.
That brings out total gross profit on this Free Shipping order to $40. So on a $180 order; we make $40 Gross Profit; before you start counting operating expenses like salary, rent, electricity and marketing expenses among others.
The $100 Free Shipping Offer
So, let’s do the maths again on a $100 Free Shipping Offer.
$100 of product = $36 in Gross Profit. Take another $3.00 off for Gateway Expenses, and that’s $33.
On $100 of product, due to the smaller box size we’ll call it an average of $15 to ship plus $2 box cost and packing material. That’s $17 in shipping; so that’s $16 in gross profit.
How does Chapters do it?
If you’re like me, and you buy from Chapters, you probably have received packages of books that are only 1 or 2 books wide. At a $29 free shipping option, it seems impossible for them to do this.
However, Chapters has a few advantages over us:
- Volume – Canada Post provides volume discounts. We just aren’t anywhere as big as they are so our discounts are only a fraction of their discounts
- Better Margins – again, it’s worth noting that their margins are much better on books than ours on board games
- Smaller Boxes – means smaller shipping expenses.
- Multiple Warehouses – and here’s the other equation – it costs a lot less to ship within a province (or two adjacent provinces, etc) than it does to ship across the country.
In time, as we grow we’ll probably revisit the Free Shipping policy. The trick is to get our shipping discounts to a point where it makes sense. I expect it might be viable in 2 – 3 years time, if we grow sufficiently. Till then, bear with us!