Free shipping on Etsy has been a hot topic in recent years. While Etsy has been pushing for sellers to offer this perk to buyers, many sellers have met this strategy with much resistance. The perceived downside? Offering free shipping could potentially cut into their profits.
In this article, we’ll shed some light on why you should consider implementing a selective and thoughtful free shipping strategy and how getting it right it can enhance your profit margins and drive Etsy traffic and sales to your products.
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Start your 14 day free trialKeep reading, and we’ll walk you through the significant benefits of offering free shipping on Etsy. (..and if you are still not convinced about the magic of free shipping after reading through, we also have included a handy guide on how to turn off free shipping in your Etsy store).
Why Offering Free Shipping Could Be Good For Your Etsy Business
Offering free shipping on Etsy can be a game-changer for your online store - we’ve seen many Etsy sellers fortunes significantly change after they have implemented this sales tactic.
Let’s quickly delve into the reasons how free shipping can be a catalyst for sales and make your Etsy shop stand out in a crowded marketplace:
1. Improve Your Margins by Repricing Your Products:
To offer “free shipping” means you’ll need to factor the cost into your pricing. Understanding your current margins for each product is crucial for this. Once you’ve calculated the average cost of shipping each product, this cost should be factored into your pricing as a fixed overhead cost, just like any other business expense. Remember, not all your products have to bear the same cost.
2. Appeal to Online Market Preferences:
Various studies and Etsy’s own research indicate that free shipping is a significant incentive in converting browsers to buyers. It’s sometimes wise to lean on the shoulders of giants when it comes to what works in sales.
3. Stand Out From Your Competitors:
The competition on Etsy is fierce, but implementing a free shipping strategy could give you an edge over similar shops. Buyers appreciate the convenience and perceived value of free shipping, and this could ultimately lead them to choose your shop over others.
4. Increase your Revenue:
Strategic implementation of a free shipping model can potentially increase your revenue by up to 20% - we’ll discuss this in detail below. By making minimal pricing adjustments, you can increase sales and maintain a reasonable margin.
5. Encourage Larger Orders:
Free shipping often influences customers to add more items to their order, boosting your revenue per sale: we’ll delve into the fascinating and finer details of why later in this article.
Tip: Not sure about offering free shipping year-round? Consider trying this strategy during peak holiday shopping seasons and see how your sales are affected first.
How free shipping on Etsy influences buyer psychology
The psychology behind the influence of free shipping on customer purchasing behavior is fascinating and powerful - it’s important to understand this as it’s key to being successful with this approach.
When shoppers are offered free shipping, they perceive it as receiving a deal or bonus, which triggers a positive emotional response and a sense of being valued.
This often leads to what is known as the threshold effect, where customers are inclined to spend more to “save” on shipping costs.
Moreover, eliminating the extra cost of shipping simplifies the decision-making process for the buyer by removing a potential barrier to purchase.
As a result, buyers find themselves adding additional items to their carts to maximize their perceived savings or to meet a threshold to qualify for free shipping.
It’s a strategic psychological play that smart sellers can leverage to increase the average order value and drive up sales.
Repricing your products to retain (and improve) your margins
It’s important to realize that to offer “free shipping” means you’ll still need to factor the cost somewhere in your pricing - otherwise, you will most definitely be losing money with this strategy.
To do this, you’ll need to be completely aware of your current margins for each product you sell - this requires calculating your actual costs of production (Craftybase Inventory Software can generate these in real-time for you).
For each product, you’ll also need to calculate the average cost to ship the product in your country (and overseas, if you will extend your offer internationally). This cost needs to be factored into your pricing as a fixed overhead cost. In a traditional “bricks and mortar” shop where the customer comes to you, its good to remember that every item in that store has an inbuilt markup that includes overheads like the shop rental, staff and the cost of transporting the item to the store. As an online retailer, you bring the product directly to the customer (DTC) on an individual basis. This means that although you can avoid significant costs like shop rent and sales staff, you may need to now factor in shipping into your business and pricing model.
Also, keep in mind that your profit margins can be different per product, so you can tweak this to create a competitive sale price: you might raise prices on some of your products to cover the margin lost on others - they don’t all need to have the same.
Fact 1: Your Traffic on Etsy will Increase if you offer Free Shipping
It’s no secret that Etsy heavily promotes listings that have free or low shipping offers: since July 30, 2019 Etsy has provided “priority placement” to shops that offer free shipping in the US for orders over $35.
Not as widely known is the fact that other marketplace sites, like Google shopping, also provide a hefty boost to listings with free shipping offers. If your marketing strategy involves external advertising on google, then this is most definitely something to factor in.
Many Etsy customers are now exclusively using the “free shipping” filter when browsing products, so without offering at least a couple of products with this option, your shop will be completely invisible to this subset of buyers.
Fact 2: Customers prefer free shipping over paying directly for it
Etsy has, over the years, undertaken a vast amount of research on what motivates online customers. They have found that free shipping is a massive incentive to converting browsers to buyers: higher than expected shipping costs are the top reason for cart abandonment.
Instead of seeing “free shipping” as a significant discount off your products that you are reluctantly making to appease the Etsy gods, you could start to reframe this approach. Try thinking more along the lines that free shipping provides the customer with more clarity on the total cost of the purchase and thus brings your store closer to how an item in a traditional shop is priced.
Fact 3: You Can Increase your Etsy Revenue with Free Shipping
Research indicates that free shipping business models can increase your revenue by up to 20%. Let’s look at an example to see how your profits can be increased by making some very carefully planned, minor changes to your pricing:
Let’s say your selling price on your product is $40, and your average shipping cost to a customer located in the US is $10.
The total price to the customer without “free shipping” is $50.
Taking another look at our production and overhead costs, we’ve determined that we can sell this product at a minimum of $38 and still maintain a reasonable margin. Adding the average shipping cost of $10 brings us to a listing price of $48.
| Charged Shipping | Free Shipping | |
|---|---|---|
| Item Price | $40 | $48 |
| Shipping Cost | $10 | $0 |
| Total Price | $50 | $48 |
Let’s hypothetically say that the free shipping option will increase sales by 20%, so for every 100 sales at the usual price, we will be making 120 sales. Let’s project the revenue and costs between the two scenarios:
| Charged Shipping | Free Shipping | |
|---|---|---|
| Sales | 100 | 120 |
| Item Revenue | $5000 | $5760 |
| Average Shipping Costs | $1000 | $1200 |
| Revenue after Shipping | $4000 | $4560 |
We have made $560 of extra revenue in this scenario due to the extra sales our new free shipping marketing tactics have driven - even after your estimated shipping costs have been factored in. Keep in mind that this gross revenue figure is quite simplistic, so be sure to factor in any other costs that are applicable for your shop to ensure you have the margins you need).
From here, you can then experiment with your pricing - you might find that you can increase your price without impacting your sales volume.
Fact 4: Your Minimum Orders Will Increase with Free Shipping Offers
Free shipping also tends to encourage more items per order - customers don’t need to worry about increasing shipping costs as they add to their cart. This has an obvious benefit: if you are building in the cost of shipping to each of your items as you’ll be making more revenue on the sale overall.
Including the $35 USD order minimum requirement with your free delivery guarantee will also encourage customers to try and purchase more. To see if a free delivery guarantee will work for your shop you’ll want to calculate what your current average order value currently is. To do this, you can download your Etsy Orders CSV file, open in a spreadsheet and then run the average formula function (or alternatively use a system like Craftybase Inventory to generate this tally automatically).
You’ll want to be tracking this metric on at least a monthly basis to see if this strategy will work for your shop.
Why Understanding Your Production Costs Is Crucial
Knowing your production costs is vitally important, especially when implementing pricing strategies like free shipping.
It allows you to determine the true cost of your products, ensuring that the price adjustments you make to absorb shipping will not erode your profits. This understanding is not just about covering costs; it’s about maintaining a sustainable business model where every item sold contributes positively to your overall financial health.
Careful calculation and management of production costs provide a clear picture of your business operations, guiding you to make informed decisions that support long-term growth and stability. By accounting for every aspect of the production, from materials to labor, you ensure that the ‘free shipping’ incentive does not come at the cost of your business’s bottom line.
Streamline Your Inventory Management to Harness Production Cost Insights In order to precisely gauge and manage your production costs, adopting an effective Etsy inventory management system is key.
This system will not only keep a detailed track of your materials but also help in predicting future expenses and optimizing your pricing structure. For Etsy sellers looking to master this aspect of their business, Craftybase is an excellent solution that has been tailored specifically to meet your unique needs.
Craftybase is an Etsy inventory and business management software solution that provides you with a clear, analytical view of your material costs, labor, and overheads, ensuring that you always price for profit. It’s designed to accommodate the intricacies of managing an Etsy shop, enabling you to track trends, predict material requirements, and adjust product pricing efficiently.
By having a comprehensive inventory management tool like Craftybase at your fingertips, you can effortlessly align your free shipping offerings with your business model to ensure true and reliable profitability.
Take the first step towards a more profitable Etsy shop by exploring what Craftybase can do for you. Start your free trial now and transform the way you manage your handmade business!
Reasons to Consider Not Offering Free Shipping on Etsy
While free shipping seems like a no-brainer for boosting sales in most cases, it’s wise to weigh the pros and cons for your unique shop situation.
In this section, we’ll explore some compelling reasons why opting out of free shipping might be the right choice for your Etsy store. Let’s take a quick look at some scenarios where free shipping might not align with your business model.
- Higher Costs for Large or Heavy Items: If you’re selling large, heavy, or otherwise cumbersome items, the shipping costs can be substantial and might not be realistically absorbed into the product price without affecting competitiveness. Impact on Profit Margins: Offering free shipping on items with small margins could lead to a loss, especially if shipping costs vary widely and can’t be accurately predicted.
- Complex International Shipping: Sellers who offer international shipping might face challenges in offering free shipping due to the higher costs and complications of international logistics.
- Custom and Made-to-Order Items: These typically have higher value and may require insured shipping options, increasing the cost to a point where free shipping is not feasible.
- Limitations due to Shipping Zones: Depending on where the buyer is located, the cost of shipping might make it impractical to offer free shipping across the board.
- Promotional Strategy Variability: Free shipping might not be the best promotional strategy for every market or product type, and it may benefit some sellers to use other promotional tactics. Unpredictable Shipping Rates Fluctuations: Carriers may change their rates, which can disrupt carefully calculated pricing strategies that include shipping costs.
- Reduced Perceived Value: Sometimes, ‘free shipping’ can give the impression that the product quality is lower, which might not align with the branding strategy of premium or artisanal stores.
- Customer Expectation Management: Constant free shipping offers might condition customers to expect this perk all the time, making it difficult to reverse the policy without impacting customer satisfaction.
It’s important to remember that offering free shipping is not a one-size-fits-all solution, and Etsy sellers should weigh these reasons carefully against the potential benefits to make an informed decision that aligns with their business model and goals.
How to Turn Off Free Shipping on Etsy
As we have discovered, while free shipping can be a great strategy for some, it may not suit every seller’s needs or capabilities.
If you’ve given it a try and found that it doesn’t quite work for you, there’s no need to worry. You can easily turn off free shipping on Etsy at any time.
- Go to the Shop Manager on your Etsy account.
- Navigate to the “Listings” section.
- Select the item you want to update.
- Scroll down to the “Delivery” section of the listing page.
- Under the “Delivery” area, click on the option for ‘I’ll enter fixed prices manually.’ After selecting this, input the shipping cost for the item in the space provided.
Conclusion
In conclusion, offering free shipping on Etsy can bring significant benefits to your online business. From increasing sales and profit margins to standing out from competitors, this strategy has proven to be successful for many sellers. However, it’s essential to carefully consider your pricing and shipping costs before implementing free shipping.
After reading this article, you certainly don’t need to decide that you need to do free shipping immediately and switch it on blindly for all of your products. Consider running an experiment for a month or two on a small set of your suitable products to see if it impacts sales, then analyze the results and then continue to roll out slowly if it is working.
Good products to begin testing with are those you have a significant sales history for (so you can compare sales volume and popular shipping destinations) with predictable shipping costs.
And if you find that it just doesn’t work for your shop, turning off this feature is a simple process.
So why not give free shipping a try and see how it can benefit your Etsy business? Remember, with the right strategy and approach, free shipping can be a powerful tool in driving traffic and sales to your online shop. Don’t miss out on this opportunity to take your Etsy business to the next level.
