Shipping stuff is a big part of my operation, so it’s with some bemusement that I’ve watched the efforts of Amazon to hide the costs (and challenges) of delivery from customers.
First there was Amazon Prime, which all but eliminated shipping charges, and then came all of those stories about Amazon drones — as if moving packages from one place to another is so easy that robots will soon be able to do it. If you think about it, though, the ease with which packages are moved over long distances really is a miracle, and involves some incredibly sophisticated capabilities, like route optimization and real-time tracking. Personally, I think UPS and FedEx could do a better job of highlighting just how good they have become at moving stuff.
And maybe that is why Amazon does not want to acknowledge that anything tricky happens after your order leaves the warehouse. It doesn’t own the delivery services, and it doesn’t want to empower other corporations, so it hides the costs involved. That seems to be a reasonable strategy — especially if it doesn’t need to make a profit.
What does this have to do with Paul Downs Cabinetmakers? A lot, actually. It’s about the expectations that are being created for online shoppers everywhere. We are being taught to think only of the thing we buy and not to consider where it came from or how it gets to us. The upside of this is that we have access to an incredible variety of stuff from all around the world. And the downside? For buyers, there may not be one. But for sellers, it means that a significant cost needs to be considered in a new way. It is increasingly difficult to pass on the costs of shipping by simply tacking them onto the item price.
Ten years ago, through no efforts of my own, Google vaulted my work to the top of organic search results for a particular product, conference tables. Suddenly my market expanded from local to national. It took us a while to master the shipping of large, delicate objects over long distances, but we have become very good at it.
When we started shipping our work, we added a line item to our price quotes, separating the cost of freight from the price of the table. We are able to get an instant price estimate for shipping our work nearly anywhere, but it is just an estimate because the numbers are based on the exact size and weight of the crate, which we do not know until the table is complete. So we list shipping as a separate line item in the price quote and try to close deals.
Some of our clients do not question the line item, and they place the order. Some grumble a bit and place the order anyway. And some look at the total cost and decide not to place the order. The additional cost is an issue, particularly for clients west of the Mississippi, which is why we do not do as much business there as I would like.
Last week, I was showing a new employee how our Google AdWords campaign works. I noticed that a couple of new competitors were showing up on some of our searches — and that all of their ads included the promise of free shipping. Our ad was the exception. It promises a bunch of good things but not that we will eat the cost of transporting large tables across our enormous country. Seeing the competition throw down that offer made me say, “Hmmmm, could we do that?”
We send our tables to distant customers via LTL — less-than-truckload — trucking services. The parts of the table are packed in foam and cardboard and then into a custom crate. These are big — usually eight feet long, four feet wide and four feet tall — and generally weigh about 850 pounds. The labor and materials required to pack up the tables is always included in the price of the table. We charge for the trucking and the installation in a separate line item.
I read through my competitors’ sites to review their terms. In every offer I looked at, installation services were excluded. So we were really talking about the trucker’s charges. These are not nothing, but they also are not, for us, a deal-breaker. In 2013 we had revenue of $2.6 million. Of that, we paid out $87,000 for freight, or 3.32 percent, which is not a huge percentage. On the other hand, it was more than we generated in profits last year. Let’s leave that aside for a moment and look at the pros and cons of offering free shipping.
The Pros:
• Our pricing formulas, which predict the amount of time required to make a table, are being overtaken by increased efficiency on the shop floor. Our actual labor costs per table are dropping fast. So we have some extra money available to strengthen our marketing efforts, without raising prices for the tables themselves.
• Our clients do not seem to object to the price of the tables (at least as far as we can tell). We do know, however, that they object to paying shipping — we close far fewer sales on West Coast inquiries.
• While I have no intention of giving away the freight, we could hide it in our prices. We could build a fixed shipping cost into every job, adjust the hours estimate to account for our improved efficiency and keep prices the same.
• Our most profitable tables are in the middle of our price range, generally $10,000 to $20,000. In 2013, the percentage of our revenue produced by that band fell to 33 percent, down from 36 percent the year before. I’d like that segment to grow.
• Omitting free shipping from our ads probably makes them less effective, particularly if our competition is trumpeting that benefit.
The Cons:
• It ain’t broke, so maybe we shouldn’t fix it. Good clients expect to pay shipping; only bottom feeders want it free. (On the other hand, folding a fixed shipping charge into our table prices would increase the price of the lower-cost tables by the highest proportion, while the higher-cost tables will look cheaper by comparison.)
• We might devalue our brand. When I click through the ads that offer free shipping, I generally land on sites with cheap product. Will we start to seem like those vendors?
• Could a flood of cheapskate buyers overwhelm our sales staff? Possibly, but we take good records of incoming calls, so we can identify any change in the overall pattern of callers. We could change course if that happens.
So that’s my question, one that might be of interest to any small business that wants to use the Internet to expand its market from local to national or international: Should I offer free shipping? I am leaning strongly toward it, but since I have the opportunity to put this problem in front of my readers, I won’t do anything until I hear from you.
What would you do?
Paul Downs founded Paul Downs Cabinetmakers in 1986. It is based outside Philadelphia.