Aug 07
Should we make money off delivery?
Posted by
Seth Godin wrote about his thoughts on delivery charges for online stores. Here is a snippet:
Two things have changed. First, Amazon has taught millions that free shipping is the way the world should work. As a result, anything more than free just feels wrong. Second, other merchants have realized that you can make 100% of your profit from shipping and handling and do quite well.
We are stuck between those two extremes on our e-commerce sites. We are tempted to go with "free delivery" as a major selling point, and to help encourage cautious South Africans that shopping online is a good idea
However, delivery is not cheap. We have found a great courier provider in Borntosend, but the cheapest that we can send even a small package is still over R50. On a R500 order, that's 10% we're giving up, which is about a third of our profit.
We've decided to take the middle-ground and cover our costs, but not make any profit off delivery. We charge R50 per order on Flag Kit, Bug Zapper and Yuppiechef. That means we take a bit of a knock on heavier orders, but usually we've made more profit on those already.
More from Seth:
Online, the economics are clear. Repeat business is what matters, and that happens when you surprise people (for the better). Not when you rip them off.
Kalahari offers free delivery on orders over R350, which is a nice incentive for customers to bulk up their baskets before checking out. I know that I've added an extra book to my order to get over the delivery threshold. This is easier for Kalahari because of their volumes - apparently around 1,200 deliveries a day - so they have been able to negotiate their courier company down to around R25 per delivery.
Perhaps if the DTI wants to encourage small business they should subsidise e-commerce deliveries. It would be a massive help in getting online businesses off the ground, and monitoring would be quite easy too - submit the invoices from your courier company and receive a R25 subsidy for each order.
We can only dream.
(Thanks Lisa for the link to Seth)
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I know that personally, I always expect to have shipping costs involved. If there are no shipping costs at all I suspect that they are incorporated into the product prices, which isn’t ideal for me because I like options (pick up at the branch, normal post, priority post, etc).
It feels like a South African psyche, having the choice of maximum control over what you pay for.. or maybe that’s just me..
That said, a free shipping if over a certain amount, such as kalahari.net and prophecy.co.za does, is a great incentive to me to buy more and still feel uncheated and in control.
My 2c. :)
This is a complex problem and I am currently right in the middle, on one side I sell and support my own logistics systems(Winfreight, Warehouse-it, Ram Card Manager), on the other I run a distribution buisness as a profit centre for a national courier!
The customers we service want to make profit on their card sale and distribution and so does the courier company, too cheap = bad sevice - been, seen and doing!!!