Shipping, Psychology, and Small Business

Today’s blog post is a little bit out of the ordinary.  It’s more about the nuts and bolts of running a small online business, which is something I'm hoping to share more of this year. 

As with retail shopping, online shopping has it’s own list of tenants that you do to help increase sales, get website clicks, etc. etc.  I get weekly emails from Shopify (the website hosting platform our website is built upon) with their “Top 5 Online Sales Tips” .  While I do subscribe to some of these, because it’s just the nature of the beast, I try to stay away from too many of these sales tactics.  I just try to put a great product and service out there and let people decide for themselves if they like it or not.  So this little preamble leads me to today’s topic - shipping.

Shipping is a huge part of our business. Unless someone lives locally here in Virginia Beach, every frame or product that goes out the door has to be shipped.  I pack each frame myself and, and depending on the project, sometimes the packing can be just as much work as making the frame itself - or at least the way I try to pack our frames.

An example of our packaging ready to be placed into a box for shipping last.  We try to use recycled materials for the cardboard from old boxes etc. when packing each frame.  

The Psychology of Free Shipping

Free shipping is common-place on the internet.  I have an Amazon Prime membership mainly because the free shipping.  Since I only really have my own experience to rely on, I noticed something telling about the way I view shipping online as I was purchasing a few products for my kids before Christmas.  When you search for a specific product, sometimes it will give you a variety of vendors to choose from.  Usually one or two will be eligible for Amazon Prime and then several others might have lower retail costs, but will include a shipping charge - but all will generally be the same price.  Most always, I will choose the Amazon Prime eligible product  even though it costs no different than the other products listed.  Maybe there’s some brand equity built up in my head, or that I feel like I’m getting a some use out of my Prime membership, but the overriding feeling is that I feel like I’m getting something free with it.  Funny creature, am I :)  But I would have to guess that I am not the only one that behaves this way in this day and age.

Our Current Shipping Model

Currently, we have a flat rate shipping pricing model, depending upon the amount purchased at checkout.   The economics of how our flat-rate shipping works is this, we are helping to pay for some of the costs depending on where you live.  For instance, its is much cheaper to ship something from Virginia to New York than it is to ship from Virginia to California.  To put some numbers to it, an average sized frame, say 11” x 14” will ship to New York City for around $16 - $18.  The same frame will ship to Los Angeles for $20 - $25.

For our frames, at this point, I am happy with how the shipping model works.  I have toyed with offering free shipping for all our products, however, I could only make that work financially if I raised the prices on our website by the corresponding amount.  Being a small online business we simply do not have the profit margins on our products or the sales volume that would allow us to keep the same prices and include free shipping.  So I’m happy, and feel like it’s a good compromise between both ends of the shipping spectrum.  

For our wood blocks, and to a lesser extent, our t-shirts, shipping becomes much more critical.  It may seem a little backwards, but the margins on these products are slim, in the $10 - $12 range. For example, currently a wood block that sells for $30 will ship for $5 and it has a margin of around $10.  Depending on where that product is being shipped the cost can range from $5 to $13.  So it’s not hard to see, that something is awry, depending upon where someone lives will determine if we make any profit on the sale.  I take it upon myself for the blunder.  When pricing, I go through a process internally of questioning - is that too much to ask for...is that too little to ask for? Just based on my personality, I tend to go with asking for too little, however I have been told over and over again that the prices should be higher - mainly because I make everything that comes out the door here (with the exception of t-shirts) so the prices should reflect the craftsmanship, blah blah :).  So that leads me to the next point...

A Couple Changes

For our wood blocks and t-shirts (basically all our lower price point products) I am going to raise the retail costs by a few dollars to make them more viable.  I’m not sure if I’ll stick with the flat-rate model or go to free-shipping altogether for these products, I still need to process it a bit more, but I wanted to at least give a heads up of some changes that might be coming.  (Note: I wrote this last week and as I usually do, sat on it for a time.  For our t-shirts and wood blocks we've adjusted the prices to include free shipping :)

Sorry to go too much into the weeds, but my hope is that the transparency in the process will help shed some light into the inner workings of how we operate.  To use a football metaphor, these are the “blocking and tackling” decisions and processes that have to be done right in order for a small business to succeed and grow.  This year I'm hoping to share more of these types of behind the scenes experiences here on the Journal.  

Cheers,

David