I would like to be able to offer free shipping to our customers, but it’s a losing game in the end. Great initial traffic, but lost profits at the outset – in the long run. Lost profits eventually mean closing one’s business.

I understand customers don’t worry about the business bottom line, but business owners with employees do. I feel incredibly responsible for the people I employ. They are very loyal to the business and work so hard towards its success. They have children. They rely on the job to pay for rent / mortgage, food, clothes, etc. I have to worry about it.

At one point, we offered free shipping for online orders over $100. To our amazement, we discovered that we actually lost money as soon as customer ordered over $100! We then ended the free shipping offer out of necessity. To our amazement again, this didn’t change customer buying behavior that much. In essence, we had set ourselves up to lose money!

Now with gas prices going way up, free shipping is even more difficult to justify. I understand how the Amazons of the world can offer free (1- 2 week) shipping (they ship thousands/day); but note that the faster shipping options are not. I wonder how much of lost revenue is made through the faster shipping options. NOTHING is free. It’s just passed on or hidden.

I don’t expect customer to think through free shipping at the level that business owners / managers do. They’ve had little reason to or have been made aware of the real costs. The recession has not helped, and rising fuel costs will only make it more difficult for retailers to justify “free” shipping. It’s a conundrum, isn’t it? Consumers want it more; business owners are less likely to afford it.

What can I say? Please support small businesses. We may not be able to afford “free” shipping, but please trust that we work really hard to stay in business (including subsidizing the true costs of shipping), employ you and your neighbors, and often offer the kind of selection and service that are hard to find with big retailers.

In my experience, “free shipping” offers out-pull equivalent promotions expressed as percentage or flat dollar off. In other words, if your AOV is $100, and shipping is $10, then there’s no difference between free shipping, 10% off, and $10 off. But psychologically, free shipping trumps the others.

But does it lift performance enough to pay for itself? Why do it? Three reasons, all doubtful:

Free shipping promotions MAY lower your marketing cost more than the cost of the shipping you’re giving away: You give away $10 per order in shipping revenue, but the effectiveness of the promotion lowers your ad spend (pay-per-click, or catalog, radio or whatever) $15 per order.

Free shipping tied to a minimum order value MAY raise your AOV — and boost your profits. Again, this is a function of decreasing your ad spend, and perhaps your fixed costs, as a percentage of total revenue.

Lifetime value may be compelling enough to lose money on the initial order. Yeah, we’ve heard that one before! Be careful with this one . . .

Your point about the danger of “training” your customers to wait for the sale is a HUGE one!

but if you offer the same products as B&M, and don’t have a large consumer database purchasing from you, offers like free shipping can drive traffic to your website that you can later market to in other ways even if they did not purchase.
Free shipping is not always about the offer, and sometimes its about the merchandising value of driving new traffic or increase traffic to your website to see what is new on your site.

We have found that free shipping can be effective in convincing local shoppers not to leave their house, however. If an item isn’t in stock at a nearby store, free shipping (and returns) is often enough to get them to switch retailers AND buy online. We have a lot of data from stock checks across the US that shows this is the case, particularly in apparel, shoes, and jewelry.

After all, customers may only choose to buy on-line vs in-store if free/low price shipping is available. Since a merchant still has to provide the convenience of a brick-and-mortar location somewhere in the competitive equation, the consumer decision to weigh shipping/travel alternatives makes this a function & cost of marketing.

I believe that this was a “phase 1″ approach in marketing when etailers were trying to convince shoppers to convert to online shopping. As the general costs keep going up, unless you’re Amazon there will be a point that it will be accounted as a loss. In my experience the times we have offered a “Free shipping” promotion, the conversations accounted for the price conscious customer were the total order was not that big. Where the serious customer, even at times of a Free basic shipping promotion, they were still purchasing the more expensive “Next Day delivery”.

If you’re average order is $50 and you offer free shipping for orders over $100, the additional revenue may well exceed the increased shipping expense.

Mr. Bolotsky’s business model seems unique enough to have limited application to most retail operations.