The problem with offering 'free shipping'

The growing use of e-commerce has been a major blessing for companies. For small businesses, it opens up the possibilities of selling to the entire world. If you are a specialty mom and pop shop in a small town, this can be a major boost to revenue and expand your client base exponentially and breathe new life into the company. However, it is not as easy as it seems because logistics and shipping can be a tricky solution that trips companies up.

A recent article from The Globe and Mail features interviews with a number of Canadian small businesses that all spoke about how shipping trends have started to have a negative impact on the bottom line.

Julia Grieve has owned and operated Toronto-based company Preloved for 19 years. With four stores spread throughout the the country, the company sells originally designed clothing made from vintage fabrics. In recent years the physical stores have closed because the online and wholesale divisions took off.

What Grieve has noticed, however, is that every order now needs to factor in shipping costs. For a local delivery in Toronto, Grieve pays $8.50 even though she only charges $7. However, there is now growing pressure from consumers and businesses for free shipping. This has turned e-commerce into a blessing and a curse.

A executive from the Canadian Federation of Independent Business said that the squeeze of the high cost of shipping is something that companies in all sectors need to deal with. The organization routinely surveys its members and shipping is always near the top of major concerns.

"We ask them what the barriers are to trade and they tell us that one of their top concerns is shipping costs," says Corinne Pohlmann, senior vice-president of national affairs.

The problem with shipping costs is compounded by the fact that more consumers are making shipping costs a priority when they are shopping online. Companies that offer cheaper pricing can win when a user is trying to decide between two or more sites to place an order.

Making matters worse is the fact that more consumers are asking for free shipping to be an option. However, this is only free to those making the purchase as companies still need to cover that expense.

"There's no such thing as free shipping," says Oliver Schneider, co-owner of Pacific Baskets, a gift basket company in Coquitlam, B.C. "It comes off the bottom line."

Grieve added that she only offers free shipping as a special promotion. When it happens, sales spike as many consumers hold off on their spending until there is a promotion. This means that companies that do not offer it, even if it is only periodically, will be missing out on potential sales. She also said that wholesale companies have started asking for free shipping, which was something that didn't happen last year.

All businesses that offer e-commerce have realized the importance of creating a solid shipping solution. Mastering it, however, can be very complicated. This is where a reliable third party logistics firm can help any company deploy a solution that is the most cost effective and efficient.