September 13th, 2014 Posted in business | 6 Comments »
One of the dangers of this business is doing more for less. Unfortunately, it’s an easy thing to do when you are working on thin margins and/or changing how your processes work. Unfortunately, in this case, we made a few mistakes and ended up doing the above – the worst case scenario possible for a business like ours. It’s why we moved Free Shipping to $175 from $150.
In January we managed to request a lower rate on our Canada Post shipping. This was predicated on a certain volume of items shipped, which we expected to hit with a minor increase in our shipments. At the same time, we noticed a decrease in our shipments to the East Coast due to the increasing competition we saw. So, to hit both the increased number of shipments we needed and to pass on the savings, we decided to lower our Free Shipping threshold to $150 from the original $175.
Well, unfortunately we didn’t hit the shipment numbers that we required, which meant that our rates bumped back up to our old rates. That meant that for each free shipping order that went out, we were losing more than we were previously. Combine that with the fact that we did see an increase in free shipping orders, our total losses had increased.
Now, this would have been fine if we saw a significant bump in shipments (thus generating more total revenue even if we made less per order); however this wasn’t the case. We saw more shipments certainly, but not enough to cover the increased cost of shipping all the free shipping orders.
If you are having trouble imagining it, look at it this way – if we free shipped 10 orders previously and it cost us $15, we lost $150 for the 10 shipments. Now, if we free shipped 12 orders now at $15, our total loss is now $180. However, our revenue numbers are $1,750 to $1,800 – a $50 revenue increase. That’s a net loss in profit, not a net gain.
Thus – more work, less money. It’s why we shifted back to the $175 free shipping level. Will we ship less? Probably. We might even lose a few customers because of this – but the gain in profitability should balance this out.