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Is Free Shipping Really Free?

Financial IQ

“Free Shipping!” is an attractive offer to most online consumers. Unfortunately, it’s not always true.

Shipping is never free.

UPS and FedEx charge for their services, and with the nearly 20,000 people that FedEx is hiring this holiday season (an 18% increase from the year before), all the money towards those extra paychecks has to come from somewhere.

The history of free shipping.

In the beginning of the new and exciting internet economy, many retailers offered free shipping without  evaluating whether or not the practice made economic sense. If you remember, these were the days of investors flooding cash into online companies without any real evidence that this promising economy was a wise investment. Now, profit-conscious online retailers are fully aware of the true cost of transporting goods.

Retail’s dirty little secret.

According to, 92.5% of online retailers will offer free shipping this holiday season, and a recent ComScore report states that 61% of online shoppers will cancel their orders if free shipping is not offered. So, if the retailer is waiving the fee, can we assume that they are eating the cost to save the sale? Probably not.

Here’s a dirty little secret that retailers don’t want you to know: The cost of free shipping is passed on in another way. Shipping costs are often masked by slightly higher prices, a lack of quality customer service, or strict purchase/return conditions. Shipping is a basic cost of running an online business and the money has to come from somewhere.

So, where does the money come from?

Often, the lack of quality customer service is the most common way for a company to reabsorb the costs associated with free shipping. Time after time, consumers swap horror stories of customer service phones that just ring and ring, disconnect over a period of hold time, or messages that go unanswered. For many small online retailers that are trying to compete with powerhouses like Amazon and Zappos, this is the easiest tactic to stay in the game.

Another strategy retailers employ is requiring a minimum purchase in exchange for free shipping. Processing larger orders costs companies less than filling a multitude of smaller purchases. Consumers, attracted by the offer of free shipping, purchase more, which reduces overhead costs and allows the retailer to reabsorb the shipping costs. The customers who don’t purchase enough to waive the shipping usually wind up paying a slightly enflated shipping fee to make up the difference. Again, the money has to come from somewhere.

What about special online memberships?

You also may have also noticed a new trend in the world of online shopping: Memberships. For example, Amazon customers can sign up for Amazon Prime, a membership program that offers free two-day shipping and discounted one-day shipping for an annual fee of $79. Williams-Sonoma also recently announced their membership program, which offers customers no additional charge free shipping on most items (with no minimum purchase) for an annual fee of $30. These are enticing offers, but considering you are paying a fee for these memberships, the shipping is anything but “free.”

Forget free shipping! I’ll just drive to the store and pick it up.

While it seems perfectly logical, driving directly to your local store doesn’t necessarily avoid shipping costs either. Remember, the cost of shipping the product to the store is already factored into the price. Not only are you paying for someone to transport the product, you are also paying for an employee to unpack the item and stock it on the shelves. Online retailers don’t have to ship products to a store, and many don’t even house the products they sell.

Once you factor in the cost of mileage, and the time it takes to drive to a brick and mortar, park, purchase your item, and drive home, it hardly feels like a cost-saving endeavor. Quickly ordering an item online and paying a modest shipping fee may, in fact, save you money (and time).

How can I make sure I’m getting the real deal?

This holiday season many retailers will promote free shipping deals to drive volume and lure consumers looking to save. Read the fine print, be aware of any strings attached, and read customer service reviews before you take advantage of this seemingly sweet deal. For more information on how to save money and avoid shady deals, check out these three popular holiday scams.

Morgan is a freelance writer and blogger living in Southern California with her two daughters and flock of backyard chickens. You can read more of her at The Little Hen House.



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