Free Shipping and Best Match

Don’t neglect the value of improved eBay search rankings under Best Match when evaluating the costs and benefits of a free shipping and handling policy.

Update: Download the FREE eBook Best Match Made Simple

Randy Smythe had a great post the other day on his blog evaluating the value of eBay’s recent promotion which offered a 15% discount on final value fees (FVF’s) for listings that included free shipping and handling.

His analysis focuses on the fact that sellers would include the cost of shipping into the base price of the item being auctioned. Shipping and handling charges are excluded from eBay’s FVF calculations, so increasing the base price increases the final value fees paid by the seller.

Free Shipping Costs You More In Fees (even after discounts)

Randy’s analysis clearly shows (under a number of scenarios) this promotion actually ends up costing the seller more in final value fees than they would pay if they had not participated in the promotion.

He says:

Before the promo you sold an item for $10 plus $2.95 for S&H. Your FVF was $0.88 cents

Since you still have to pay the same amount to ship the item, most of you will just roll the old S&H price into the sale price. You still charge the customer the exact same Total Price as before “Free Shipping”

So now, you sell your item for $12.95 with Free Shipping. Your new FVF is $1.13 or $0.25 more than before the promo.

But, since you are taking part in the Free Shipping Promo you get a 15% discount off your FVF which is $0.17.

So how did you do? Your FVF actually increased by $0.08 cents if you take part in the Promo.

Where is the great deal here? You have to understand that eBay managers look at all of these numbers and they know that most sellers will just add the S&H to their sale price. So, they can give you 15% off your FVF and still make more money.

This is the same issue power sellers are wrestling with when weighing the costs and benefits of improving their average Detailed Seller Ratings in order to qualify for FVF discounts (5% for 4.6 average DSR’s and 15% for 4.8 average DSR’s). For many power sellers, their analysis of this program has lead them to believe that qualifying for these discounts would actually lead to lower profits for the same reasons discussed above.

Increased final value fees are definately an important aspect when considering the relative value of a “free” shipping and handling policy.

Buyers Don’t Like Free Shipping Either!

Another aspect you must consider is the proven fact that online shoppers are conditioned to pay a seperate fee for shipping and handling and this affects their shopping habits. Most will actually unconsiously choose to pay more in total when these two charges are segregated into a lower item price and a separate shipping and handling fee compared to a transaction in which the item costs more yet has free shipping. This is true even if the item with free shipping costs less than the combined total of the item with separate charges.

This is because the buyers compartmentalize the two fees and make their subconscious value determinations using the only the price of the base product for comparison. (eBay has tried to counter this tendency by listing the sum of the two charges on the search results pages - but the effectiveness of this tactic has yet to be determined.)

Enter Best Match

While these two factors are significant, there’s an additional consideration the seller must make when determining the costs and benefits of offering “free” shipping and handling in their eBay listings. That’s the potential for increased exposure under the (now default) Best Match search algorythm.

Although we don’t know the weight the algorythm places on low priced and free shipping, we can assume that it is a factor that favorably influences a listings rankings in the search results. eBay CEO, John Donohoe, is quoted in the NY Times Technology Blog as saying:

“Sellers that provide reasonable and fast shipping, even free shipping, will rise to the top.”

Additionally, we know by looking at the eBay Seller Dashboard, increasing your average Detailed Seller Ratings to over 4.7 will also improve your rankings in the search results under Best Match. Since the Shipping and Handling DSR is the individual metric that most sellers score the lowest in (the eBay average is currently 4.59), offering “free” shipping is a logical course of action to improve your average.

Quantifying The Benefits of Best Match

The posts I linked to above did a great job of quantifying how eBay’s “discounts” actually wind up costing sellers more in final value fees. What is harder to quantify is the benefit sellers would get by improving their products’ ranking and placement in the Best Match search results.

How many more bids would a listing receive because it lingered longer on page 1 of the seach results due to Best Match best practices compared to a listing that didn’t fare so well?

I can assure you that listings that igore Best Match often suffer the consequences of never making it to the first page of the search results and will probably not sell. If that happens, the seller really doesn’t need to worry about increased final value fees anyway.

So think about Best Match when you decide if eBay’s FVF incentives are worth it to your bottom line. All things considered, despite what some people claim, you might actually consider it an honest to goodness discount.

How I Dramatically Improved my Shipping and Handling DSR

Another Study Shows Bidders Don’t Like Free Shipping!

Listing Type Influence on Best Match Rankings: Business & Industrial Category

eBay Live Best Match Round Up

Free eBook: Best Match Made Simple