My Philosophy on Shipping Costs

One of my friends recently made a comment about shipping costs that caught my attention.

After placing his coffee order on my website, he sent a message to a group chat that said: “Who charges $7 for shipping anymore?”

I know this comment was made to poke fun rather than criticize so I didn’t take it personally. But it did make me pause. 

As a customer, I hate paying for shipping.  Amazon Prime can be thanked for that.  I would happily pay $14 per month and continually choose to use Prime knowing that I can buy almost anything I want and have it sent to me for free.  If I happened to be shopping on another site, I know seeing an additional cost for shipping at checkout would very likely be reason enough for me to consider looking elsewhere, no matter how much I liked the product. 

As a small business owner, margins matter.  I rely on orders from friends and family who buy 1-2 bags at a time and every sale goes a long way.  I charge $18-22 for a bag of coffee and after expenses, I profit a little under half of that.  It costs around $7, on average, to send a single bag of coffee anywhere in the US and I’ve typically passed that cost onto my customers because it made sense to do so when I launched the Guesthouse. 

But now, considering my philosophy on free shipping as a customer, I’ve found myself stuck. 

I don’t want to sink my business before it even gets afloat by trying to take on too many expenses.  For single bag orders, covering shipping costs would lower my profit margin from 48% to 16%, which is the difference between the Guesthouse being a career and side hobby. 

But if I were on the other side of the screen, I can’t help but ask, “Would I choose to buy Guesthouse Coffee routinely over other coffee roasters if I have to keep paying for shipping costs?”  I’m not sure that I would.

All things considered, I’m in a position where I can take risks, thoughtfully and transparently, to win first time customers, and more importantly, keep them as loyal customers. 

So here is the decision I’ve come to (for now): 

All of my 12oz bag prices will increase by $3, and all orders will include free shipping. 

Here’s how I came to that decision:

1. More than 75% of my orders have been for 2 or more bags of coffee, and I think that trend will continue, which allows me to take on more financial burden for my single bag orders that occur less frequently, in hopes those customers return for larger orders. 

2. Shipping costs only go up by $1-2 for packages that would include up to 5 bags at a time, which means my margins can more easily absorb shipping expenses for larger orders. 

3. Increasing my product costs by $3 maintains a 30% profit margin (not including discounts), which is considered healthy by current coffee market standards and keeps the business growing at a sustainable rate. 

4. I’m bringing on more corporate customers, which the profits from those bulk orders can enable a better experience in my individual customer segment. 

5. If I were a customer of my own company, I would hesitate far less at buying a $21 bag of coffee with free shipping than I would at buying a $18 bag with $7 shipping costs.

Remembering that I want to build a business that I would actually support myself is really important and that perspective constantly challenges me to think like a customer as much as I think like a business owner. 

For those that have already supported my business, I hope this is just another reason to continue doing so.  If you’ve yet to try Guesthouse Coffee, I hope this is reason enough to do so now.

Much love.

Ian