For Business Account purposes
I am offering free shipping to my customers which I believe is 3.99 in the U.S. Does shopify charge me the 3.99 automatically for each purchase and days later I receive the profits. Or does shopify take the 3.99 out of my profit and deposit the rest?
Scenario that could happen is on my first day publishing the site I could have a lot of my friends and family purchase items and I want to make sure I have enough money to cover the shipping cost because I am offering free shipping. 100 shirts at 3.99 shipping is 4k and I need to know if I need to 4k in my business account to start.
Thanks for all the help.
This is Summer from the Social Care team at Shopify. Welcome to Shopify Community!
I understand you have a concern about offering free shipping. That is a really good detail to think through as shipping can impact your profit margin negatively or positively, according to how your strategy is set up. It's best to ensure this isn't generating a loss for your business in the long run.
In most cases, shipping cost is not deducted from your payout. It is paid separately and the exact method is dependent on how your fulfillment process is set up. If you ship your products yourself and purchase shipping labels in the Shopify admin, shipping labels are paid using the payment method you added in the Settings > Billing area. If you purchase shipping labels outside of the Shopify admin (e.g. in the post office), this is done with your chosen payment method that is separate from your payouts.
If you have a dropshipping or print-on-demand business model, shipping is paid once you place an order with your supplier for them to fulfill your order. This is also an entirely different payment method, which is the payment method you have connected to your account with your suppliers.
The only time your payouts may be used is when your store is based in the United States, you purchase shipping labels in the Shopify admin and you have set your billing settings to use Shopify balance to pay bills. If you have sufficient funds in your Shopify Payments account balance, it can be used for paying for your Shopify bills, which includes your shipping labels.
Without using your payouts to pay for shipping labels, you have the ability to plan ahead and carefully think about how you're going to cover shipping costs. That's an advantage, however, this can still result in a loss if the shipping fees aren't taken into consideration in your product price. I recommend proactively coming up with a foolproof shipping tactic before you start taking orders so you can avoid spending all your profit on shipping. A good example of this is to simply add the cost of shipping to your product price.
We have an article that discusses the free shipping strategy in-depth and tells you how you can pull this off while staying profitable. I highly recommend going over this before you launch, especially if you're expecting a lot of orders so you can ensure you're able to make a profit. You can find the article in this page.
While you sort out how you're going to cover shipping costs, I also recommend going over our launch checklist, if you haven't yet, since you're close to launching your website. A prelaunch marketing plan is discussed in step 9 and this will help you get visitors beyond your family and friends. In addition to getting visitors that can translate to sales, it will also serve as a guide to having a smooth and successful launch. Step 3 tells you how to create a test order which is an opportunity to fine-tune the customer experience in your store.
Do let me know if you have any other questions about shipping!
This was such a big help thanks. I am total rookie.
So I am going through everything, all the tabs, and to know before I actually launch my print on demand website but I do have just two more question.
First example. Okay, so I am out of the U.S. Houston Texas to be exact. I see the shipping price details for each country. 3.99 for the U.S. 6.99 for Canada (maybe wrong on that one)
So my example is I believe that I set my prices for only calculating the shipping cost in the U.S. but then I started thinking if someone buys in Canada do I lose money?
Example I offer free shipping. Shipping in the U.S. is 3.99
So shirt cost 13 dollars to make. Shipping cost 3.99 in the U.S. and I sell it for 24 dollars. So I make 7 dollars per shirt correct?
But if someone purchases it in Canada at 6.99 per shipping I only make 4 dollar per shirt in Canada is that correct?
Last question. Lets say they really want their product fast and choose expedite shipping at 20 dollars does that affect my profit margin and will I be charged for that because I made it free shipping?
Sorry if this confusing. I am very new to this but very excited to learn. Thanks
Glad you're learning from all this, @jervin1984tx!
To answer your question about the profit margin, that is absolutely correct. The profit margin will not be the same for every order when shipping to multiple countries, as the shipping fees are different for every location. Therefore, it's crucial to come up with a product price that will still make the business profitable despite varying shipping costs.
If your customers choose expedited shipping which you offer for free, then, considering your current pricing and the $20 expedited shipping cost, this structure will result in a loss for the relevant orders. Selling a shirt for $24 and paying $20 for shipping will leave you with $4 which is not enough to cover the cost of having the shirt made.
In addition to the product costs, there are overhead costs to be considered as well. Overhead costs are the fees you pay to keep the business running which are not associated with the products you sell. A few examples are your Shopify subscription fee and advertising fees. Your profit will be used towards covering these overhead costs so it is best to consider them when pricing a product. This is discussed in-depth in our guide on how to price products in this page.
Keep in mind that you have the option to set different rates for different shipping zones. Since shipping to Canada costs more, you may create a separate shipping zone for it and offer $6.99, while keeping US shipping free.
As for the expedited shipping, instead of offering it for free for all orders, I suggest requiring a minimum spend threshold where you offer it for free on orders that reach a specific amount (e.g. free expedited shipping on orders above $50). This will not only ensure you earn profit but it will also help increase the average order value in your store. We have a guide on setting that up here. For orders below the minimum spend threshold, you can offer expedited shipping for the exact amount. You can then present these rates at checkout along with the free standard shipping so customers have the ability to choose different shipping rates.
Let me know if anything is unclear! What else did you need to work on besides shipping and product pricing?