Practical Ecommerce

Lessons Learned: Free Shipping Helps, Says Bike Retailer

“Lessons Learned” is a series where we ask ecommerce business owners to share their experiences. For this installment, we visited with Todd Henley, president of Makai’s, an online retailer of sporting goods, outdoor gear, and fitness supplies.

Makai's home page.

Makai’s home page.

There is a new generation of entrepreneurs whose professional background is entirely Internet-based. Henley is one such business owner and he’s used his mixed online experience to help build his own business.

After completing a Bachelor of Arts degree in Philosophy, and a business certificate, from the University of Colorado at Boulder, in 2002, Henley began his career as a web developer and product manager for Rent.com, the eBay-owned property-rental site, and later moved to retailer Shoes.com to gain additional marketing experience. As the Shoes.com marketing manager, he managed search marketing programs, comparison shopping engine programs, and affiliate marketing. Later he joined Edmunds.com, the automotive portal, as a search marketing manager and also started consulting on search marketing on the side.

In 2008, Henley launched MakaiBikes.com, which sold bikes exclusively. Recently, the company was rebranded “Makais.com” and expanded the product lines to include other sporting goods, outdoor gear, and fitness supplies. Today, Makais.com’s inventory includes 4,000 SKUs and more than 50 brands, some of which are warehoused and some of which are drop shipped. The company is located in Redondo Beach, Calif.

The reality of entrepreneurship has taught Henley quite a lot and admittedly, he’s still learning and evolving the business. But the insights he’s learned to date he shares with us, below.

Shopping Cart

“We are currently using Interspire shopping cart, which we have used from the beginning. I was attracted to Interspire mostly for the shopping experience it provided our customers. The design and usability of the cart software from a shopper’s standpoint is excellent. Some of the other features I liked included single page checkout, SEO-friendly design, good image display capabilities, guest checkout (which does not require the user to register prior to purchasing), and open source code. The fact that Interspire is open source was a huge reason for us to go with them. We are able to change and modify the code of the shopping cart as needed to implement our own customizations and integrations.”

Credit Card Payments

“Deciding on a method of accepting credit card payments was something that required a lot of research on my part. There are so many options with regard to payment gateways, banks, and merchant accounts it can make your head spin.

Todd Henley

Todd Henley

“Many of the credit card processors we were evaluating advertised great prices, but when I dug a little deeper into the fine print, I found all sorts of hidden fees and charges. Additionally, the per-transaction fee difference between one bank and another could vary as much as one to two percent per transaction, or more. In the end, we ended up choosing a merchant account provider that had reasonable fees and also a good reputation. The company we are currently using is a reseller for Wells Fargo Bank.

“For the payment gateway, we were interested in working with Authorize.Net since it integrates easily with so many of the shopping cart software out there today, including the software we were running. And, since it is one of the larger and more established payment gateways for small to mid-sized companies, it just seemed like an easy choice. We have never accepted alternate payments such as PayPal, Google Checkout, Bill Me Later, or others.

“I have nevertheless felt we were missing out on some sales by not offering other payment methods. I was reminded of this recently when I saw some Shop.org research that revealed 20 percent or more of large online retail purchases involve alternative payment methods, so this is definitely something we need to explore this year as we continue to grow.

“From an accounting and order management standpoint, using alternative payment methods can complicate operations a little, in the sense that you need to reconcile multiple different payment methods and you are dealing with multiple different ways of issuing refunds to customers. However, if accepting different payment methods brings in lots of additional sales, as it does for many online retailers, it seems like a smart decision.”

Hosting

“Having a rock-solid web host for our website was something I thought about when I started this business, but did not take it seriously enough in the very beginning. As a small start-up ecommerce store, I was more concerned with cost than handling a lot of bandwidth since I realized it would realistically take a while to ramp up web traffic and sales.

“We launched the store using a virtual dedicated server, which is similar to a dedicated server but is less expensive and generally not as powerful. Our original server was hosted by LiquidWeb, a hosting company I highly recommend for its excellent customer service and outstanding reliability. As our traffic grew, I realized that our inexpensive server was simply not powerful enough to handle our needs. I also realized that having good hosting that was easily scalable would be very important for future growth.

“LiquidWeb is still our hosting provider, but now our store has moved from the virtual dedicated server to a cloud server, which offers all the resources of a physical dedicated server and a ton of added flexibility with regard to server configuration and scalability. For example, if we want to beef up the capacity of our servers during the busy holiday shopping season, it requires just a mouse click and five minutes later the change is made. The cloud server we have now is far easier to configure and upgrade than our old virtual dedicated server. I’m not technologically astute enough to fully appreciate all its capabilities, but I think the move to the cloud server has been great.”

Shipping

“Since our original business began selling bikes exclusively, shipping costs were always a big concern for me. The average cost to ship an adult bike within the U.S. is about $40. I didn’t want our customers getting sticker-shock in their online cart when they saw a $40+ shipping charge, so we decided to go the free shipping route.

“We have run a couple of tests where we charged for shipping, but we found our conversion rate went down. I don’t recall the exact decrease, but it was enough to make us switch back to free shipping in a hurry. For us, free shipping just seems to work out nicely. We’ve gotten a ton of great feedback from customers who appreciate the free shipping, and they like that we don’t stuff like sneaky hidden handling fees on orders.

“We also don’t have any order minimums to get free shipping. Admittedly, it has been a bit of a challenge with lower-priced items. Without having any kind of order minimum to qualify for free shipping, we are sometimes forced to either raise the price of an inexpensive item or sell it at a much lower margin. We are hardly making any profit at all on really low cost items. The thinking there is by attracting new customers and providing them a good shopping experience on one low cost item, they will hopefully add another one or two products to their cart, and hopefully come back and shop with us again.

“I am a huge online shopper. I don’t like seeing extra fees tacked on or having to pay shipping charges. I’d rather just see the flat rate for the product that includes the shipping charges. A lot of our customers seem to be trained to expect free shipping, perhaps because so many other big online retailers offer either free shipping or very cheap shipping.

“We use several shipping providers, including UPS, FedEx, USPS, and even a few freight carriers, to ensure we can offer free shipping to our customers at the lowest possible cost to the business. The carrier we use depends on the particular item. For example, if we’re shipping something very small and lightweight, we tend to ship it via USPS. If we’re shipping out something moderately heavy, such as a bicycle, we tend to ship it via FedEx. For more average weight products, we ship via UPS or FedEx, but again it just depends which is cheaper and makes the most sense. Really large and/or heavy products are shipped via a freight service.”

Product Sourcing

“When I started this business in 2008, the plan was to import most products from manufacturers overseas and sell them to customers in the U.S. via our website. I formed relationships with overseas manufacturers and imported a variety of branded products related to our original product focus, which was bikes.

“Over time, we wanted to expand our offering of products and began working with some domestic wholesalers and distributors versus working strictly with overseas manufacturers. Eventually, we figured out that working with domestic wholesalers had its advantages and did not require the large order commitments that many manufacturers require. Our experience working with manufacturers overseas was actually pretty good, but to continue doing business that way would have required a lot more capital than we wanted to commit so I guess it was partially out of necessity that we looked to domestic wholesalers. At least in our case, the domestic suppliers we work with are able to move a lot faster and respond better to our specific needs.

“Today at Makais.com, we are working with dozens of suppliers around the world and are always looking for new suppliers whose products would complement our ‘sports – fitness – outdoor’ focus. Currently, in addition to bikes, we carry all sorts of products such as treadmills, hunting products, volleyball nets, dartboards, exercise bikes, camping gear, and much more.”

Search Marketing

“We have outsourced some of our search engine optimization work and also done some work in house. To be totally honest, we definitely need to improve our SEO effort. We have heavily relied on the built-in SEO capabilities of Interspire’s shopping cart software, which is pretty good. Yet I know there are a lot of changes and tweaks we could do that would further improve results. Interspire’s built-in capabilities are a basic product feature that even people without SEO experience can use to get pretty good results but it is not (and not meant to be) a replacement for in-depth SEO expertise.

“We currently do pay-per-click advertising on a pretty small scale and manage it in house. It works really well for some brands, categories, and specific products. I know we could and should improve the effectiveness of our PPC efforts. I have tried to find an agency or a consultant who would be a good fit for helping us with day-to-day PPC management, but thus far I have not had success fining the right person or agency.”

Social Media

“Being a bit of an Internet geek, social media was something I embraced from day one. In the beginning, I would personally use our social media channels to reach out to potential customers and our past customers to engage them in a conversation of sorts. I established some relationships with bloggers and website owners which helped us get some PR and links early on.

“For us, Twitter has been the easiest way to engage with customers directly. Unlike some other social media tools, Twitter makes it really easy to communicate directly with strangers, and quickly. Plus, when we attract new followers on Twitter, we can use Twitter to promote new products, new posts to our blogs, and other news. Our blog has been useful also, but more so for just posting news and information about our business. I have also used our social media channels for engaging our affiliates who belong to our affiliate marketing program. When I see them posting up our links on Twitter or on their blog, for example, I’ll drop a comment on their blog or “@” reply to them on Twitter thanking them for the link. It doesn’t take long to post a quick note, and our customers and affiliates seem to appreciate the effort.

“While I think social media can be a really useful tool, I am careful to not personally invest too much time in it. It’s easy to begin wasting literally hours every day managing various social media accounts and calling it ‘work.’ I think a certain amount of social media interaction is necessary for business these days, but it should be used in moderation. If you’re a large company, you might be able to afford to assign people to do nothing but social media all day but for a small-to-medium sized business, it might be difficult to justify the expense. I suppose you could outsource your social media efforts to someplace that would do it inexpensively for you and commit to a full-time effort that way, but if you do that I think you would lose the authenticity. I’d prefer to focus on quality rather than quantity when working with social media.”

Email Marketing

“Email marketing, while not as sexy as some of the newer forms of social media, has been very successful for us also. It’s been a fantastic method of alerting our customers and email subscribers of big sales, really great deals, exclusive coupon codes, or exciting new products. We see a good response when we send out exclusive offers to our email list. For example, we will run a one-day-only deal, good for a limited number of customers, and send it out to our email list as a special offer good only for those we receive our emails. I think it gives people an additional reason to join our email list and stay on the email list as well.

“We are now using MailChimp which provides good email and social media cross-promotion capabilities. Generally, we’ll cross-promote our email marketing campaign to our Twitter and/or Facebook account and we also promote our blog and Twitter/Facebook within our email marketing campaigns.”

Biggest Mistake

“In the beginning, and I mean right when I was just starting the business over two years ago, I don’t think I was thinking long-term enough to plan for the inevitable increase in order volume. We were doing a very small number of daily orders, and I should have been thinking more about the future. I’m still trying to improve on our order management processes so we can handle all our orders and resolve order-related issues more smoothly. I’m also trying to think about the future and where we will be in six months, a year, or even two or three years from now so we can continue to grow.”

Best Decision

“I think my best decision may have been starting the business in the first place. I genuinely enjoy what I do, and I look forward to coming to work each and every day. I feel incredibly lucky to have my job I have and I’m so glad I followed this Internet career path.”

Practical Ecommerce

Practical Ecommerce

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  1. richard gilliland September 23, 2010 Reply

    Very good article. Its good to see others in my position of running a small company and trying to find the next best way to grow our business’s. We have learned the hard way in many ways and are finally getting to the point where we can make it over the hump I guess I would say. We would have many good points to help with other small business’s to prevent learning the hard way.

  2. Dan Megan September 23, 2010 Reply

    Great read Lisa thanks. Another interesting article by Paul Demery, "Does Free Shipping pay off", confirms a lot of these points specific to free shipping. We are working with many eCommerce companies that are "tinkering" with their own shipping formulas to find the balance between revenues and profits – I’m sure they’ll find yours and Paul’s articles helpful…

  3. Lisa Morgan September 23, 2010 Reply

    Thanks. Free shipping is one of those topics small business owners really wrestle with. On one hand they’re concerned about margins and cash flow and on the other they want to make and grow sales. The hardest decision to make is where to draw the line: Free shipping on everything? On orders over a certain amount? Based on a coupon code? Testing helps.

  4. John Lindberg October 5, 2010 Reply

    I am impressed by the Makais business model, but $40 per bike delivery cost seems high to me and I wonder if steps could be taken to reduce this a bit. For example, instead of spliting the ship volume between UPS vs. FedEx, it might pay to negotiate one or two year exclusive contracts subject to better discounts.

    Depending on the mix of parcel volume, package weights and delivery zone distribution, it is possible to achieve up to a 20% discount off UPS or FedEx ground daily pick up rates. This can only be done by two way competitive negotiation with winner-takes-all however.

    Also, heavy products like this can benefit from zone skipping–meaning the heavy item inventory could be split between west cost vs. midwest vs. east coast shipping points to reduce the number of zone 6, 7 and 8 package rates. Most fulfillment houses will accept shipping to only regional customers in their area which can keep the added overhead cost in check.

    One other suggestion, since most of the bikes are fairly expensive, is to purchase >$100.00 delivery insurance from an independent provider instead of using the FedEX and UPS insurance programs as the cost will be much less.

    John Lindberg – President
    EFULFILLMENT SERVICE INC

  5. Elizabeth Ball October 7, 2010 Reply

    Free shipping definitely works for my customers and for me as a customer. The old one flat fee makes life very simple for all of us.
    It is so annoying to see a fantastic item online which rises exponentially with the shipping costs, the taxes and with some online retailers, the credit card fees.