Paying Too Much For Free Shipping

the largest on-line supplier for beads We mostly sell parts that people use to make jewelry and do craft projects. The price of these parts ranges from $0.18 for some jewelry findings to $155.00 for diamond gemstone beads. If we were selling only diamond gemstone beads, I'd gladly offer fully "free priority shipping" on every order because our margins support that. But, selling an $0.18 part and absorbing the $1.25 shipping cost, $0.15 cost for the padded envelope, and overhead of pulling shipping and packing it? Not gonna happen! Even selling a package of 20 for $3.60 is insane from a cost perspective unless I've just locked in a long term customer.

Believe it or not, one of the largest on-line supplier for beads and jewelry supplies offered free shipping with no minimum order for about 2 years. Several of our other competitors matched their offer. I'm sure they were trying to remove any purchase barriers and hoped they would capture that loyal, long term customer. But, we found that when we did a "free shipping promotion with no minimum order", we got lots of single item orders for less than $10, but very few new and loyal customers. In fact, the orders seemed to come from people shopping for "free shipping" and not ones shopping for a trusted, long term supplier.

The real question is, does "free shipping" increase your conversion rates and lead to long term revenue enough to offset the costs of doing business that way? I've run a lot of spreadsheets on this and can't see that for our business.