Items that cost less than 10 yuan are also free shipping, where is the profit point?

The e-commerce logistics industry is becoming more and more developed. There are more and more small commodities with free shipping and lower prices. Where do merchants make money? Some low-priced commodities even lose money after rebates. What is the logic behind this? This article will answer your questions from the perspective of commodity cost profit and operating profit. Let's take a look!

As the e-commerce logistics industry becomes more and more developed, "9.9 free shipping" is no longer a new thing in people's eyes. However, in recent years, there are more and more small commodities with free shipping, and the prices are getting lower and lower. "9.9 free shipping" is no longer the lowest price.

Open Taobao and Pinduoduo, and you will find many small commodities with free shipping for 6 yuan or 3 yuan. In the early years, some stores offered discounts of 1 yuan or 50 cents, and the commodities were free shipping. Some netizens even bought small commodities with free shipping for 6 yuan on Pinduoduo, and gave 9.9 yuan back after giving good reviews, earning 3 yuan from the merchants.

Netizens can't help but ask: How do merchants make money by selling them so cheaply, or even losing money? They can't be giving them away for free as charity, right?

Of course, in business, it is impossible to give away goods for free, but the profit points of e-commerce merchants may be beyond the cognition of customers. Tiantianwen’s friends answered this question and introduced the profit secrets of these "9.9 free shipping" merchants. Let’s take a look.

1. Cost Profit

The most obvious reason why something is sold cheaply is cost. If the cost of this product is really much lower than consumers imagine, then it is not surprising that nail clippers with free shipping for six yuan can sell tens of thousands of pieces.

How low can merchants’ costs be? In the e-commerce industry, there are three main costs that affect commodity prices: the production cost of the commodity itself, the operating cost during the sales process, and the logistics cost of the final “free shipping” link. If merchants can reduce costs as much as possible in these three links, they can still make a certain profit even if the price is very low.

So, how are the costs saved by low-priced goods? Tiantianwen’s friends shared their views under the question:

1. Low commodity cost

Most of the low-priced products on the Internet that are free shipping for less than 9.9 yuan are small low-priced commodities. The production cost of these products may be much lower than consumers imagine. Tiantianwen’s friend @怨种优化师漕叔 shared his low-price experience with everyone:

"I once knew a man in Dongyang who was one of the top 20 small commodity manufacturers in the country. He didn't have his own source of goods, but his sales were huge, so he would negotiate with more than one manufacturer each time. He had a great knowledge of the quantity of goods and even knew what kind of packaging would produce the lowest price. He would talk to the person in charge of the factory every time and even designed the product packaging himself for a profit of 5 cents."

At the same time, most of the small commodities with "9.9 free shipping" are sold at low prices and in large quantities, making huge profits through high sales volume. If the sales volume reaches a certain amount, a scale effect will be formed - the commodities are produced and sold on a large scale, and the company can reduce unit costs through large-scale procurement of raw materials, automated manufacturing processes and other means.

2. Low operating costs

In addition to the cost of the goods themselves, the operating costs of merchants can also be infinitely compressed. My friend @怨种优化师漕叔 told us about the operating status of some small commodity e-commerce merchants - they continue to compress costs in manpower, warehousing, delivery and other aspects. When allocated to each small commodity, it may be just a few cents, but for a small commodity with a unit price of only six or eight yuan, a cost compression of a few cents will accumulate to a very considerable figure.

"For delivery, cloud warehouses are already everywhere in Jiangsu, Zhejiang and Guangdong, and the price is very low. It may only cost more than 1 yuan for 300g. Yes, just more than 1 yuan to help with delivery. Saving manpower and personal energy is a disguised way to increase profits.

Just give the delivery form to the so-called cloud warehouse, and the cloud warehouse will do the one-stop delivery. You don't have to pick up the goods yourself, you don't have to check the logistics, and you can even save half the effort of the customer service. And many of the people who do the work are nearby villagers and their relatives. Manpower can even be reduced further.

Then there is the location. I have seen many people doing e-commerce and making tens of millions of profits a year, but none of them are located in high-end office buildings or the like. Their locations are just some dilapidated factories, private houses near county roads, etc.

There are even some places in the south that operate 24 hours a day. They just enclose a yard, which greatly reduces the cost of rent. And the villagers nearby work as long as you provide lunch at noon and pay them on time every day, and there is no five insurances and one fund. "

3. Low logistics costs

The cost of merchants is being squeezed to the limit, and the logistics side is not far behind. In the low-price competition among several major logistics giants in recent years, the low prices of e-commerce logistics are no longer news.

I asked my friend @怨种优化师曹叔, who asked me every day, "There are several places in China where the government subsidizes express delivery. Their express delivery tiers are more detailed. For example, in Beijing, there may be 500g and 3 kilograms, and many can only do about 2. However, in Dongyang, Yiwu, Suqian and other places, they can do 300g and 100g. So the express delivery fee for a batch of less than 2 yuan for 500g can be directly 1 yuan or even a few cents."

In addition, my friend @五天胖三斤 also mentioned that many e-commerce merchants will sign monthly subscription agreements with logistics companies. The higher the volume of goods shipped, the lower the logistics costs will be. The scale effect formed by low-priced goods can also save a lot of logistics costs, allowing merchants to achieve a certain profit even at extremely low prices.

2. Operating Profit

The cost is reduced, but what is the logic behind those low-priced goods sold for a few cents, or even those that are still losing money after rebates? If merchants want to make a profit, it is definitely not enough to just save money, they also have to increase revenue and find profit space from other sales links. Some products may not generate enough profit, but the company can generate income from other factors and increase overall profits.

In the answers from our friends on Tiantianwen, we divide the means of generating profits in these operations into the following points:

1. Low-price traffic generation

Low prices are one of the most common means of attracting traffic in the e-commerce industry. From Pinduoduo’s early “10 billion subsidies” to the recent “10 billion subsidies” from JD.com, low prices have always been an effective means for e-commerce platforms to attract traffic.

For merchants, low prices can bring a large number of transaction records and product reviews, which can help stores gain a relatively high weight in a short period of time, thereby gaining higher exposure on the platform. For example, the top few sales rankings of a certain category of goods on the platform can gain better exposure, making it easier for stores to attract consumers in the initial stage.

For the platform, it goes without saying how important traffic is. In the early days, Pinduoduo quickly occupied a large area of ​​the sinking market by winning the low-price competition. Low price is a gimmick. When the price is low, consumers will come. With the attention of customers, merchants will also be attracted to the platform. The platform economy grows in the continuous flow and gathering of people.

2. Cross-selling

I asked my friend @明天有事 every day, and I didn't mention it. Another profitable link for merchants is cross-selling of goods. As mentioned above, low prices are often a means of profit. Low-priced goods attract customers. Merchants can offset the price of low-cost products through the pricing of other products. For example, some companies will use high-profit high-end products as compensation for affordable products, and use this to increase overall profits.

In addition, merchants may earn more profits by promoting other products, such as selling additional services, subscriptions, etc. This method can convert customers into loyal fans, allowing them to buy more products in the future.

The most typical example is the recent 618 event, where merchants often set up a no-threshold membership mechanism, using no-threshold coupons for level 0 members to attract customers to join for low-price shopping, making it easier for merchants to develop and maintain long-term customers.

3. Advertising Revenue

The next point is mainly related to the platform - if the product has a large amount of user traffic, the platform can generate revenue by selling ad space to advertisers.

For example, by displaying advertisements on applications or websites, the platform can obtain payment from advertisers. In order to make profits from this part, the platform may encourage platform merchants to use low-cost means to obtain user traffic, such as encouraging participation in promotional activities, issuing subsidies, etc., and merchants can also find profit space in the middle.

4. Other sales purposes

Some products are sold at unreasonably low prices, which may be for other sales purposes, and the merchants are not necessarily aiming for profit. For example, many products are sold at a clearance price, or they are out of season or defective products.

Goods are piled up in warehouses, and sales volumes are low, but they continue to take up storage space, requiring a large amount of storage and labor costs. At this time, merchants tend to prefer to sell the goods quickly, and extremely low commodity prices come into being.

The main purpose of selling such goods is to get rid of them quickly. The goods themselves may not be profitable, and may even lose money, but they can help merchants avoid greater losses. This clearance behavior is often linked with the above-mentioned traffic diversion methods to achieve better results, and it may even be profitable.

Part of the content of the article comes from the wonderful answers of @怨种优化师漕叔@五天胖三斤@@I have something to do tomorrow, so I won’t make an appointment.

Source: Tiantianwen Topics Selection