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View Full Version : How does Amazon not lose money on Prime shipping?



Brian Elfert
11-28-2015, 10:16 AM
I ordered a new RV cover from Amazon on Wednesday. I signed up for a free 30 day trial of Prime. Originally I was given a delivery date of Monday. Amazon didn't ship the item until Friday. They used Fedex Priority overnight with Saturday delivery so I am getting the RV cover today. The non-discounted rate from Fedex for such a delivery would be $328. Amazon certainly gets a substantial discount, but they still paid a lot for shipping. How do they not lose money on prime shipping with cases like this?

I'm really happy to be getting the cover today instead of Monday. We are supposed to get a substantial snowfall on Monday. The old cover got destroyed because I hadn't noticed two of the straps holding it down broke.

Scott Shepherd
11-28-2015, 10:55 AM
I don't know how they do it either. I ordered something for $5 with prime, and it came UPS ground, got it in 2 days. On our business account, there's no combination I can use to get $5 for shipping anything to anywhere. When I signed up for Prime, I did it reluctantly. I thought $99 for that? So I did the free trial and started to see the benefits. After having it for 3-4 months now, I guess, I can't say enough great things about it. It's saved way more than the $99 it cost, in shipping costs alone.

I was skeptical, now I'm a believer.

Gerry Grzadzinski
11-28-2015, 11:04 AM
A really cool thing with Prime is you can often get items delivered next day for $5-$10

But yeah, the $99 doesn't even cover the cost of all the boxes they ship to our house. I throw 2-3 Amazon boxes a week into our recycling bin.

Tom M King
11-28-2015, 11:14 AM
I imagine they have some kind of deal with the shippers, and the majority of members don't buy much.

Art Mann
11-28-2015, 11:41 AM
Remember - you are not getting free shipping when you pay for Prime. You already get free shipping in most cases. You are paying $99 just to get your stuff in 2 days rather than 3 - 10 days. I'm just not in that big of a hurry, usually. I have had free 30 day trials on two occasions and I didn't consider it worth continuing either time. The streaming video and music services are not as good as the other alternatives.

Prime is kind of like going to a jewelry store and finding a 3 carat diamond ring marked down to half price. It may be a good buy for some people but not for me.

Edit: Part of the answer to the original question is that many people don't use premium shipping enough to offset the $99 in a single year and some just sign up on a whim and then never use it again. You can bet they are coming out ahead on the deal.

Brian Elfert
11-28-2015, 11:49 AM
Even if Amazon gets a 75% discount they still spent around $80 for delivery. Amazon's price was lower than anybody else so they aren't making up for the shipping with a higher price. Fedex charges surprisingly little for Saturday delivery. The retail price drops from $328 to $316 if you want it delivered Monday instead of Saturday. (To clarify, the retail price for Fedex shipping drops, not Amazon's price.)

Brian Elfert
11-28-2015, 11:55 AM
Remember - you are not getting free shipping when you pay for Prime. You already get free shipping in most cases. You are paying $99 just to get your stuff in 2 days rather than 3 - 10 days. I'm just not in that big of a hurry, usually. I have had free 30 day trials on two occasions and I didn't consider it worth continuing either time. The streaming video and music services are not as good as the other alternatives.


I signed up for a 30 day free trial of Prime so I didn't pay anything extra for the two day shipping. I already went into my account and changed it so I won't be charged for a Prime membership when my trial expired. I don't order enough from Amazon to pay for Prime. This is my first Amazon order in more than a year.

I have had some many Prime trials over the years I can't keep track. There used to be a way you could sign up for a three month trial of Prime over and over again, but Amazon closed that loophole about two years ago. (They now look at billing and shipping addresses to see if an address has recently had a Prime trial.)

Ken Fitzgerald
11-28-2015, 12:27 PM
A lot of shippers give some really big discounts to really big customers like Amazon or large corporations that do a high volume business with them. Since they fly those routes daily, the shipping company makes money on the shipped volume rather than by the item as they do for individuals like you or me.

BTW....I buy a lot from Amazon, am a Prime member and have been greatly satisfied I am getting my money's worth! My biggest complaint is I mistakenly showed my wife how to use it. She is the penny pincher in the family and she could not understand Amazon made money on the free 2 day shipping. Now she uses my Prime account regularly.

Julie Moriarty
11-28-2015, 2:34 PM
I've been a Prime member for a few years and it's been well worth the price. Shipping costs have often discouraged me from buying something. I was looking for some balsa wood the other day. The price for the wood was about $18. They wanted another $14 for shipping. I found some balsa planks on Amazon for about the same price but they were a bit thicker than I wanted. Two days later I got it and saved $14 in shipping.

Myk Rian
11-28-2015, 2:43 PM
I'm not usually in a hurry, so use the free shipping.
Although I have had items shipped from China that got here in 3 days. Usually small electronic items that come from there anyway.

Frederick Skelly
11-28-2015, 7:28 PM
Part of the answer to the original question is that many people don't use premium shipping enough to offset the $99 in a single year and some just sign up on a whim and then never use it again. You can bet they are coming out ahead on the deal.

+1 Art. Jeff Bezos is a smart man and hires smart folks to run his company. They make money.

Kent Adams
11-28-2015, 8:25 PM
I was an Amazon customer before they were even a public company. I've been a Prime customer since it began. I have an Amazon visa card and I routinely get $125 every month in cash back. Amazon makes money, just not very much money. I believe the last quarter they made $175 million. To put that into perspective, Apple nets that amount every 2 or 3 days.

Jason Roehl
11-28-2015, 8:41 PM
I was an Amazon customer before they were even a public company. I've been a Prime customer since it began. I have an Amazon visa card and I routinely get $125 every month in cash back. Amazon makes money, just not very much money. I believe the last quarter they made $175 million. To put that into perspective, Apple nets that amount every 2 or 3 days.

If you were to look at the whole Amazon picture over the years, you would see that the reason Amazon isn't making much money is because they reinvest their income into infrastructue at a huge rate every year worldwide. They could make boat loads of money at any time.

Dave Lehnert
11-28-2015, 10:38 PM
I never seen the need for Prime myself. Shipping is free anyway over $35 and if it is in stock at Amazon next state over I get it less than a week most of the time. Sometimes in 2 to 3 days.

Jon Nuckles
11-28-2015, 10:51 PM
I doubt our family orders enough to get our money's worth on Prime. Certainly if Amazon gets a big discount on shipping, it is making money off our membership. I bet there are a lot like us. Having the membership does make me more likely to order from Amazon than someone else, which should be to Amazon's benefit.

Kent Adams
11-28-2015, 10:54 PM
If you were to look at the whole Amazon picture over the years, you would see that the reason Amazon isn't making much money is because they reinvest their income into infrastructue at a huge rate every year worldwide. They could make boat loads of money at any time.

Good point Jason. I took a look at their cash flow statement and they are spending quite a bit on capital expenditures. Operating cash flow was $6.8B at last FYE. Love the company but I'd never buy the stock.

John K Jordan
11-28-2015, 11:27 PM
Sometimes you can find the same item on Amazon without Prime shipping and compare. Sometimes the price for the Prime version is higher by the approximate cost of the shipping. Hmmm. Other times I also wonder how they make money. My UPS guy said Amazon gets huge discounts so the shipping companies are offsetting the cost.

Regardless, I've had Prime for years (from before the price went way up) and to me it is still worth it for the 2-day shipping even though non-prime shipping is often as fast. I purchase a lot of farm-related items - it helps to know the delivery date at the time of purchase since I live behind fences and gates.

Brian Elfert
11-29-2015, 12:04 AM
In this particular case Amazon had the lowest price of any place online for the item. Yes, Amazon's prices for a lot of stuff are higher due to the free shipping.

Kevin Nathanson
11-29-2015, 2:23 AM
To answer the original question, the lose $1 to $2 billion a year on shipping.

http://www.marketwatch.com/story/is-free-shipping-killing-amazons-profit-2015-07-14

K

Doug W Swanson
11-29-2015, 9:46 AM
I love my Prime. Many times I will order small things that don't qualify for the free shipping. The Prime allows me to get those items delivered without adding on $5-10 shipping to the item price which many times is under $20. That's a pretty big savings over the course of a year. Plus it saves me the time of running to the local store and purchasing the items there (and many times not knowing if the store will actually have what I need). Prime also lets me order items that would normally come from different vendors (say a woodworking tool and a Lego set) and have them shipped in the same package (or at least come in the same order).

Another nice thing about Prime is access to free movies and TV shows. I don't watch a lot of movies at home but when I'm on shift at the FD, we have limited channels on TV and Prime lets me (and my crew) watch movies that we normally would have to pay for.

Todd Mason-Darnell
11-29-2015, 12:42 PM
Amazon is not in the shipping business, but in the business of selling stuff. The Prime shipping is a hook to get people to buy more and stay loyal to Amazon (I have been a Prime member since 2008 or 2007). On average Prime members spend significantly more at Amazon than non members:

http://qz.com/221910/amazon-prime-members-spend-almost-twice-as-much-as-other-amazon-shoppers/

Brian Elfert
11-29-2015, 1:29 PM
To answer the original question, the lose $1 to $2 billion a year on shipping.


Is it really a loss, or just a cost of doing business? The articles are not clear when they say Amazon is losing money on shipping if it means that Prime shipping costs $1 billion more than they are collecting in Prime membership fees, or simply that Prime is costing $1 billion in shipping fees.

Brian Elfert
11-29-2015, 1:31 PM
I suspect part of why Amazon is building distribution centers all over is to reduce shipping costs, prime and otherwise, on commonly ordered items. In my case the item I ordered appeared to be the only one in stock and it had to be shipped from California to Minnesota.

Rich Riddle
11-29-2015, 1:33 PM
To answer the original question, the lose $1 to $2 billion a year on shipping.

http://www.marketwatch.com/story/is-free-shipping-killing-amazons-profit-2015-07-14

K
I will use it as long as they offer it. It's more than worth it when you purchase more than 100 items a year through them. I enjoy the two day delivery.

Kev Williams
11-29-2015, 1:36 PM
I buy lots of stuff from Amazon but what I end up paying in shipping in a year might run $20 or $30, not worth the membership fee. Only shipping I've paid this year was last week, $13, to be sure I got 2 meat thermometers in time for turkey day!

As for shipping, Amazon has all the clout Walmart does. Years ago Walmart held the record companies hostage by stating they wanted to pay less than $10 per CD (they'd been selling them for less than $10 and paying $12). At the time Walmart was the largest retailer of CD's with 20% of the market. Yet CD's were only 2% of Walmart's gross. So either sell to us cheap, or we'll just quit buying altogether. What a position to be in: we don't need your money, but it seems you need ours! ;)

Amazon is sitting in that same cat-bird seat. Hey, Shipping Company, we ship a bazillion packages a day, and you're already going to all these places anyway, so you might as well take $X.xx for shipping our stuff, or we'll just find someone who will. I just did a quick google, it's estimated that Amazon ships over 3,000,000 packages DAILY. If a shipping company flat-rated every Amazon package to everywhere at $2.00 each 5 days a week, lets see... 15 million packages a week x 52 weeks x 2 = $1,560,000,000 in shipping revenue...

Just my opinion, but nobody's losing any money... ;)

roger wiegand
11-30-2015, 11:15 AM
1) Prime members spend a *lot* more money on Amazon overall, and once they have ti will choose Amazon over other providers at similar or slightly lower prices 2) Prime members are starting to spend a lot of money on streaming media (you get some content free, but a lot of it is paid, and now that we have it it gets used in our household, albeit not by me). I think they pretty much make up the shipping costs with other new income. Remember that Jeff Bezos' stated goal is "to sell everything to everyone". They are playing a long term strategy, almost unheard of these days, that will at some point cause them to dwarf WallyMart in both sales and profit. They reinvest in their business at an unheard of rate, with every expectation that at some point they will dominate worldwide retail.

Pat Barry
11-30-2015, 12:01 PM
+1 Art. Jeff Bezos is a smart man and hires smart folks to run his company. They make money.
The steaming video service is included with Amazon Prime and so is Kindle book lending. The competitive price for the Amazon video is about $65 per year so that coupled with the shipping really makes it attractive.

Dan Hintz
11-30-2015, 12:36 PM
Last I looked, I remember reading Amazon was losing money when Prime was $50... so they raised it to $100. My view of that? They knew how much money they were losing (on average) with $50/yr, and $100/yr was enacted to overcome (or at least help mitigate) that loss. If they're still losing money (and "lose" is a relative term here) on shipping, they're satisfied with the amount being lost after all of the fees are in.

Not to mention, just because it costs you/me $15 to ship a two-pound package across the States doesn't mean it costs the same in bulk (I'd guess a couple of bucks, tops, in aggregate).

Jason Roehl
12-01-2015, 7:25 AM
Not to mention, just because it costs you/me $15 to ship a two-pound package across the States doesn't mean it costs the same in bulk (I'd guess a couple of bucks, tops, in aggregate).

This. Shippers give big discounts when they can pull a whole truck (or 10) up to a warehouse and load up a bunch of packages all going to a shipping hub. This is much more cost effective than having several staff man a counter and take packages one at a time until a truck is full.

Kevin Nathanson
12-01-2015, 8:20 AM
Amazon has been historically unprofitable. It is exceptional news when they turn a profit.

http://money.cnn.com/2015/10/22/technology/amazon-earnings/

Their business model is predicated on growth, not earnings. This is a subject that is covered extensively by the business press.

A quick google search on "Amazon lack of profits" will yield tons of analysts articles on the subject.

K

Doug W Swanson
12-01-2015, 9:09 AM
Here's a quick story on my latest Amazon experience: I ordered a few things on Saturday evening (including a 24 pack of mechanical pencils for $5). Sunday morning, USPS drops off a package and it was the mechanical pencils. I certainly didn't need the pencils in 12 hours but I thought it was ironic that the cheapest thing I ordered was delivered that fast!

John K Jordan
12-01-2015, 9:24 AM
1) ...choose Amazon over other providers at similar or slightly lower prices

Prime certainly does make me check Amazon first when shopping.

One advantage to using Amazon over other, perhaps slightly cheaper vendors, is the seamless purchase history database. Many times I've looked up an item purchased long ago, perhaps by keyword if I don't remember the name or brand. This is handy to check the price before I recommend something to others, compare the previous to current price when ordering another, check the purchase date, or print a receipt for warranty reasons. Far easier than trying to remember who I even bought the thing from.

Another advantage is their no-questions return policy for problem items and their clout with problem vendors. I got grief recently from a vendor who would not refund the money and wanted to charge me shipping to return a wrong item they shipped directly from China. A call to Amazon and the vendor refunded the full amount and told me to keep the incorrect item.

JKJ

Greg Cuetara
12-11-2015, 5:06 PM
Not sure if anyone else has seen this but an interesting article on how Amazon makes $$ or loses a little bit based upon prime memberships

http://www.sunjournal.com/news/0001/11/30/how-amazon-makes-money-free-shipping/1835383#.VmsNM7ymHa8.facebook

Greg