Dollar Scholar Asks: Is Amazon Prime Still Worth It?
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This is an excerpt from Dollar Scholar, the Money newsletter where news editor Julia Glum teaches you the modern money lessons you NEED to know. Don't miss the next issue! Sign up at money.com/subscribe and join our community of 160,000+ Scholars.
What do toothpaste, potting soil and a life-size cardboard cutout of Justin Timberlake have in common?
Answer: These were all items purchased on my Amazon Prime account last year.
I’ve been a subscriber to Prime, the paid Amazon membership that gives customers benefits like free two-day shipping, for about a decade now. It’s certainly not cheap, but it usually provides a solid bang for my buck, especially because — don’t tell Jeff Bezos — I share the password with my family.
Alas, citing “the continued expansion of Prime member benefits as well as the rise in wages and transportation costs,” Amazon announced in February that it was increasing the price of Prime from $119 to $139 a year. This is the third price increase ever for Prime, which was just $79 when it launched back in 2005.
But given the inflation situation and my continued quest to save money, I’m reconsidering whether to renew my subscription.
Is Amazon Prime worth it for me?
I called Patricia Huddleston, a professor of retailing at Michigan State University, to help me figure it out. The first thing she recommended was to break down the cost by month: $139 a year is about $11.58 a month.
At that price point, “if you order regularly from Amazon, the savings on shipping will pay for the membership itself,” she says.
Huddleston, who studies consumer behavior, says Prime’s free two-day shipping policy is the main reason it’s so alluring to me and the other 200ish million people who pony up for it. With a couple of clicks, I can get pretty much anything delivered to my doorstep. For free. Within 48 hours.
That’s habit-forming. Even if I’m not loyal to the company itself, given the way Amazon treats employees, I do feel like I’ve become accustomed to the speed and cost (or lack thereof) of my Prime shipping.
And it’d be extremely hard to go back.
Of course, that’s not the only perk Prime provides. Its benefits include access to Prime Video, the streaming platform I devoured Fleabag and Teen Wolf on, Amazon Music and Amazon Photos, which gives me unlimited photo storage. There's also Prime Gaming, which offers users free video games and a free Twitch channel subscription every month.
If I were paying for all those components individually, it’d add up to about $1,000 a year, according to a June 2021 J.P. Morgan research report that calls Prime “the best deal in shopping.”
But smart shopping expert Trae Bodge says it’s important to make sure that I’m actually using those perks. She points out that anyone can get free shipping on certain orders that contain at least $25 worth of eligible items. This shipping isn’t as fast — the Shipping by Amazon website says “your order is delivered five to eight days after all your items are available to ship, including pre-order items” — but it is available to everyone who meets the requirements.
“If you find you don’t order frequently, you could bundle together and hit that $25 threshold, and if you don't use a lot of those other features, then I don’t think you need Amazon Prime,” Bodge says.
While it might be hard to quantify just how many hours I’ve spent binge-watching shows on Prime Video, Huddleston and Bodge recommend I do an audit of my Amazon orders to figure out how often I’m taking advantage of Prime shipping.
After compiling a colossal spreadsheet, I found that I (and the freeloaders who use my account) spent just over $6,000 on 231 Prime orders in 2021. If I divide the $139 annual cost by 231, it basically cost me 60 cents per order for two-day shipping.
About a third of the 231 orders were over $25, which means I theoretically could have gotten free ground shipping for them even without Prime. But even if I divide $139 by 150, my cost for shipping per order was roughly 93 cents…
…which is a steal.
Of course, there are other factors to consider here. Prime isn’t great for the environment. Bodge says it can also enable mindless shopping. The fact that a random desire can pop into my head and I can be reading the order confirmation email minutes later is not always great. This is especially true for small purchases.
“Returning to mindfulness can do us a lot of favors, especially if we’re spending a lot more on Amazon than we would have previously,” she adds. “Why do you have to order your toothbrush on Amazon? Roll it into your grocery shopping trip.”
The bottom line
The main driver of Amazon Prime subscriptions is its free two-day shipping. If I’m making good use of that perk, the cost is probably worth it. But if I’m not, I should think about whether I’m using other Prime features that sweeten the deal.
Unfortunately, Huddleston says, there aren’t a ton of viable alternatives. Retailers like Target and Walmart have Prime-like subscriptions, but they’re simply not as extensive as Amazon's ecosystem.
“It’s the combination of the market power of Amazon coupled with the free shipping opportunities that gets people in,” Huddleston says. “Then the benefits are icing on the cake.”
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