Practical Ecommerce

Survey Results: 46 Percent Say Free Shipping Increases Profits

Free shipping is often touted as a surefire way to get more sales, but rolling shipping costs into the product price can also take a big bite out of a profit margin. During the rush of holiday sales, we wondered how many of our readers offer free shipping and if you think it is a worthwhile ecommerce strategy.

We polled Practical eCommerce readers during December 2010 to gather your thoughts on free shipping. The “free shipping” survey asked four questions, with a comment section for each response. Readers who completed the survey, and then provided us with their names and email addresses, were automatically entered in a contest to win a $25 Amazon gift certificate. The December contest winner, chosen by a random number generator, was Justin Hughen of MyOwnTuxedo.

Describe Your Company’s Free Shipping Policy

Survey results: Which best describes your company's free shipping policy?

Survey results: Which best describes your company’s free shipping policy?

Respondents were asked to describe their companies’ policies on free shipping. Nearly half (41.9 percent) said they will ship products for free when minimum purchase levels have been reached. Only 8.1 percent said they offer free shipping only on certain selected products.

22.1 percent said they never offer free shipping and 18.6 said they always do. Nearly one out of ten (9.3 percent) checked “Other.”

Twenty-nine respondents left comments about their free shipping policies. Some were adamant that free shipping is never free, with one calling it “a gimmick” and another saying “there is no such thing.” Another said, “Companies who offer ‘free shipping’ have to add a percentage of shipping into each product they sell, as UPS does not work for ‘free.’ If consumers believe they are truly getting shipping for free, they have been misled.”

Comments that were positive to the free shipping model included several who rely on it during certain holiday periods. “Four days over Thanksgiving weekend and a four-day weekend around Valentine’s Day,” said one. Another said, “We offer free shipping through November and December (holiday time). [The rest of] the year, free shipping over $75; but we are revisiting this for 2011.”

Some companies said they offer to ship for free only during special promotions, and others said they offer it only if the weight of the product is under a certain threshold. Minimum purchase levels ranged from a low of $19.95 to as high as $150.

Do Free Shipping Offers Increase Your Company’s Profits?

Survey results: Do free-shipping offers increase your company's profits?

Survey results: Do free-shipping offers increase your company’s profits?

When we asked if free shipping offers increase profits, the responses were divided between those who answered unequivocally “Yes” (46.5 percent), and those who said “No” (32.6 percent) or ticked “Other” (20.9 percent).

On reviewing the comments for this question, it seems that many of the negatives and “Other” replies were due to several companies’ policies against free shipping, as well as numerous companies that are not sure if the strategy has been effective. One said, “Not sure. I think it does not increase sales but it does prevent lost sales.” Another said, “Very hard to be sure, just a gut feeling.”

One respondent who is positive that free shipping is not effective posted this comment, “No impact on sales whatsoever. Disappointing given the number of marketing type sites that promote the practice as an effective sales tool.”

Several other respondents had a more upbeat view of free shipping, with one stating, “More sales with free shipping,” and another who said, “I believe it brings us business we wouldn’t otherwise have.” One polltaker said, ”In a recent customer poll, having free shipping ranked high among other advantages.”

How Does Your Company Fulfill and Ship Its Orders?

Survey results: How does your company fulfill and ship its orders?

Survey results: How does your company fulfill and ship its orders?

Responses about fulfillment indicated that three-quarters (75.6 percent) of polled companies are filling orders in-house with company personnel. One respondent in the self-fulfillment category described himself as “A one-man merchant online seller.”

Only 15.1 percent of those polled said they always outsource fulfillment to a third party.

Comments from the remaining 9.3 percent who checked “Other” indicated a combination of in-house and third-party fulfillment. “Half in-house and half drop-ship,” said one. Another said, “The majority is fulfilled by Amazon.com while we do some shipping from our own warehouse as well.”

What Is Your Company’s Average Sale Amount?

Survey results: What is your company's average sale amount?

Survey results: What is your company’s average sale amount?

Almost all of the companies that responded to the poll (88.4 percent) said their average sale amount is more than $20. Only 9.3 percent said their sales average is between $10 and $20, and just 2.3 percent checked “Other.”

Comments on this question had the average sales price landing between $50 and $175. One seller said it was too difficult to answer as his sales could range from $4 to $40,000.

Conclusion

As one survey respondent noted, “the jury is out” on free shipping as an effective ecommerce model. While many companies find free shipping offers to be a helpful sales strategy, others are not yet (or may never be) convinced.

Kate Monteith

Kate Monteith

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Comments ( 6 )

  1. Molly Sylestine January 6, 2011 Reply

    This is great and the graphs provide an excellent visual! The results of this poll are very interesting. Thank you for putting this together to show what merchants are experiencing with the relationship between shipping and sales.

    We found that many e-tailers felt they had to offer free shipping or other discounts to compete. This is due to the rise in comparison shopping engines and the fact that customers tend to look for the lowest price before they purchase. It is interesting to note 57 percent of consumers who used a coupon code during their last online purchase said that if they had not received the discount, they would not have bought the item(s). (Compete)

    One of our most recent blog posts addresses this issue as well as the other big trends from 2010 including: mobile commerce, the growth in social media and how/if the recession affected shopping habits. http://onlinebusiness.volusion.com/articles/2010-ecommerce-year-in-review-one-hell-of-a-ride

  2. jcaren January 6, 2011 Reply

    I actually run 2 e-commerce websites and on one I have free shipping for all purchases and on the other I have free shipping for only orders that are over $75 – anything under is a flat rate shipping cost.

    I have tested all different options, but for each of these sites each of these options work. I decided on free shipping for http://outdoorplaytoys.com because the products were so large and I did not want the shipping to be a surprise to the consumer….and I have received positive feedback from customers for this.

    Of course every business model is different – but personally speaking I like to see a product and now what the price is with everything included.

    And I do think most consumers are smart enough to know that free shipping is not really free…..and that the cost is absorbed in the price, but I think they LIKE knowing the price right up front!

    Great post though – love seeing the feedback and graphs!

  3. Alex Mulin January 10, 2011 Reply

    Yes, free shipping offer does the job. We had to create a separate instruction video about how to configure free shipping in X-Cart (http://www.youtube.com/watch?v=pcVx2dTnHr8) because this was one of the most popular questions we were asked.

  4. Elizabeth Ball January 11, 2011 Reply

    It’s not just shipping costs that are a turn-off, taxes and credit card charges are too. When you think you’ve spied something nice for $99, the shipping, taxes and merchant charges can take it up to $130. Charge $119 and you’ll probably still get the sale.

  5. Randy Pickard January 11, 2011 Reply

    Call me a skeptic in regard to free shipping for distributors of heavy or oversize boxes, particularly after the 4.9% across the board increase in all ground shipments, plus the 17% increase in dimensional weight factor for packages over 3 cubic feet. As a shipper of oversize boxes, my cost of ground freight since the 1/3/11 rate increase is usually greater than my profit margin. If the cost of shipping continues to rise faster than the rate of inflation, I have difficulty seeing almost half of responents indicating free freight increases profits if the survey is repeated a year from now.

  6. John Lindberg January 30, 2011 Reply

    To me, the key to free delivery is aggressive fulfillment cost reduction and that means expanded automation to minimize direct labor costs, face-off negotiation strategies with delivery carriers, winner take all packaging supply contracts plus better utilization of cubic warehouse space.

    No matter if the fulfillment function is done in-house or outsourced to others, industry trends are putting increased pressure on warehousing and order fulfillment costs. Just like other industries before us, the ecommerce business must squeeze processing waste and inefficiency out of the system to remain competitive in the world-wide marketplace and that is going to take smart technology and wise management.

    John Lindberg – President
    EFULFILLMENT SERVICE INC