Practical Ecommerce

Why Free Shipping Works

There has been alot written on Practical eCommerce and elsewhere regarding free shipping and whether or not it makes sense for merchants to offer. I’d like to share my experience with it and tell you why it makes sense for eHobbies.

For years, we rarely offered free shipping promotions at all for any size of order. When we did, it was done in conjunction with a limited time offer set at a threshold of $75 or higher. While we had some success with this model, we did not promote it outside of our newsletters.

However, when many of our competitors began offering ongoing free or flat rate shipping promotions we knew we had to offer something similar to our customers. Our shipping rates were historically structured in a weight based model that was the same price regardless of the destination. So if we were shipping something down the street in zone 1 or across the country in zone 8, our customers paid the same price. This allowed us to have a higher margin for shipping to closer zones however we wanted to achieve a scenario that would enable our customers in zones 1-7 to pay lower shipping costs. The obvious negative result of this was high cart abandonment in the closer zones because the shipping costs were too high.

Early last year, we developed and implemented new shipping rules that was a game changer for us. We were able to plug into UPS & FedEx APIs (application programming interface) which allowed us to get our real time rates and delivery estimates with the carriers. In addition and this was big for us as well, we decided to offer first class mail, priority mail and parcel post shipping options from the postal service. We carry many small and lightweight products such as RC car parts and pinewood derby kits. These low priced products are perfect candidates for first class mail. In addition other products like rocket starter sets and rocket motors can only be shipped via parcel post. While we passed along significant savings to our customers with these new shipping options, we were also able to increase our profits from shipping and fund promotions to drive more business.

After collecting data that supported our initial findings on shipping profits, we decided to run an ongoing promotion offering free shipping with most purchases over $99. While we launched this offer on a limited basis we have continued to run it since late last year and we will continue to monitor it and test other thresholds. The effect of free shipping (funded by offering other profitable shipping options to offset) has powered our January growth to double digit increases over last year in both sales and average order size. If we didn’t have a vehicle to help us fund free shipping, it would be difficult to support a case to offer this promotion in a big way. The reason it works for us is because we were able to find a method to support its existence.

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Comments ( 8 )

  1. Louis Camassa February 6, 2010 Reply

    Hi Ken,

    Thanks for sharing your thoughts on Free Shipping! Do all your products qualify for free shipping? I know that some of the rc products come in huge boxes-do you have any exceptions to the free shipping rule? Did you test adding the Free Shipping incentive message (Buy $xx more for free shipping) to all pages on the site? For an example checkout Guayaki.com; notice how the Free Shipping incentive message is right below the cart, so customers are aware of it throughout the entire website experience.

  2. Greg Percifield February 9, 2010 Reply

    For those who send printed materials, USPS offers a Media Mail service, which is cheap enough that some businesses may want to offer it for free. No matter the weight, the order is almost always under $3.00. The drawbacks on Media Mail, would be that it is a slower service, and it’s important that customers understand when to expect their order. Also I should note that it is available as a domestic shipping option only, and cannot be used for overseas orders.

    Regardless, understanding the courier(s) you work and the options that they can provide your business with is essential for success.

  3. John E. Middleton February 9, 2010 Reply

    I sell on eBay and soon to sell on Amazon, and I would love to offer free shipping. However, I seem to get burned as I can never accurately calculate what the shipping could be – and I ship from the West Coast and therefore have to price it in at the East Coast cost. It seems to be a difficult quandary for me.

  4. Adam Bertram February 9, 2010 Reply

    John,

    I don’t believe you can offer free shipping at all on Amazon. I sell media items and I know you can’t offer it there and I’m pretty sure Amazon doesn’t let you offer it anywhere else on their marketplace. Again, I sell books but I copy the shipping price that Amazon charges to the buyer on eBay and it seems to work well. It covers 99% of the shipment charges I have. I even offer a flat rate on international orders as well.

  5. Adam Golomb February 11, 2010 Reply

    Ken,

    Great blog. Two questions:

    – How did you determine that $99 was the right threshold for free shipping?
    – We have been testing free shipping at $40 threshold, per recipient, and many customers have emailed us and don’t understand why they don’t receive the free shipping offer if they spend $40 but it goes to multiple addresses. Have you experienced this?

    Thanks,
    Adam

  6. Carla February 12, 2010 Reply

    Though I do offer flat feel shipping, free shipping for orders over $75 and free shipping promotions (any size order), I find it difficult to actually make a profit due to the general high cost of shipping (US only). How do you balance the two? Customers don’t want to pay what it actually costs to ship an item. :-)

  7. Shirley Tan February 17, 2010 Reply

    Hi Ken,

    Great article and thank you for sharing your free shipping strategy.

    Carla, we also offer our customer free shipping at a certain dollar purchase threshold.

    How we determine the dollar amount is based on what we want our AOV to be at. AOV is average order value. So in our case, we would like it to be around $149.00, given the type of goods we sell, this dollar amount is achievable for our customers, gives them enough incentive to add a couple more things to the cart to attain free shipping. Also for the merchant, its a reasonable dollar value in which its profitable for us to operate and properly service our customer needs.

    At the end of the day, it has to financially make sense or else it’s not sustainable. That being said, you need to test and try it at different levels and you’ll learn with enough data which is the magic number for your customer and for your website.

    I normally don’t recommend that you copy your competitors, but they are a big factor in determining what your strategy will be and you need to take them into account as well. If your competitor are *crazy* (we’ll use this word loosely) and you think they’re giving away the shop and because you know what the profit margins are, then you don’t mimic their program because at some point they’re going to go out of business, that a good reason not to follow in their foot step, instead offer up something so unique that your customers will choose to shop with you instead free shipping or not.

    PS: Hope to see you at IRCE in June Ken.

    Shirley Tan

  8. Sue February 23, 2010 Reply

    I have to agree – I started offering free shipping at Crafterscafe.com during the holidays and never stopped. I found my threshold is best at $50. I sell small jewelry parts and other craft items, many of which can ship in the small flat rate boxes from USPS. My average order has almost doubled. In reference to calulating costs, I use ZEN cart with the shipping options and it calculates postage very accurately for each zone and even internationally.