The (Many) Benefits of Offering Free Shipping
Free shipping is a competitive necessity for some online retailers. While there are certainly costs associated with free shipping, there are also some reasons to feel good about offering it.
When companies like Amazon first introduced free shipping several years ago, it might not have made sense for every ecommerce merchant, particularly small ones, to follow suit. But with scale and growing customer expectations, free shipping has become both common and beneficial to some sellers.
1. Free Shipping May Increase Sales, Revenue
Free shipping is popular with your shoppers. This is so obvious, in fact, that you are unlikely to find any statistical data or survey results to support the claim directly. Researchers simply don’t bother asking shoppers if they would rather pay for something or get that same thing for free.
There is an important note here: Some shoppers will, in fact, pay for faster shipping when the situation demands it — perhaps a last minute gift. But otherwise, delivery times being equal, your customers would rather not pay to have an order shipped.
In 2014, Business Insider reported that for the first quarter of last year, 58 percent of U.S. ecommerce orders included free shipping. Thus the service seems popular.
What is popular with your customers may also be good for your business. There have been several, albeit anecdotal, reports of free shipping offers increasing sales conversions and revenue.
- Last year, Stitch Labs found “that retailers who always offer free shipping can directly increase revenue by 10 percent.”
- Brandon Eley, owner of 2 Big Feet, reported in 2012 that free shipping had boosted his site’s conversion rate 50 percent.
- In a 2014 case study, Red Door Interactive said that a free shipping offer had increased ecommerce orders by some 90 percent.
- In a survey from 2010, 93 percent of respondents said that free shipping encouraged them to buy more online.
- Monetate released a case study in 2011, reporting a 48 percent increase in new customer acquisition with a select free shipping offer.
2. Free Shipping Boosts Average Order Value
A portion of the promised, free-shipping-induced boost in ecommerce revenue will come in the form of increased average order value.
When free shipping offers include a minimum purchase threshold — like $25, $50, or $75 — some shoppers will add items to their carts. In fact, a June 2015 study from comScore and UPS said that 52 percent of American shoppers have added items to their ecommerce shopping cart to qualify for free shipping.
Similarly, the aforementioned Red Door Interactive case study from 2014 reported a 7.32 percent increase in average order value when Red Door client, NuFACE, offered free shipping.
3. You Can Control Free Shipping Costs
Online retailers that sell commonly available products or even commodity products often compete on price, squeezing margins and “racing to the bottom.” Merchants in these sorts of price competitive situations can feel helpless, as some hapless competitor irrationally lowers prices. There is simply no way to control the price your competitor sets.
Free shipping costs, however, can to some extent be controlled. In fact, savvy online retailers can take actions that will significantly reduce shipping costs. Given this level of control, managing shipping expenses may even be a way to regain margin.
Here are a few examples.
- Use fulfillment services. Merchants can warehouse popular items with fulfillment providers, potentially reducing the distance packages must be sent and thereby reducing the cost of those shipments, even when the fulfillment service fees are included.
- Limit free shipping offers. While you certainly want to make a free shipping offer to all of your shoppers, that offer need not be the same. If your warehouse is in California, you might offer free shipping with no minimum purchase for intrastate orders. Shipments to neighboring states could have a relatively low minimum purchase requirement, while far away states could enjoy free shipping with a relatively higher minimum purchase.
- Choose carriers and service levels. Try to discover the best combination of carrier and service level for each shipment. USPS Regional Rate boxes are good for nearby destinations, while ground shipping from FedEx or UPS may cost less for cross-country deliveries.
- Minimize packaging. In the era of ubiquitous dimensional weight shipping fees, reducing package size can reduce shipping costs.
4. Loyal Customers Love Free Shipping
Although it is not clear that free shipping offers help retain customers, many marketers believe that there is a relationship between customer retention (or customer loyalty) and offering free shipping.
For example, the comScore and UPS study mentioned earlier found that 54 percent of shoppers are likely to take action when they receive a free shipping offer by email. This implies a couple of things.
First, it would seem that free shipping is a more compelling offer than a sale price since emails offering product discounts rarely have a 54 percent conversion rate.
Second, since consumers receiving emails presumably have a relationship with the online seller, one can assume a level of loyalty or at least familiarity.
5. Free Shipping Problems May Be in Your Mind
Many online sellers will argue that they do not need to offer free shipping or that free shipping is simply too expensive. They just cannot get over the idea of “wasting” money on shipping. But some of these perceived problems with free shipping offers may really be a result of the way we think about free shipping.
A few years ago, a Quora contributor named James Edwards wrote, “‘Free shipping’ in an online business is no different to ‘free entrance’ into a brick-and-mortar store. Just as a brick-and-mortar store incorporates the cost of sales assistants and store lease into their item price, so to can an online business incorporate the shipping cost into their product prices.”
Edwards’ argument is that free shipping is simply a cost of doing business. For example, few online retailers pass the cost of packing materials to customers. Nor do many businesses charge shoppers on a prorated basis for website hosting, payment card processing, or myriad other overhead expenses.
Similarly, many online sellers are very happy to offer shoppers 10-, 20-, or even 40-percent discounts on products in the form of sale prices and coupon code offers, only to be reluctant to offer free shipping. Ecommerce marketers will spend $5 per click on AdWords to get a shopper to the site, but won’t spend $5 on free shipping to double conversions.
The problem may be that one needs to think about free shipping offers like overhead or advertising, rather than a extra cost.