Shipping & Fulfillment

How to Offer Free Shipping without Going Broke

Offering free shipping with online orders has always attracted customers. Most have come to expect it. Unfortunately, free shipping can be expensive.

Enterprise sellers use scale, warehouse distribution, and logistical prowess to solve the economics. But small and mid-sized businesses are often left with a hard question: Is there a way to offer customers free shipping without going broke?

Should You Offer Free Shipping?

The answer is yes.

Consumers have come to expect free shipping for any online purchase. Merchants who don’t offer it are at a disadvantage.

Let’s put this in perspective. In the early days of ecommerce, free shipping was unheard of. Businesses didn’t have to worry about it because consumers didn’t expect it. But then things changed.

In 2002, Amazon introduced Free Super Saver Shipping for orders above $99. A few months later the minimum threshold had dropped to $49 and then to $25.

Super Saver Shipping laid the foundation for nearly ubiquitous free shipping with Amazon Prime. This didn’t happen immediately. It took a decade, but as online shopping became more popular, consumers began to expect free shipping on all orders.

In early 2011, Zappos and L.L.Bean upped the ante for retailers when they began offering no-strings-attached free shipping for all online orders.

In the past year alone, surveys from Retail Dive, Shopify, Walker Sands, and many others have reported various statistics about consumers’ preference for free shipping.

All conclude that roughly half of online shoppers research shipping prices (at least occasionally), two-thirds abandon shopping carts if shipping is too expensive, and 100% prefer not to pay any shipping amount.

Hence, businesses of all sizes should offer free shipping on many if not most orders to remain competitive.

So yes, it is possible to offer free shipping on ecommerce orders without going broke. One could argue that free shipping is simply the cost of doing business online.

How to Evaluate Shipping

So how do we offer customers free shipping without going broke?

Don’t fret. You don’t necessarily have to offer free shipping on every item to meet shopper expectations. Customers know that some items are too heavy or too large to ship for free.

For example, Rogue Fitness, which makes and sells weightlifting gear, offers free shipping on “select items.” Buy a Rogue t-shirt, and it ships free. Buy a pair of 88-pound kettlebells, and there is a shipping charge.

Consider your margins. Profit margins are an important consideration when it comes to the type and level of shipping you can offer your customers. Your margins likely vary by product.

Also, look past the margin for individual orders. Some ecommerce businesses are very successful with relatively low profit from individual orders but a high repeat customer rate.

Consider your products. Think about the size and weight of your products. Larger, heavier items are more expensive to ship, which is why many retailers have certain restrictions with their free shipping offers.

The same is true for light but large items since most carriers use some form of dimensional weight calculation that considers the size of the package and its weight.

Consider your orders. A common goal among sellers is to offer free shipping with certain purchase thresholds. For example, a merchant with an average order value of $50 could test free shipping on orders that are a bit higher, such as $60.

Consider your customers. Where are your customers located? Do you ship internationally and to customers in Alaska and Hawaii? If so, you’ll have to absorb more costs to these locations, which is why many retailers exclude from free shipping all areas outside the contiguous United States.

10 Ways to Offer Free Shipping

Here are 10 commonly-used ways to offer customers free shipping.

  • Free shipping on everything. The most obvious way is to offer it on everything. If you have the margins, this may be the most viable option.
  • Free shipping with minimum thresholds. Setting minimum order value thresholds has long been a common free shipping strategy. It can work well, but selecting the proper threshold for your products and competition is vital.
  • Free shipping on certain items. This is the Rogue Fitness strategy mentioned earlier: Offer free shipping on certain items. However, rather than choosing only high-margin goods, consider some exceptions for lower-profit items so your offer is more easily communicated to shoppers.
  • Free shipping at certain times of the year. Some retailers offer free shipping periodically (such as during the holidays) rather than year-round. Depending on your products, test free shipping offers at other times of the year, such as Valentine’s Day and Mother’s Day.
  • Free shipping to specific locations. If shipping for free to distant customers is economically impossible, it could be realistic for buyers close to the warehouse. In effect, this is how Amazon offers both fast and free shipping. It has distributed fulfillment centers across the U.S., placing products close to consumers and making shipping much less expensive. Even a small ecommerce operation can offer free shipping to its neighbors.
  • Member programs. Here again, Amazon is the example with its Prime membership. An online store can offer a member program, charging customers an annual fee for free shipping on some or all items.
  • Loyalty programs. Some retailers provide extra incentives to encourage repeat purchases, such as offering free shipping to their most loyal customers.
  • Subscription sales. Free shipping can also be part of a subscription sales strategy, wherein customers sign-up to receive periodic shipments of merchandise at a set interval. For example, Dollar Shave Club offers free shipping on all orders as part of its subscription service.
  • Free shipping on returns. Buyers may find free shipping on returns appealing for items with relatively high return rates, such as clothing and footwear.
  • Flat-rate shipping. This one isn’t free, but offering flat-rate shipping encourages larger orders and frequently translates into lower shipping costs for customers. A downside, however, is that it can discourage small orders.

Testing Is Key

To find the best free-shipping offer for your business, test various approaches to determine which is most effective.

Evaluate the products you sell, the average order size, the competition, and the shipping costs.

Remember, too, that free shipping is not always profitable. In some cases, it may be necessary to offer free shipping as a loss leader to attract customers and build market share. In others, free shipping directly increases profits. The key is to understand the economics of your business.

In short, offering free shipping attracts customers but make sure you’re not losing money overall in the process.

Armando Roggio
Armando Roggio
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