How does free shipping work?

Every Friday, we answer a common question about fulfillment, shipping, or business. This week’s question comes from one of the fans who entered our giveaway contest for a quadcopter drone. Today we will answer the following question: “how does free shipping work?”

There’s No Such Thing as Free Shipping

We answer questions about the price of shipping a lot. In one post, we talked about why shipping is so expensive. In another, we talked about why shipping prices vary so much. Indeed, if you’re a regular reader of this blog, you can probably see where this is going.

Free shipping doesn’t exist.

Sure, free shipping exists in the sense that online retailers big and small offer it when purchasing, say, $25 or $50 of merchandise or more. The simple truth is that packages cost money to ship simply because postal carriers have to pay their employees, the fuel in their vehicles, and so on. Those costs do not disappear when sellers charge $0 for shipping, and you can bet that the carrier – be it the USPS, UPS, FedEx, or anyone else – is still going to charge the store owner even if their shipping is “free.”

Shipping & Consumer Behavior

At this point, it’s safe to say that “free shipping” actually means “shipping paid for by the store.” Fair enough. However, this raises two new questions:

  1. How can stores afford to offer free shipping?
  2. Why do they do it in the first place?

We’ll start with the second question since it’s easier to answer. When shopping online, consumers go through a number of steps. First, they have a problem that needs to be solved by making a purchase. Then a store captures their attention and interest. They see a product that they believe will meet their needs and they add it to their cart.

What’s left at this point is one hurdle: the shopper must purchase the item. According to Baymard Institute, 70% of people will add an item to their shopping cart, leave it there, and never purchase.

That is a staggeringly high percentage. Any steps a store owner can take to lower the shopping cart abandonment rate is money in the bank.

It’s been proven, time and time again, that free shipping is an effective incentive in this case. It helps customers to make a decision, finalize their purchase, and reduce their sense of remorse. It’s a brilliant and simple psychological trick.

Stores can afford to offer free shipping because the increased revenues often offset the shipping expenses. There are a number of different effective ways that stores can offer free shipping without overextending themselves, too. Here’s another great guide from ShipBob as well.

Final Thoughts

Shipping is never truly free. Retailers pay for shipping instead of the consumers because it increases sales. Particularly, it removes one of the last major obstacles that lie between the desire to purchase and actually purchasing an item. Nothing more, nothing less!

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