The Pros and Cons of Offering Free Shipping

Imagine this: you’re shopping online for something that you really want. Let’s say it’s a new office chair. You find one for $79 with good reviews. It seems like a great deal!

But there’s a problem: when you get to the checkout page, you have to pay $19.99 for shipping. Sure, $98.99 ($79 + $19.99) still seems like a great price to pay overall for the chair. Yet paying that much for shipping seems…wrong.

Should the seller have offered free shipping? This is a question which many eCommerce store owners have wrestled with over the years. Here’s our take.

Free Shipping Doesn’t Really Exist

It’s no surprise that free shipping is enticing to customers who are otherwise on the fence about making a purchase. That’s why it’s shocking when you stop and realize that free shipping doesn’t exist.

If an item is shipped by mail, there will be fees for postage and supplies. In this sense, shipping is never free. Either the shipper pays for it, or the recipient pays for it. When the shipper pays for it, this reduces their per-unit profit margin, thus requiring them to raise the item’s price, which the customer pays for.

When asking yourself, as an eCommerce store owner, whether to offer free shipping, what you’re really asking in another question entirely. That is, “should the shipping price be included in the item’s display price or not?”

To answer that more nuanced question, we will discuss the pros and cons of offering “free” shipping.

Pro #1: Free shipping reduces shopping cart abandonment.

One of the biggest issues that eCommerce stores face is shopping cart abandonment. This happens when a customer adds something to their cart but never completes the purchase. This lowers conversion rate and decreases the amount of revenue that the store brings in.

The number one reason for shopping cart abandonment is high shipping costs. By offering free shipping, you completely avoid the risk of sticker shock when it’s time to check out.

Pro #2: Customer-friendly shipping policies make it easier to make new customers.

Consider the following. As many as 64.3% of customers think cost is the most important factor in shipping. Another 8 in 10 expect free two-day shipping by default. Customers consider shipping costs before they make their first purchase.

When looking at the data, it becomes very clear that free shipping is not seen as an amenity. It’s seen as a basic service that must be provided.

Pro #3: Good shipping experiences retain customers.

It’s a lot harder to find new customers than it is to sell to current ones. This is why retaining customers can do wonders for your business’s bottom line.

Seven in ten customers are unlikely to purchase from a brand again if they have a poor delivery experience. When you consider how high expectations are around speed and cost, this is huge. Disappointing your customers means you could lose their repeat business, which could reduce revenues for a long time.

Con #1: You will have to charge more for your product.

Of course, offering free shipping isn’t perfect. If you offer “free” shipping, then you have to make that money somewhere. Sellers, therefore, have to choose between two undesirable outcomes:

  1. Make shipping free and increase the cost of the product.
  2. Eat the cost of the shipping and take a lower bottom line.

In the vast majority of cases, #1 is what a business ought to do if they wish to offer free shipping. However, shipping charges can easily turn a $1 product into a $7 product. In cases like this, free shipping may not be appropriate to offer.

Con #2: If shipping rates increase, you either raise your item price or eat the cost.

Another unfortunate implication of offering “free shipping” is that you’re a lot more vulnerable to increases in shipping price. Postage costs change all the time, and they tend to increase faster than inflation. That means if your shipping costs increase significantly, you either have to raise the price of your product or pay for the difference.

Con #3: Economy shipping may be slower and lead to a worse customer experience.

If you offer free shipping and cannot justify increasing your product’s price, then you may opt for budget shipping. This can reduce shipping costs without passing them along to the customer as an upcharge.

Of course, this isn’t perfect. In fact, in many situations, this is bad. Customers expect free two-day shipping by default now. If it takes a week for your product to ship, your attempt to save money may even backfire, costing you customers and money!

In a situation like this, it may make more sense to charge for shipping. The logic here would be that it is better to charge more upfront than to disappoint the customer later.

Final Thoughts

Because of high customer expectations, we think it is generally better to offer free shipping. Yes, that does imply adding the cost to the base price of the product. However, after extensive studying of consumer behavior, this has been found to be the most palatable way to charge for shipping.

We’d like to borrow a passage from the Atlantic article which we cited earlier.

“The reaction to free shipping goes beyond the normal way of looking at cost and benefit,” Dhar explains. “A 20 percent discount, which would add up to the same $5 or $8 that shipping costs—that’s not as effective as giving free shipping.” In general, Dhar says, shoppers are even willing to pay more overall for the same goods if there isn’t a separate shipping charge. What bothers them most is the nickeled-and-dimed feeling, not the total amount of the tab.Stop Believing in Free Shipping, The Atlantic

There are some situations in which free shipping is not appropriate, such as extremely bulky items or inexpensive items. For the vast majority of online sales, though, offering free shipping makes more sense than the alternative.

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