“Free shipping.” These are magic words to a consumer thinking about an online purchase, a dealmaker. It adds a perceived value to the purchase, making the decision to buy that much more attractive. The power of the concept of “free” is a doorway to cultivating a new customer or growing the loyalty of a returning one. Plus, let’s be honest – no one wants to pay for shipping. We all just want what we want and expect it to be delivered and NOT have to think about paying extra for it. In fact, a recent Forrester Research study tells us that 44% of online shoppers abandon their carts at the end of the line because of shipping costs – that’s a lot of customers. In the end, shipping is never really free; someone has to pay for it.
For an ecommerce seller, the decision to offer free shipping is not easy. On one hand, it has become the industry standard and is expected from online retailers, customers are used to it (thanks, Amazon!). It’s important in the decision process – 83% of customers have said that free shipping would encourage them to do more online shopping, according to the Walker Sands Future of Retail Study 2015. On the flipside, the reality is – can your business afford it?
Looking at the big picture, the truth is, online retailers can’t afford not to offer some sort of shipping incentive these days in order to stay competitive. But is there a way to do it that will please your customers, make good business sense and not eat up all your profits? Some things to consider:
1. Evaluate your margins. Product cost vs. cost of shipping, does it make sense? You have an item priced at $9.95, your profit is $5, shipping costs you $7 once packing materials, etc. have been factored in – so no, in cases such as that, it’s not possible. In these cases, often retailers incorporate some of the shipping costs into price of goods to make up some of the loss.
Other things to think about are weight and packaging, is your product small, light and inexpensive to ship, or will you get slammed by dimensional weight rates? Are your customers mainly domestic, because international shipping adds a whole new layer to the equation.
2. Think about minimum orders. Online retail giants may be able to offer free shipping on all items with no minimum spending requirement as their volume has allowed them to negotiate lower rates; a more practical solution for the small- to medium-sized business is to enact a spending threshold, a minimum order which must be reached before free shipping kicks in. Free shipping on orders over $25 for example, which may in turn increase basket size as customers aim to reach the free shipping level. Once they reach the minimum required, the tendency to add more simply because it’s free to ship is increased.
3. Institute flat rates. With a bit of analysis and balancing your costs, it is possible to come up with a sensible flat rate for shipping, especially if your product offering is a more limited selection (even better if your products are all similar weight and size). Being up-front with charges resonates clearly with the customer, who may even be inspired to add a few more items to their cart as they know what the shipping bottom line will be. Take care with this approach if you sell a mix of lighter and heavier items, prices on heavier items may need to be adjusted to cover some of the costs.
4. Promotional Time Frames. Another option is to experiment with offering free shipping during special events or times of the year, such as holiday seasons or special promotional periods. For instance, run a sale promotion and tie it into all your social media with a code for limited time free shipping, a tactic that is a great marketing and customer acquisition tool as well.
5. Consider working with a fulfillment center. Good order fulfillment services have cultivated relationships with the major carriers and may be able to pass on some of these discounts to you. They will also be able to work with you to find the best options to save your bottom dollar.
When experimenting with various shipping promotions, it is recommended that you start slow with paying options, rather than jumping headfirst into giving away completely free shipping (it’s way harder to take something away than to give it!). At the end of the day, every business has to evaluate the positives and negatives, track the success of their choices and do what works best for their company.