Is offering free shipping to your customers worth it? Absolutely! Does free shipping increase sales? Yes. But there’s a lot to take into account before you offer free shipping to your shoppers. We’ll explore what that looks like in this post.
Need help assessing whether or not free shipping is right for your business?
We've all heard the term "there's no such thing as a free lunch." The same is true with shipping. There's no such thing as free shipping. All businesses that offer free shipping account for those shipping costs elsewhere. They may be hidden in the product price or be part of a wider shipping fee strategy.
Shipping is never truly free, but it's a very powerful promotional tactic. Consumer behavior shows that offering your customers free shipping is a very powerful motivator and can often be the difference between a completed transaction or cart abandonment. According to a 2022 study from The Baymard Institute, extra costs at check out led to 48% of abandoned orders. That's particularly true on eCommerce platforms like a Shopify store or for Amazon Prime members who are used to fast, free delivery.
This post will outline some of the considerations you should make prior to offering free shipping AND some of the easy (and free) ways you can reduce your shipping costs to make "free" shipping viable.
If you’re shipping B2C, read on – this is important.
According to eCommerceFuel, there’s multiple factors that dictate when and how to offer free shipping if you’re running an ecommerce brand. A recent post on SmallBizTrends claims that “A large majority of consumers (66%) expect free shipping on every purchase they make online. An even larger number (80%) expect free shipping when ordering a certain dollar amount on online products.”
That’s a huge number. If you’re shipping B2C, read on – this is important.
What are some benefits to free shipping?
The benefits of offering free shipping to your customers are numerous and impactful. Recent research shows that most companies (who offer free shipping) experience an immediate boost to online sales, which in turn drives top line revenue and profitability. 93% of consumers will place larger orders when presented with a free shipping offer. Customer loyalty is also improved, as consumers tend to gravitate to and make repeat purchases from shops that offer free shipping.
So, why doesn’t every B2C business offer free shipping?
The answer is different for everyone, and lots of factors need to be taken into consideration when determining if offering free shipping is feasible for your business. One of the crucial factors to consider is your profit margin.
What should I consider before offering free shipping?
Every shipper’s situation is unique, so the list of factors that must be considered will be different depending on your industry, shipping spend, customer base, etc.
A good resource is Justuno’s blog about How to offer free shipping as a small business in 2021. The post claims that “free shipping is the number one incentive for consumers to shop online.”
At a minimum, shippers need to consider their margins, products, qualifying thresholds, and customer demographics.
- Margins – profit margins will need to be maintained. Chances are your margins vary by product, so offering free shipping may or may not make sense across your entire product mix.
- Products – due to DIM weight costs, the size and weight of your products are super important. Large, heavy items are more costly to ship, but a large, light item could be just as costly. Be sure to evaluate your standard packaging sizes when deciding if offering free shipping is right for you.
- Qualifying Thresholds – setting a minimum order amount threshold to qualify for free shipping is a must for most shippers. After determining your average order value, consider placing your minimum free shipping threshold slightly higher. This may entice your customers to increase the size of their order.
- Demographics – shipping a product from one side of the country to the other is expensive! Be sure to consider where the majority of your customers are having their items shipped. Otherwise, you’ll have to eat some costly shipping charges. You can also add regional carriers into the mix.
What are a few ways to offer free shipping?
Shipping rules can differ from one business to another. If you're not currently offering free shipping, there are a number of different ways to do it. Using free shipping as a reward, or to boost another business objective is a great way to test.
- As A Reward: If you're looking to expand your newsletter, grow your social media following or have some other business objective, offering free shipping as a reward for another action taken can help!
- Through A Loyalty Program: Do you have repeat buyers, loyal to your brand? Keep them coming back by offering free shipping for repeat customers.
- Based On Location: If you're able to ship packages at a minimal shipping fee to those within close proximity to your warehouse(s) or headquarters.
- Free For Everyone And All Products: Some businesses offer free shipping - no matter what. You'll just want to make sure you have a clear understanding of how shipping fees may affect your margins.
- For A Limited Time: Is there a time of year when sales are typically slower or you're facing more competition? Free shipping could help drive sales.
- Free Shipping For Some Products OR Spend Thresholds: Did a customer reach a certain spend limit? Or is there a product that's more cost effective to ship?
It's important to note that many of the concepts listed above are more aligned with sales/marketing efforts and not logistics, operations or finance. If you're unsure about how to manage shipping costs, whether you should offer free shipping, use flat rate shipping, or allow your customers to select their own preference, consider creating a free Lojistic account. Lojistic provides comprehensive shipping analytics and shipping reporting to help identify cost saving opportunities.
The internet is flooded with consumer behavior analysis, but it’s really simple: people like free stuff. Your customers want their products delivered fast and free. In recent years, fast shipping and free shipping isn’t just a “nice to have” - it’s the baseline expectation for consumers.
Trying to lower your shipping costs on your own can be a major challenge, especially when UPS, FedEx and other carriers raise their rates and change their pricing structures annually. Carrier pricing is complex and confusing....by design. Over the past decade, UPS and FedEx have increased their shipping rate by 75%. It’s highly unlikely that you’ve increased the cost of your product(s) to match the 2023 UPS and FedEx carrier rate increases.
How can I lower my shipping costs?
There are a few different ways to be able to offer free shipping to your customers. One of the best ways is by renegotiating your carrier shipping contracts. By entering into an agreement for carrier contract negotiation services, you can help preserve your profit margins by minimizing your carrier shipping costs.
You should also audit your shipping invoices for mistakes and service failures. You could be entitled to refunds for invoice errors, duplicate charges, late deliveries and more. At the very least, ensure you're only paying accurate carrier invoices. The parcel audit is always free with Lojistic. After conducting the audit, Lojistic can help to recover the refunds that you're owed, ensuring you reap the full benefits of your shipping cost analysis.
Demo the Audit & Refund Recovery dashboard or create your free Lojistic account today. The Lojistic platform will automatically scan your invoices 24/7.
You can also optimize your Air vs Ground service level usage. The Lojistic platform shows you all the instances you shipped with Air services when Ground services would've guaranteed your packages arrived the same day OR sooner....and at a lower cost.
Before you're able to offer free shipping to your consumers, make sure that you have a deep understanding of the impact shipping costs have on your business. Free shipping can help increase sales, profitability, and customer loyalty - but you need to know your shipping profile first.
Lojistic's free cost savings automation and analytics platform will identify and quantify your opportunity to reduce shipping costs. It will also better help you understand how and when to offer free shipping. But if you need additional support, our team is always happy to help.
Use Lojistic to control and reduce your shipping costs - then use the savings found by the platform to offer your customers free shipping!
Sign up free today. Send costs packing.
Sources:
https://baymard.com/lists/cart-abandonment-rate
https://www.ecommercefuel.com/shipping-increase-sales/
https://smallbiztrends.com/2021/06/consumers-expecting-free-shipping.html
https://www.invespcro.com/blog/free-shipping/
http://www.justuno.com/blog/quick-guide-to-offering-free-shipping-as-a-small-business/
Author
Bryan Van Suchtelen
Bryan Van Suchtelen
Corporate Director of Parcel Rate Services
Prior to joining Lojistic in 2015, Bryan enjoyed a 26-year career with UPS where his roles included Pricing, Field Sales and Director-level Sales Management of some of UPS’s largest customers.
At Lojistic, Bryan leverages his wealth of experience/expertise to identify and execute supply chain cost management solutions for parcel shippers of all sizes. Bryan has helped his customers reduce their shipping spend by tens of millions of dollars.