How to Offer Free Shipping and Still be Profitable
In fact, according to a recent survey by Walker Sands Retail, 9 out of 10 shoppers said that free shipping was the number one incentive to shop more online.
Shipping prices on online orders often determine whether or not shoppers will complete their purchases. On the other hand, offering free shipping can take a chunk out of your profit margins if not done right.
Read on to find out several ways you can offer free shipping and still make it profitable
According to Fit Small Business, there are two main ways to offer free shipping:
A. Conditional Free Shipping – Establishes conditions upon which free shipping is offered (i.e. minimum order value, select items, or economy delivery).
B. Unconditional Free Shipping – Every item and every order sitewide receives free shipping.
Factors such as profit margins, shipping costs, competition, and cost of labor will determine which of these methods will work best for your retail business (for information on how you can test and calculate free shipping costs and profits, head on over to Kissmetrics).
Conditional Free Shipping Strategies
1. Assign a minimum order amount
When you offer free shipping based on an order value limit—say, $50—it will help you avoid losing money on smaller transactions. Additionally, it encourages customers to buy more. In fact, as Fit Small Business points out, one study discovered that 48% of shoppers have added items to their shopping carts in order to qualify for free shipping.
John Lawson, an eBay Platinum Powerseller, offers the following guidelines on setting minimum order amounts:
“To set a minimum order amount for your free shipping offer, take your average order amount and set your minimum about 10% to 15% higher. This encourages shoppers to spend a little more to save on shipping. You’ll need to experiment to find the amount that drives more, and higher, sales. Ideally, the amount should be low enough to be perceived as a promotion that attracts new customers, but high enough so you aren’t losing money.”
Source: Fit Small Business
2. Only offer free shipping on select items
In this scenario, you would apply free shipping only to items with a low shipping cost and enough markup to be profitable after shipping fees are calculated. If jewelry and small fashion accessories can be shipped very cheaply, for example, free shipping might be a good idea on these items.
On the other hand, products such as kitchen accessories and handmade soaps are more expensive to send so they probably wouldn’t be good candidates for free shipping.
3. Make free shipping a promotional event
Try offering a limited-time free shipping promotion. Already offer free shipping on orders above a certain amount? In that case, you’d want to lower the threshold or get rid of it altogether.
Essentially, your aim is to motivate prospective buyers and convert window shoppers into paying customers. It’s also important for the success of your promotion to get the word out! That means distributing information on your shipping offer via email marketing and broadcasting it across your social media channels, as well as using other forms of marketing to make sure you reach your intended audience.
4. Take advantage of economy shipping
You’ll find that most carriers offer slow, low-cost shipping options—like USPS Parcel Post—which, for some shipments are cheaper than Priority Mail.
You’ll lose less money on free shipping when you offer a slower, complimentary delivery option. Plus, many customers are happy to pay for faster shipping when given the option.
When Unconditional Free Shipping is a Better Choice
“Conditional free shipping has many benefits, but sometimes unconditional free shipping is the best choice,” says Fit Small Business.
Below you’ll find the top 4 reasons to go with unconditional free shipping:
1. To keep up with the competition
If you’re the only retailer in your market who doesn’t offer free shipping, it’s time to join the party. In order to claim your piece of the market share, it might even be necessary to offer site-wide, unlimited free shipping.
However, to make this work, you’ll need to have robust profit margins and be able to effectively manage and control your fulfillment and shipping costs.
2. You’d like your brand to stand out
If your competitors aren’t offering zero-minimum free shipping, then you can really make your brand stand out by doing so yourself. For example, one of the reasons online shoe-and-apparel retailer, Zappos, gained popularity with online shoppers was because of its generous shipping policies.
Because you’ll absorb all shipping costs with this method, it will work best if you sell goods that have a high retail markup, or, resell high-margin goods such as jewelry.
3. You typically sell easy-to-ship, high-margin items
Small-scale or compact goods that are pricey and ship in small, lightweight boxes (like jewelry, watches, collectibles, fashion accessories, cosmetics, and supplements) translate to low shipping costs and healthy profit margins.
Here’s how eBay Platinum Powerseller, John Lawson explains it:
“If your items cost little to ship but have high profit margins, offering free shipping is a no brainer. For example, take a piece of jewelry that sell for $1,500 with a 50% profit margin. Paying a $5 shipping fee yourself is a small price compared to the promotional benefit of free shipping.”
Source: Fit Small Business
4. You want to alleviate customer service complaints/problems
“It’s amazing how offering free shipping reduces both pre-sale and return-related questions,” says Fit Small Business. Customers don’t seem to mind committing to a purchase when they know they aren’t shelling out money for anything extra.
According to Entrepreneur, Zappos encourages customers to order two sizes of shoes to make sure they end up with one pair that fits. While this would seem to drive up return volumes and cost the company additional shipping, it actually serves to reduce customers’ hesitancy to make a purchase and results in more sales.
“Free shipping is a mainstay of major online stores, and shoppers today expect all e-commerce sellers, large and small, to offer some form of free shipping,” states Fit Small Busines.
If you don’t sell ultra-exclusive, hard-to-find items, or a highly sought-after brand, then you probably have competition in the market. And here’s the thing…the competition most likely offers some form of free shipping.
Fit Small Busines suggests that you examine various ways you can offer free shipping in a sustainable, profitable way. For example, many small sellers marry conditional free shipping with strict shipping cost controls to create a program that works.
For a look at how Zappos offers free shipping while keeping costs manageable, check out this article on Entrepreneur. It offers some ideas you might consider adopting for your small business.
Also published on Medium.