Whether you’re dropshipping or fulfilling orders by yourself, there's one thing you can know for sure — online shoppers hate paying for shipping. They hate it so much, in fact, that 86% of them would rather abandon their shopping carts than have to pay five bucks for shipping fees. It surely is uncomfortable to know this as an online retailer. On the one hand, nothing in this world – including shipping – is free of charge, and on the other, customers unapologetically expect it to be.
And frankly, how could they not? Amazon’s ever-increasing domination over the online retail market shifted the customer’s perspective and set completely new standards. Free two-day shipping is now the new default, and small online retailers can’t escape this reality.
Naturally, the question arises: if shipping isn’t really free (in fact, shipping carriers have been gradually increasing their rates over time), how can you offer free shipping to your customers?
Before we start explaining the several tactics at your disposal, let’s first explore why you should consider offering free shipping, as well as some of the benefits and drawbacks of doing it.
How to Offer Free Shipping: The Power of “Free”
First off, how do you know if offering free shipping to your customers is the right thing for your business? If you’re a small online retailer selling inexpensive low-margin items, offering unconditional free shipping can quickly consume all of your profits. So what do you do? As with anything, you A/B test and experiment; you try different shipping methods and free shipping tactics, maybe try bundling your products to increase your average order value (AOV) or use more efficient packaging. The “free shipping on all orders over set amount” approach is also an alternative you should consider. Whatever you do, however, never underestimate “the power of free.”
✨ “Free” is the most powerful and enticing marketing word in any retail business. Offering your customers something for free influences their purchasing behavior on a deeply psychological level. When Amazon rolled out their free shipping plan in Europe, the number of orders skyrocketed everywhere but in France. Instead of free shipping, Amazon.fr mistakenly set the shipping fee to ~10 cents — just enough to completely stall the expected jump in sales. Imagine losing countless of $20-$200 orders over a 10 cent shipping fee? Absurd, right? However, it really shouldn’t come as a surprise; we’ve known for quite a while now that individuals are very irrational with how they spend their money, and it’s clear as day that “free shipping” is seen as disproportionately more valuable than “shipping only 10 cents.”
👉In case you haven’t made up your mind yet, take a look at the stats:
- for 88% of online shoppers free shipping is the top incentive to drive more purchases,
- 86% of online shoppers stated that the cost of shipping is their prime reason for cart abandonment, and
- 58% of shoppers said that they would add more items to their cart in order to qualify for free shipping.
Customers see it as “unreasonable” to endure an extra fee for something as essential and necessary as shipping, even though they may subconsciously understand that one way or the other, they’re still the ones paying for it.
How to Offer Free Shipping: Determining Your Shipping Policy
💡 Not all free shipping policies are created equal. Every online retail business is different, and before you advertise your generous “free shipping policy” to your customers, you first need to determine the right shipping strategy for your business model.
Ultimately, there are two types of free shipping you can offer: (i) unconditional – your free shipping policy applies to every item in your online store regardless of its value; and (ii) conditional – your customers need to meet certain conditions (such as minimum order value, give their contact info, live in a particular city or country or purchase select items) in order to qualify for your free shipping policy.
Choosing one over the other depends on several key factors: the specific purchasing behavior of your target audience, your profit margins, the total shipping costs of your products, the locations you ship to, your competitor’s offers and so on. Since you best know your business, choosing the right strategy is entirely up to you.
How to Offer Free Shipping: Unconditional Free Shipping
👉 There are many advantages to offering unconditional free shipping on all of your products, among which:
- The customer doesn’t have to do the thinking — “free shipping on all purchases” is as simple as can be;
- It makes you competitive and boosts your store’s SEO rankings;
- It keeps the customer happy and coming back for more;
- It reduces customer complaints and frees up valuable time you’d otherwise spend on customer service.
However, if you offer free shipping to your customers, you’ll need to absorb the shipping costs one way or another. In a grossly oversimplified manner this means that, instead of selling a $25 pair of sunglasses and charging a $5 shipping fee, you should sell the same pair of sunglasses for $30 and offer “free shipping.” This tactic serves a double purpose; on the one hand, you get all of the aforementioned benefits of offering something of value for “free” to your customers, and on the other, the increased price of the sunglasses now gives them a higher perceived value.
Now, this may sound simple but unless you’re selling expensive, high-ticket items, offering unconditional free shipping may not be the most profitable option for you. If your average order value is low, you may easily find yourself in a situation where the cost of shipping alone is higher than the price of the items you’re trying to sell. In order to mitigate this effect, you need to innovate and maximize your shipping efficiency.
👉Here are a few tips on actions you can take to maximize efficiency and keep the shipping costs to a bare minimum:
- Before you start thinking outside the box, you first need to think about the box. Aside from the delivery distance, the weight and the dimensions of your packaging are the most significant factors in the cost of shipping. Instead of obsessing about currier’s shipping rates over which you barely have any influence, you should hone in on the weight and dimensions of your packaging. Take a look at USPS, for example; they split their parcel sizes into two broad categories: (i) general commercial parcels which are at least 3 inches high x 6 inches long x 1/4 inch thick, and (ii) machinable parcels which are no more than 27 inches long x 17 inches width x 17 inches high and weigh less than 25 lbs. If you prepare your boxes so that they can be processed on postal service equipment, your parcel is considered “machinable.” Machinable parcels are easier to handle and deliver, so they are less expensive to mail.
Now, when you pick the right carrier and the right package size, you want to take this to the next level. Think about your average box size (ABS); take a hard look at your store’s data and determine your ABS. Once you know your ABS, deduct that from the flat rate carrier boxes to determine how much empty space is left in the box. Now that you know how much space you have to work with, think about how you can structure incentives that convince customers to add more of the right products to that box. This way you'll increase your average order value for the same flat shipping rate.
- Next up, you need to start thinking about the actual packaging material itself. What's best for your type of product? If it's breakable, use packing peanuts. Or even better, use bubble wrap – it's cheap, it's lightweight and, let's be real for a second here, everyone loves popping bubble wrap! Need something to fill the leftover space? Use packaged air, crinkle cut paper, kraft paper, tissue paper or plain old newspaper.
- After determining your average box size, you want to find the right carrier for your needs, compare rates, negotiate rates and take advantage of free supplies. How big are your packages? Will you ship locally or globally? What’s the right balance of speed vs. the cost of shipping for your business? Once you’ve answered these questions, start your research and, preferably, start with the biggest and most popular carriers: USPS, FedEx, UPS, and DHL. All of them have their pros and cons; DHL, for example, is excellent for cost-effective international delivery, while smaller regional carriers like Lasership or OnTrack might be a better option if you’re looking to ship locally. If your items are large and heavy, you should look into what FedEx and UPS have to offer. Once you’ve done your homework, pick two of the best candidates for your needs, compare their rates and try to bid them against each other. Carriers already know that you can easily take your business elsewhere, and if you’re already doing decent volume and have the numbers to show for it, you can easily negotiate better shipping. Lastly, don’t forget to double-check for any hidden fees and always take advantage of free perks and supplies. The big carriers are happy to provide you with free shipping boxes, envelopes, and other packaging material. This can have a great impact on your bottom line so make sure you leverage this opportunity accordingly.
- Automation and delegation are the keys to any successful business. Without proper automation and delegation, you can't expect to scale your business effectively. Basically, you want to try and outsource almost anything of secondary importance and anything out of your area of expertise. Is shipping something you should outsource? In most cases, yes. There are two main disadvantages of outsourcing the shipping process: first, you’re giving up control over the process, and second, it will most likely cost you more than fulfilling orders by yourself. The advantages? First, working with 3PL’s gives you access to their network of fulfillment centers which are often scattered all over the world, which means your customers will get their items much faster (often within 2 business days.) Second, and perhaps even more important — you free up so much valuable time to work on what should be your primary concerns – refining, promoting and scaling your business. At a certain point in the growth of your company, time will become vastly more valuable to you than the few more cents per delivery you'll spend using 3PLs.
How to Offer Free Shipping Conditionally
Despite its many benefits, unconditional free shipping isn’t the most suitable shipping model for everyone. If you’re selling heavy or bulky items, absorbing the very high costs of shipping might not be the best idea ever. Conversely, if you specialize in small, low-margin goods and aim for high volume, offering free shipping – even at very low costs per item – might put you in the red. For this reason, sometimes it’s best to set limits on your shipping and use different tactics to maintain or even increase your profitability while keeping your customers happy and returning!
- Set a minimum order amount – This semi-free shipping strategy has an incredible power to increase your average order value. If you couple this with an optimized packaging (maximizing the potential around your average box size) your profits will go through the roof! If you think that the “minimum order amount” free shipping strategy is best for your business, but you’re not exactly sure how to calculate the minimum order threshold, as a rule of thumb you should start with your average order value. If your average customer spends $50 per order, then maybe you should try putting the minimum free shipping threshold to $65 and use upsell apps to push $15 to $25 items that can ideally fit in the same shipping box. According to different surveys, around 24% to 45% of customers report that they’re willing to add another item and spend more money in order to qualify for free shipping. That being said, it’s very important to remain realistic when setting the minimum order threshold; after all, the whole idea of this approach is not just to sell more, but to increase the profit margin on your average order. Lastly, consider A/B testing different thresholds ($65 vs $70 vs $75) to better inform your decisions.
- Free shipping as a promotion – There are two ways you can go about doing this. For one, you can offer free shipping to customers that are willing to give you their email address for marketing purposes, and two, you can create a model that offers free shipping to members (membership model) or to returning loyal customers. By doing this you’re essentially leveraging free shipping to get something from your customers in return. Absorbing the shipping costs in order to gain the ability to send marketing promotions, email upsells and sales funnels, or in the second case, to incentivize customers to come back and become regular shoppers oftentimes proves the be a winning strategy for small online retailers.
- Offer free shipping only on select items – Another option to consider is to apply free shipping only to high margin items with low shipping costs. If you can’t offer unconditional free shipping, then try offering it only on items that can easily absorb the costs and still remain profitable.
- Let your customers choose between fast or free economy shipping – Different customers have different preferences; some are willing to wait 1-3 weeks for their product to arrive and save some money, while others don’t really care much about a five or ten dollar shipping fee and want to receive their item as soon as possible. Give your customers a chance to choose between slow but free shipping (you absorb the costs) or to pay for fast two-day shipping.
How to Offer Free Shipping: Best Ways to Communicate Free Shipping to Your Customers
Let’s be real here – you’re not doing this because you enjoy it. Nobody loves paying for shipping, especially not small online retailers. You’re doing this because it will get you more customers and it will bump your average order value at the same (or higher) profit margins. But this won't just come out of the blue. You need to perfect your marketing strategy and milk the “free shipping policy” for all its worth.
Display your free shipping policy in a way that ensures maximum visibility. Customers need to know that there are no hidden shipping fees at checkout as soon as they visit your site. If you’re shipping internationally or you offer premium two-day shipping – make it known! Put your shipping policy on your landing page, in your header, your footer, next to the shopping cart on your product pages, in your email promotions, everywhere!
Lastly, optimizing your shipping operation shouldn’t be that difficult. You should definitely be professional about it, but at the same time, try not to overcomplicate things. Free shipping is a powerful marketing tool that’s been proven to boost conversion rates, decrease cart abandonment and increase customer satisfaction. Just keep testing different approaches extensively, and sooner or later, you’ll find what works best for your business and for your customers!
illustrations by Ouch.pics