How to Offer Free Shipping Without Losing Money
As one of the most competitive industries today, retail e-commerce businesses are coming up with all sorts of gimmicks to edge out the competition. It is imperative for businesses to know what customers value, and perks like free shipping is one of them. There are obvious benefits to making this offer, but how do you make sure that you are not losing profits as a result? This guide will show you how to offer free shipping without losing money.
How to Offer Free Shipping And Stay Profitable
Offering free shipping boosts the amount of online orders you get. The more conversions you get, the higher your profit margin. When not executed properly, this strategy could also backfire. Make sure you have a good plan in place to ensure that you can exploit the benefits of this marketing strategy.
Here are creative ways you can implement the free shipping policy and still make money:
1. Free Shipping to First-Time Customers
This is one of the best strategies you can implement if your profit margin is too slim to implement free shipping on all orders. It’s a great way to target new customers and incentivize them to choose to purchase from your website. You can set it up by providing new customers that register to your shop with a free shipping coupon.
2. Offer Free Shipping for a Limited Time
The benefits of offering free shipping to customers with this strategy are two-fold. First, you can create a sense of urgency as your customers will want to complete their orders within the period of the free shipping offer. Second, it is a great way to encourage more sales for your shop in a short amount of time.
3. Set a Minimum Order Value
You can offer free shipping throughout your website as long as your customers can meet the minimum order value threshold. For example, your customers can get free shipping on orders valued at $100 or above.
4. Free Shipping on Specific Times
There are some e-commerce businesses that offer free shipping on selected items on the website. Some of these items are those with a high profit margin, so you can still make money even with the free shipping offer. For example, if you are a beauty retailer, you can choose to offer free shipping on specific brands you stock or product categories (such as skincare products only).
5. Free Shipping on Certain Holidays
There are certain holidays in a year when most e-commerce businesses experience a spike in conversion due to the increased online shopping activity among consumers. You can take advantage of this trend and encourage your customers to make a purchase by giving them free shipping. For instance, you can offer free shipping on Thanksgiving weekend, Labor Day weekend, or Boxing Day.
To properly implement this offer, you need to also study the shopping behavior of your customers so you know when you can capitalize on increased conversions.
6. Free Shipping on X Amount of Items
Another clever way to get your customers to increase their order value and enjoy free shipping privileges (if you think that setting a minimum amount threshold can be intimidating to shoppers) is when they purchase a certain amount of items. This is one of the oldest tricks on how to offer free shipping without losing money.
For example, your customers can get free shipping when they order 2+ items from your website. This encourages your customers to add more items to their cart to become eligible for free shipping. The more items they add, the more sales you make.
Do You Really Have to Offer Free Shipping?
The short answer is: yes. This strategy is based on 3 consumer psychology statistics that demonstrate how a ‘free shipping’ policy can give your business a competitive advantage. Based on this report:
- Consumers expect e-commerce businesses to offer unconditional free shipping (meaning, there is no minimum purchase amount required).
- Orders that are purchased with a free shipping policy increase in value by 30%.
- About 47% of online shoppers are willing to abandon their cart if they do not get free shipping on their orders.
There are also several studies that show that high shipping fees and other handling costs are the biggest reasons for shopping cart abandonment. This can be a challenge, especially for small businesses that cannot compete with big retailers online.
For those businesses that do choose to implement free shipping, it often comes with big rewards. Why do conversion rates improve with a free shipping policy?
First off, consumers hate surprises. They want to be able to know upfront the costs of their shopping experience and many often end up devastated once the shipping costs are added to the total order value. This added burden on their part can result in a disappointing shopping experience.
Another reason why this strategy makes sense is with the help of the word ‘free.’ It gives consumers the illusion that they are getting a better deal out of the transaction. Some are even willing to spend more to meet the minimum threshold to qualify for free shipping.
And finally, a 2016 study by Walker Sands indicates that consumers are now choosing where to shop based on which store can offer free shipping.
How to Offer Free Shipping Without Losing Money: Other Considerations
Free shipping offers are not for all e-commerce businesses. Some might be able to afford it, while others can’t. When deciding if this is a good strategy to implement for your business, you need to look at a few variables.
First, you need to consider your profit margin. You need to look into the margins per product as this can play a role in devising a free shipping policy that will increase sales and profits. Aside from the value of the products, you also need to look at the size and weight. Some products cost more to ship, so you need to assess if they are worth including as part of your free shipping offer or if you should charge a flat rate to your customers.
The location is another critical component of your success with this offer. If you have international customers, you may choose to limit the free shipping offer to domestic customers only. This will help your business keep a close tab on your shipping costs so you won’t go broke trying to please your customers.
Regardless of which method you implement, it is always a good idea to test. Track the performance of each free shipping offer so you can determine which ones help generate increased profits. Set the parameters for these tests to make it easier to do a thorough comparison.