Free Shipping: The Benefits and Costs

In today’s eCommerce arena, discounted or free shipping from online stores is not only sought after by customers, it is expected. eCommerce retail is a growing industry, primarily because of the advantages in convenience, variety, and price. Shipping costs are a major consideration to consumers shopping online, because price-hunting online only makes sense if prices are lower than they are at your local store. Not forcing consumers to pay for shipping provides an important value differentiator that is helping customers shift from traditional brick and mortar to online retail.

There are a few different ways online retailers traditionally utilize a free-shipping model. Some will offer coupons for discounted shipping on holidays or promotions. Others require customers to pay for a monthly membership to qualify for free shipping. However, the most common method of offering it is via a minimum order, where customers must spend a certain amount to qualify. Surveys have shown that most online retailers offer at least some form of discounted or free shipping. Around 80% of major businesses offer some form of free shipping during the holiday season. But it is not as easy as simply choosing a price level, posting it up on the website, and watching your sales jump. After all, what’s free for the customer is expensive for you.

There is no doubt that offering free shipping is an incredible incentive to customers, and that is increases sales dramatically. The question is, does it increase them enough to be worth it? Shipping costs typically make up 5% or more of the total cost, a significant dent in profits. Depending on the type and weight of product being shipped, the value of offering free shipping can be prohibitive, and some retailers have actually lost money through such promotions. Still, over 46.5% of small to mid-sized businesses say that offering free shipping increases their profits. The key to correctly utilizing this kind of promotion is to find the sweet spot between costs and increased sales. This model is not for everyone, for some retailers, due to the type and weight of items they sell, offering free shipping will never be profitable. For those that it is however, done properly, offering free shipping can boost sales, profits, and customer satisfaction.

How can you make offering free shipping more profitable for your business?  The best way is to increase your profit per item shipped, and the simplest way to do that is by reducing shipping costs. Larger companies with multiple warehouses and large volumes of orders already receive large shipping discounts. Bulk orders of shipping materials, special rates from courier companies, and quick delivery times all help reduce shipping costs to their lowest possible levels. Most mid-sized businesses cannot compete with large corporations through in-house shipping. However, they do have another option: outsourcing their order fulfillment. Through a fulfillment provider, mid-sized businesses can gain all the benefits of professional fulfillment without spending the time, money, or effort to obtain that quality. Outsourcing fulfillment is not for everyone, and depending on the type and volume of merchandise you sell, it might be more cost-effective to fulfill your own orders. For most mid-sized businesses however, shipping choosing a fulfillment provider that can ship their product from multiple warehouses located strategically around the United States can save you a great deal of money per shipment, allowing you to offset the cost of offering free shipping and letting you grow your sales and profits.

About the Author:
Joe DiSorbo is a successful entrepreneur and business executive with more than 15 years of experience in senior management. Joe founded Webgistix in 2000 in Palo Alto, CA to help eCommerce retailers manage their supply chains more efficiently and strategically. Webgistix’s innovative cloud-based services automate and accelerate order fulfillment. Today, Webgistix has hundreds of customers in dozens of countries on five continents. Webgistix is on track for continued rapid growth.
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