As online consumers, we’ve all seen free shipping offers from our favorite stores and brands. And, while we love these offers as consumers, as business owners it’s hard to imagine being able to offer shipping for free.
Won’t you end up losing money if every order ships for free?
While not every business model makes sense with free shipping offers, there are a lot of creative and sustainable ways to make some sort of free shipping offer work. In order to get it right, however, you have to understand why free shipping offers are so effective and how to calculate your offer so that you actually make more money, rather than hemorrhaging your bottom line.
What Is Free Shipping?
Just mentioning the word “free” triggers something in consumers that makes them more inclined to buy. Because of the power of “free,” free shipping has become commonplace for online stores. Not only does it have the ability to promote sales for customers already looking at products, but free shipping has the potential to be one of the most powerful marketing strategies you have in your entire online business toolkit.
According to research, an overwhelming 90% of all online shoppers say that the number one reason they purchase online is the incentive of free shipping. On the other side of the same coin, nearly the same percentage of online shoppers actually abandon their shopping carts altogether because of perceived high shipping rates and handling fees.
It isn’t hard to see, then, that free shipping is a great way to attract customers — and make sure they actually convert. However, it isn’t always easy to see how free shipping offers work in the long-run. In fact, many businesses avoid even considering a free shipping offer because the idea of it seems completely out of line with the overall goal of their business: making money.
That’s why it’s so important to remember that, in reality, “free shipping” is never “free shipping”. The cost is always absorbed and calculated somewhere so that businesses aren’t just losing money with every purchase. The key to creating an effective free shipping offer for your business is understanding your products and business metrics so that you’re able to generate more conversions while still hitting your revenue goals.
Why Do Stores Offer Free Shipping?
Multiple studies show the numerous benefits of offering free shipping as an online business. Maybe most importantly, free shipping offers give consumers the knowledge they need to shop without worrying what potential shipping and handling fees might be for their order. If the number one reason for abandoned carts is high shipping fees, then completely erasing that issue can have major positive effects on conversion rates. In fact, offering free shipping often incentivizes shoppers to add even more items to their cart if a free shipping threshold is in place.
Here are three other reasons why stores love offering free shipping for their customers.
1. Immediate Boost in Sales
Two-thirds of all businesses that offer free shipping deals see an almost immediate boost in sales. Not only does free shipping trigger customers to actually buy more, but it prevents shopping carts from being abandoned during checkout, too. Of course, these statistics mean that one-third of all businesses struggle to see profits boost by offering free shipping. One reason for this might be that their offer isn’t clearly communicated or that the offer itself needs to be adjusted according to their specific business and products.
Overall, while a fast boost in sales might be tempting enough to try offering free shipping, it’s important to make sure that any offer has the ability to sustain itself in the long run, too.
2. Increased Customer Acquisition
In the long run, one of the biggest potential benefits of offering free shipping is that it can attract more customers. And, when your business gets more customers, it means that it has a higher potential for more repeat customers, which is how almost all successful businesses make the bulk of their money.
3. Competitive Edge
As more and more online retailers embrace free shipping, a lot of online brands are realizing that if they don’t offer some sort of free shipping deal, they may lose their customers to someone else. This competitive edge, however, is only viable if the free shipping offer works, meaning that it boosts sales and doesn’t hurt the business financially.
How Can Stores Afford to Ship for Free?
Stores that manage to create effective free shipping offers understand their business and their products. That means, they’ve done their research and made accurate calculations. The only way stores can afford to ship for free is if they understand the short-term and long-term effects of their offer. Part of learning how to make sure your business can actually afford free shipping is considering these four aspects:
Your actual product will determine a lot about how (and if) you can offer free shipping. If the size and weight of your product is on the higher end of the spectrum, then recognizing your limitations before trying to create a free offer is paramount. The larger and heavier your products are, the more difficult it will be to create free shipping. Thankfully, most businesses get this, which is why similar businesses will not be able to offer free shipping either.
Knowing your profit margins inside and out will give you a good idea about the viability of free shipping. If you sell multiple products on your store, your profit margins will likely vary from product to product, making the calculations for free shipping offers more nuanced.
Understanding who your customers are and, more specifically, where they are located, will help you make sure your free shipping offers make sense. If you ship a lot of orders internationally, then it’s important to be careful that you’re not losing money. For this reason, you’ll see a lot of US based online stores only offer free shipping to the contiguous United States.
When you intelligently create free shipping offers, one of the natural effects is that the average value of each order is increased. Specifically, by setting up certain free shipping thresholds, you can encourage customers to add another product or two to their carts in order to qualify.
Setting Up a Free Shipping Threshold
One of the best ways to make sure free shipping doesn’t become a burden on your business is by setting up a free shipping threshold, which means that customers must qualify for free shipping by having at least a specified total amount in their shopping carts. When businesses use free shipping thresholds, they ensure they won’t be losing money on orders while also benefiting from increased conversion rates and average order value.
Knowing what the right free shipping threshold for your brand requires you to look at several different aspects of your business model. But, as a general rule of thumb, you’ll want to have a free shipping threshold that is modeled after the average amount each of your customer typically spends in your store. Getting this number just right is incredibly important in making free shipping work; if it’s too high, you’ll lose the benefit of persuading customers to add another item to their cart to qualify (and perhaps their business altogether); if it’s too low, then you’ll be losing more money than you’re making.
To help accurately set your free shipping threshold, you’ll want to study your data. If you’ve been in business for at least a few months, you’ll be able to look at customer and purchasing trends so that you can better understand what your customers buy, how much they spend, and where they live. By taking the number of orders you’ve received and the average order value, you can gauge what an appropriate free shipping threshold will be for your online store.
How to Promote Free Shipping to Increase Sales
Making sure your customers understand how your free shipping policies work is essential in creating an effective offer. The more transparent you can be, the better conversion rates you’ll have in the end. Here are three tips for ensuring that your customers are aware of and understand your free shipping offer.
- Use copy and visuals to advertise your free shipping offers. Adding a banner to your homepage that’s bright with a clear call to action will help entice customers to shop your store.
Continue reminding your customers of your free shipping deal. On each product page there should be a reminder of how they can qualify for free shipping. The more you remind your customers of this, the more likely they’ll be to add items to their cart and then follow through at checkout.
- Address your customer’s concerns. Even though free shipping is a great incentive, a lot of customers worry about how they’ll be able to return products — and if they’ll be stuck paying for the shipping. Talking specifically about your return shipping policy will let them know exactly what to expect.
Handling Returns with Free Shipping
Any customer who has shopped online has experienced the potential downside of needing to return an item. In order to address this concern, make sure you have a standard return policy that balances the ability to provide outstanding customer service while still making sense for your business financially. To make sure your return policy works, have a close look at your product margins and your total shipping costs. Knowing how often returns happen with your particular products will also help you better calculate an intelligent return policy.
In general, you have three choices when it comes to creating return policies for your online products:
- Cover the entire cost of shipping on every single return.
- Have the customer cover the cost of shipping back returned items.
- Use a flat rate for returns (or two flat rates if you ship internationally).
The key to making sure free shipping offers work for your business is by, first and foremost, really understanding how your business model works. If you know your margins and costs, you’ll be able to develop a free shipping plan that encourages customers to buy more — and still puts money in the bank. The most important thing, as always, is communicating your policies (for shipping and returns) so that there are no surprises for your customers at checkout or after they’ve received their purchase.