We all want something for free. And let’s be honest, one of the pain points of shopping online is having to pay a shipping fee to get your purchases delivered. For all the convenience that online shopping brings, consumers still balk at the cost of shipping (even when it’s a nominal fee).
According to FedEx: “73% of consumers want to see free shipping in checkout.”
Of course, when you offer free shipping, it means that you’ve got to tack on another added cost. Amazon sellers are aware of this metric, because the only real way to stay competitive with Prime sellers—especially if you are not using Fulfillment by Amazon (FBA)—is to eat it on shipping cost. Factoring Amazon’s 20% take of each sale, the margins are thinned for sellers that offer free shipping.
FYI: Amazon has a free shipping threshold: They offer free shipping on orders of $25 or over for non-Prime buyers. Amazon notes that shipping can take 5-8 business days. When considering adding a free shipping threshold to your online store, the first place you’ll want to start is with the math.
Making the Math Work
Since only you know what your margins are, we’ll just use a simple example to determine whether the math works out in your favor. Let’s say that your most common shipping cost is $7.50 via Priority Mail. Knowing that’s your base cost, let’s say that you offer a free shipping threshold of $50 and over. Lastly, let’s pretend that your average margin on most products is 50%.
The math would read as follows here:
- Consumer orders $51 in purchases to get free shipping
- The base profit margin gives you $26.50
- Shipping cost is $7.50
- Total cost: $34
- Net profit: $16
Now consider that without that free shipping threshold, your cart abandonment rate increases by 63%, and the choice is clear. While eating shipping cost taps your profit margins, it also helps drive more profits altogether. The goal is to encourage a windfall of sales, where the profits end up making more for your business in the long run than would have been generated otherwise without the free shipping threshold in place.
But how many consumers really want free shipping?
A 2016 Marketing Land publication, which cites the Future of Retail study, determines that 90% of consumers say it’s the main reason they shop online.
Most Shoppers Are Fine with Economy Shipping
You don’t have to go all-in when offering a free shipping threshold. According to FedEx, 83% of customers are fine waiting two additional days to receive their items when free shipping is offered. This means that using a cost-effective option like Priority Mail and its speedy delivery will suffice for most shipments, provided your shipped orders meet the requirements of this USPS service.
Older studies by UPS find that as many as 80% of shoppers will abandon the cart if they are not offered free shipping or a free shipping threshold at time of checkout (numbers that remain basically the same today). What’s more, most shoppers are OK waiting as many as eight days to receive their order if they don’t have to pay for shipping.
Another thing to consider is that plenty of shoppers are impatient, and a good amount will pay to upgrade to expedited shipping—thus negating the cost you’d have to absorb from the free shipping threshold.
How Much Does Free Shipping Increase Sales?
The million-dollar question that remains is: How much can sales increase with a free shipping threshold?
These following case factoids will give you a good idea.
- Retailers that offer free shipping get 10% more in sales (Stitch Labs)
- Conversions improve by 50% when offering free shipping (Big Feet)
- Ecommerce orders can improve by as much as 90% with free shipping (Red Door Interactive)
- 48% increase in customer acquisition with a free shipping offer (Monetate)
Most importantly, Business Insider says that 58% of online retailers are already offering some form of free shipping. So, if a shopper doesn’t see a way to get free shipping at your store—you can bet there’s a good chance they will click their mouse a few times over to a store that does.
Shipping Prices & Your Customers
How do shipping prices affect customer buying decisions? We’ll paint the picture for you in this infographic. Feel free to share it with anyone you like, post it to a blog, etc. We don’t mind.
About the Author
Michael Lazar is the Executive Director of Marketing at ReadyCloud, makers of a CRM software solution that works across all your sales channels. As a nationally syndicated author Lazar enjoys covering topics that are related to ecommerce returns. Follow him on LinkedIn.
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