Free shipping is an important decision to make for your e-commerce logistics strategy. Customers are becoming more accustomed to not paying for their delivery, and free shipping can be a key incentive for a customer to choose one e-store over another.
However, offering free delivery isn’t as easy as just putting it on your website. It’s true that there are a lot of positives for you and your customers. But free shipping is something that must be carefully calculated to assess whether it’s practical and feasible for your business.
In this guide, you’ll learn everything you need to know about free shipping. What will it mean for your business, including the costs, your customer’s behaviour and whether it will really bring the growth you want to see.
The Complete Guide To Free Shipping:
- 5 Pros of Free Shipping
- 4 Cons of Free Shipping
- Things To Consider
- How To Offer Unconditional Free Shipping
- How To Offer Conditional Free Shipping
1: Customers Love Free Things
Customers love getting something for free and they prefer free delivery to any other discount. It is even becoming an expectation for shoppers online. Customers are much more likely to shop with companies that offer free delivery and they will continually return for more.
2: Increased Basket Size
Free shipping can help increase the size of an order and this helps increase the revenue rate per order. This is particularly true if you demand a minimum spend for your customers to get free delivery. Customers will add more items to their basket to qualify, increasing your Average Order Value (AOV) by up to 30%.
3: Competitive Advantage (even against the Highstreet)
Offering free shipping can help you compete with other e-stores in your industry. It is one of the most powerful drivers to complete a sale. Customers are more likely to choose to buy from an e-store that offers free delivery over others that don’t.
Top Tip: Use your store’s Meta description to your advantage! Make sure to mention you offer free delivery so your store can stand out in the Search Results and entice more traffic.
Free shipping can also help drive customers online rather than heading down the Highstreet. It offers the same zero commitment or consequences experience that a physical store offers. This is especially true if paired with free returns as you can recreate the “try before you buy” experience that Highstreet shopping allows.
4: Reduce Cart Abandonment
All costs for the customer are displayed upfront before the checkout with free shipping. One key reason why shoppers abandon their cart is they don’t see the cost of shipping until the checkout. This increases the customer’s checkout cost and plants doubt into their mind, giving them a reason to reconsider.
Free shipping simplifies the process with costs becoming upfront. It allows customers to easily compare prices, reducing the work they have to do to make the order. Customers will have already placed the item(s) in their basket and so they are aware of the cost of everything they have selected. Free delivery gives them no excuse not to continue with their order once in the checkout.
5: Repeat order rate
Customers remember stores where they didn’t have to pay for delivery. This increases the possibility that they will return to your site when they want to order something new.
As mentioned, customers favour free shipping over any other form of discount. It is likely customers will choose stores that offer free delivery over others, especially because it is now so common that many customers will only shop from stores that offer it.
1: Increased prices and increased costs
Unfortunately, someone has to pay for shipping. If you offer free delivery to your customer, that cost needs to come from somewhere. Usually, this money comes from one of two strategies: increasing product prices or the profit margins.
2: Increased return orders and return costs
Returns can prove a further threat. If a customer requests a return for a product they purchased with free shipping, you cannot refuse to refund the delivery costs. You must refund the entire amount of the order (the product’s price) and you will lose the money you paid for the delivery. If you charge the customer, you can refund the cost of the product but you don’t need to refund the shipping fee.
You may even risk losing more on return shipments. If you offer free delivery, it’s likely consumers will expect free returns as well. This means you will lose on logistics costs.
Offering free shipping and free returns allows for a “no risk” scenario, which is great for increasing your conversion rate. However, this can cause customers to convert when they’re not in the right stage in the purchase funnel. These customers are less likely to keep the product. The “no risk” scenario allows them to buy the product and easily return it.
If you’re in an industry with high returns rate and frequent “impulse buyers”, you risk increasing your return rate. Introducing free shipping could then prove very costly.
3: Changed customer behaviour
Free shipping is a strong incentive to increase orders. However, it can also change how your customers behave on your site.
If you offer free shipping intermittently, customers will become used to waiting for these promotions. They won’t order until you offer free shipping. This could cause big dips in sales when you’re not running these promotions.
As mentioned with returns, customers could become more careless with their shopping. Customers can order without having to consider bulk buying products to pay for just one delivery cost. Nothing will stop them from purchasing one product one week, and then placing a separate order the week after. The cost for them will be no different than if they were to buy the products at the same time. However, this is two shipments, meaning twice as much shipping costs for the retailer.
4: Bad for the environment
As mentioned, free delivery can increase orders as well as order frequency. Despite the benefit for your business, an increase in orders is bad for the environment. Each order delivered will need resources (packaging, fuel, etc).
Consider whether this is in line with your ethics (and your brand’s) and whether it is important to your customers.
If you’re a business that champions being environmentally friendly, careless shipping could damage the brand’s image. If you choose to avoid free shipping, state your choice of delivery method and why your company chose it. Explain the reasons for its costs to the consumer.
Before offering free shipping, you need to consider the following things:
Step 1: Assess Your Funding
As mentioned, free shipping can increase your costs in many ways. If you’re lucky, an increase in orders will mean you’ll have enough to cover the difference. But it’s imperative to consider what capital you have available.
Take into consideration the other negatives from the list above (increased returns, increased order frequency, and return costs) that could impact your funds.
Don’t forget that there could even be operational costs from offering free delivery. You may need development support for your site or more marketing budget to help promote the offer. Don’t forget to factor these in too.
Step 2: Complete A Competitor Analysis
Of course, offering free shipping can depend a lot on the industry you operate in. Make sure to determine whether your competitors are offering free delivery. If they are, note that if you choose not to, you could risk falling behind. Customers check several stores before ordering and often show a preference for free shipping.
If your competitors don’t offer free shipping, it could give you a very attractive advantage and help you grow a loyal customer base.
It’s essential not to act impulsively when it comes to e-commerce logistics strategies. As mentioned, there are many possible negatives to offering free shipping. Make sure to consider everything before deciding to offer free shipping, no matter what your competitors are doing.
Step 3: Consider Your Brand & Audience
Make sure to consider your brand, your products, and the customers you are selling to. If your focus is to create a premium, high-end brand that provides top of the market goods, then free delivery might not fit with this.
However, if your focus is on “cheap and cheerful” everyday products like fashion, books, or similar, free delivery might be a good fit. These customers are more likely to be price sensitive. Free delivery can be a competitive advantage or even the industry standard.
Step 4: Decide What Type of Free Shipping You Will Offer
There are two types of free shipping you can offer: conditional or unconditional.
Conditional free shipping sets conditions for your customers to be eligible.
Unconditional free shipping means the customer can receive free delivery on every order. The products or order value does not matter.
Unfortunately, there’s no magic solution to offering unconditional free shipping. Someone has to pay the costs. This is possible by either raising product prices sitewide to factor in the logistics costs, or for the retailer to absorb the cost from their margins.
Increasing the product prices will ensure your profit margins aren’t damaged. But if you do this, you may risk struggling to compete with your competitors price-wise.
The alternative is to use profit margins to cover the cost of the shipping. However, if you offer free delivery without factoring the shipping cost into every single product, you could face huge shipping costs that – depending on what you sell – could completely wipe out your profit, even causing you a loss.
This is a decision you as a retailer will need to make. Access all the aspects mentioned in this article (profit margins, competition, brand image, cost of logistic services, etc) to judge whether you can offer free shipping unconditionally.
Of course, the more you ship, the cheaper your shipping will cost. As larger companies ship more packages, the cost of delivery is cheaper for them. This gives them the advantage to offer free delivery to their customers, making it harder for smaller businesses to compete.
For most companies, it might not be possible to offer unconditional free shipping. And it’s not necessarily a positive for your business to offer it full time. This is especially true if you don’t have high-profit margins or the products you sell are costly to ship.
Here are 5 common ways to help you set some limits:
1: Set A Minimum Order Amount Threshold
Probably the most common solution, set a minimum spend threshold for your customer to receive free shipping. This is a simple way to avoid losing money on smaller transactions. For example, if your customers order 60 euros worth of products, they don’t have to pay for delivery. If they don’t reach 60 euros, then they will have to pay for shipping.
As mentioned, customers are willing to pay more if it means they can get free delivery. They see the advantage of getting another product overspending that money on delivery, which they don’t get anything solid in return.
If you choose this strategy, note that some customers may spend more with the intent to return some items just so they can get free delivery, especially if you also offer free returns.
Top Tip: How Do I Calculate A Minimum Spend Threshold?
For this strategy to be cost-effective, you must ensure the minimum amount is greater than what a customer would usually spend. This helps offset the logistics costs of free shipping.
But if you make the threshold too high, customers will most likely not spend more money.
Therefore, to find the right value, increase your Average Order Value (AOV) by around 30%. Make sure to round up for a more standard value (e.g. 54 euros would become 60 euros).
2: Offer Free Shipping As A Promotion
Offering a limited-time promotion for free delivery can help turn window shoppers into paying customers. It provides a quick increase in sales, with existing customers coming returning to take advantage of the free shipping.
To make this promotion work, both new visitors and existing customers need to be aware of the promotion. Target past customers with email marketing to increase their incentives to return to your store and place an order. Ensure you advertise with social media and website banners to get the word out to new visitors. They need to be aware of the limited timeframe to get free shipping to be encouraged to place an order.
3: Offer Free Shipping On Certain Products
Offer free shipping on items that don’t cost a lot to ship but have enough profit margin to ensure the delivery costs can be factored in.
If you choose this option, communicate the promotion for the products you offer free shipping for, and clearly state the shipping costs for the products you don’t.
Customers will likely abandon their cart if they’re surprised with a sudden shipping cost. Clearly state on the product pages for items that shipping is NOT free why the customer has to pay for shipping. For example, if the product is heavy or an awkward size.
4: Loyalty Programs and Subscription Services
Some retailers choose to offer free shipping (and other benefits) as a promotion to their loyal customers. This incentivises them to keep returning to buy from the store. This is a clever strategy if you want to maximise longer-term gains of free delivery and increase the lifetime value of your customers.
Subscription services are also rising in popularity. This option is also most likely only relevant for your most loyal customers. Offer a fixed yearly subscription fee for your customers to receive “free” delivery all year on all their orders. You may recognise this concept from the famous Amazon Prime.
A subscription service is again a great incentive to maximise the value of your existing customers. It will raise their incentive to keep returning to your store over others as they’ve already “paid” for their delivery.
Many prominent retailers are choosing to offer this service: ASOS and Missguided
5: Offer Economy Shipping For Free
If you’re still set on offering free delivery as often as possible, you can choose to offer an economic option. This will ensure you limit the loss of money on the logistics costs.
Most carriers will have a slower, low-cost shipping option which is much cheaper. You’ll spend less when shipping orders with free delivery. Customers who want to ensure their shipping doesn’t cost anything but don’t care about an urgent delivery will be happy to choose this option. However, they’ll still be many customers who will happily choose to pay for faster service. And you can use automated shipping rules to apply the shipping method instantly when you process orders, saving your team time and resources.
Sendcloud can help you offer multiple services (from multiple carriers) in your checkout for your customers to easily choose from. The orders will then be automatically pushed through to the Sendcloud environment, making it quick and easy for you to process orders, print labels and get the package shipped to your customers.
Have you decided to offer free shipping to your customers? Let us know your strategies below? And don’t forget to check out how Sendcloud can help your shipping process become more efficient.