If your business has an e-commerce store, then you’ve thought about free shipping. Sometimes it may seem like every other online site in the world is offering a free shipping deal. It’s a common tactic because it’s very, very effective: Buyers love free shipping, even when they have to pay more elsewhere to get it.
Think about this: A Walker Sands study from the mid-2010s showed that 90% of consumers saw free shipping as the top incentive to shop online more frequently. A FuturePay study has shown that around 86% of online consumers have admitted that they abandoned a shopping cart because of the price of shipping. And more than 90% of online shoppers in a Shippo Survey say that they’ve added extra items to their carts in order to qualify for free shipping.
Obviously, free shipping is a huge draw for consumers, which is why it’s a common online marketing tactic that is frequently used. If your growing e-commerce business is struggling to find a way to offer free shipping, you aren’t alone. Shipping costs can be expensive, and if your margins are tight you may not see a way to offer free shipping.
Fortunately, there are two bits of good news. First, a fulfillment center like Sherpack can work with your business to make your goal of free shipping a reality by discussing potential options. Second, there are a number of effective strategies that allow growing businesses to offer at least some free shipping options at their e-commerce store. To help, let’s take a closer look at these strategies and when they are effective.
Calculate A Profitable Free Shipping Threshold
This is one of the most popular options for businesses that are trying to offer free shipping, but also really need to stay profitable. The business sets a specific purchase amount to qualify for free shipping, the threshold that customers need to reach. Once a customer has added enough items to their cart (or chosen a single, expensive item) for the overall price to reach this threshold, shipping is free. While some companies may keep this process invisible, it’s generally a better idea to state outright the threshold that buyers need to reach.
The question is, how do you get a shopping cart threshold that will encourage enough customers to buy more than they would have otherwise, without being too expensive to turn customers away entirely? A common tactic is to look at your AOV (average order value), increase this number by 30%, and then round that up to a nice even number like $50 or $100.
For many businesses, this gives a free shipping threshold that’s not too onerous on their profit margins, but not too high to dissuade customers. You can play around with this too, adding 20% or 40% to your AOV to see what the numbers look like – the right answer will probably depend on the type of products you are shipping.
Keep in mind that customers are also an important factor in using your AOV to create the threshold. Customers can behave quite differently in different industries. Some types of products are easy to buy in bulk, store, or add a couple of tidbits onto from store extras. Other industries have a lot less flexibility in what or how they can sell. Some customer groups may add new products just to get free shipping and then return the extra products so the company loses money, while in other circles this behavior is largely unheard. In other words, study your customers first!
Directly Increase Product Prices
Another potential strategy is to cover the price of free shipping by simply increasing your product prices by a proportional amount. This also depends greatly on the circumstances in your industry.
If prices are very “sticky” then you may not have enough room to manipulate pricing to include shipping costs (this isn’t as common in e-commerce industries but can still be a concern). If your market is very competitive, then you may not be able to raise prices without losing customers and looking worse than your competitors.
However, if you have a little pricing flexibility and raise product prices overall by, say 10 to 15% will cover all your free shipping offers, then this can be an effective option.
Increase Customer Lifetime Value (LTV)
This strategy is a bit riskier, and better suited for experienced companies that understand their customer data very well. Essentially, you offer free shipping without changing prices or creating thresholds at all, but you incorporate a strategy to retain customers and increase their LTV so that overall they spend more money with you than they would.
This typically calls for robust customer management, loyalty programs, brilliant account management, and a deep understanding of how your customers make purchases throughout their (sometimes literal) lifetimes. It tends to work better in industries where there isn’t much current free shipping and it can be a real boon to customers, easily increasing retention.
Focus on Bundling Products
This option works well in combination with a threshold value like we discussed above. Essentially, you help customers reach this threshold and increase your overall AOV. If you make bundling a key part of your product offerings, then you don’t need to focus as much on the specific threshold amount, but rather focus on a “bundles get free shipping” message that’s easier for many customers to understand. Again, not all product types are easy to bundle, but it’s certainly an option for some stores.
Offer a Limited Free Shipping Deal
Finally, keep in mind that you don’t have to jump all the way into free shipping and hope for the best bottom line. There are many ways to experiment and practice with free shipping options first to find out how your customer base will respond. One of the easiest strategies is to create a free shipping deal for a holiday weekend, a certain product type, or a particular location and see how it plays out. This can give you information to make better free shipping decisions afterward.
And always remember that Sherpack is happy to discuss your shipping goals, what sort of shipping deals your company can get, and what specific types of shipping will work best in your situation!