If you are wondering whether you can offer free shipping without losing money, the answer is yes.
Free shipping instills a sense of savings in the customer and minimizes their hesitation at the time of payment. When they see that they can receive the order at no cost, they will not think as much about finalizing the sale. It is a very effective incentive for them to choose your business over your competitors.
However, free shipping is expensive for you.
In this article, we explain the best strategies used in the eCommerce industry to offer free shipping and still make money.
Free shipping really increases your sales
There is a wealth of statistics and studies that support the importance of free shipping. For example, Statista states that 47% of US consumers who abandon a purchase do so because of price. Additionally, we found that 81% of consumers compare shipping rates before making a purchase, and for 82%, free shipping is a deciding factor.
Therefore:
- Reduce friction in the checkout process and cart abandonment rates.Differentiate you from competitors who do not offer free shipping and put you on par with those who do
- Increase average order value (AOV) through strategies such as imposing a minimum order to qualify for free shipping
- Build customer loyalty and retention
The following infographic is from a study carried out by Primary Parcel on the importance of free shipping for eCommerce:
How to offer free shipping and still make money: best strategies
1. Add the shipping cost to the product price
One way to offer free shipping without too much difficulty is to include the shipping costs in the price of the product. The customer will pay the shipping costs indirectly without realizing it.
For the consumer, the psychological impact of free shipping is much greater than a difference of a few euros in the value of the product.
For example, if you normally sell a T-shirt for 20$ and the shipping cost is 5 euros, you could adjust the price of the T-shirt to 25$ and include free shipping.
If you are going to apply this free shipping strategy, you should take into account the prices of your competitors so that the difference is not significant.
2. Set a minimum order value
One of the most common (and effective) strategies for offering free shipping without losing money is to set a minimum order value for free shipping to apply.
This practice has two advantages.
First, you ensure that you only pay for those shipments that are profitable for your business, as the threshold will guarantee that the balance is positive.
On the other hand, customers will be tempted to add more products to the cart to reach the minimum threshold. This way, offering free shipping increases your average order value, and you end up making more money with each transaction.
For example, if a shopper has pens in the basket with a total price of $7, but the minimum value to qualify for free shipping is $10, you can show notebooks with a cost of $5 to reach the threshold and cross-sell.
The minimum price order threshold is discussed in detail in this Digital Hit Men article.
How to calculate the minimum threshold for free shipping
The key to setting a higher minimum value per order is to set a value that is only slightly higher than what customers were already planning to spend. Otherwise, you may drive customers away.
A common practice is to increase the AOV by 30% and then round up. For example, if your average order value is 24$, add an additional 7.2 euros (30%) and then round up: 35$.
3. Free shipping as a loyalty reward
You can offer free shipping as a reward to repeat customers. This will allow you to increase your profits due to increased customer repeat purchases.
For example, stipulate that customers must make at least ten purchases from your shop in a one-year period to qualify for free shipping.
This strategy not only rewards your most loyal customers but can also help you boost your brand and attract new shoppers.
Additionally, by limiting this offer to loyal customers, you are ensuring that the free shipping costs are allocated to those customers who contribute the most to the success of your business.
4. Free shipping, yes, but only for some products
Another way to offer free shipping and still make money is by categorizing it based on product type.
For example, you can promote only those products with a higher profit margin to maximize profits.
You can also take advantage of this strategy to promote out-of-season or obsolete items.
The possibilities for this option are endless, but the philosophy should remain the same: use free shipping to promote those products that can bring the most profit to your business, either strategically or purely for profit margin.
5. Reduce shipping rates as much as possible
If you are willing to bear the shipping costs, partially or fully, then optimizing your logistics system is more than advisable.
Usually, logistics costs depend on courier rates, so it may also be time to renegotiate your contract and reduce shipping costs.
One thing that can help you during the negotiation process is to create a forecast or plan that reflects the increase in the number of sales resulting from a free shipping strategy.
Make sure the courier knows that this rate reduction will be accompanied by more sales and therefore more shipments.
Another cheaper way to ship is to work with more carriers. Having more alternatives will make it easier for you to find cost-effective options for your needs.
6. Integrate free shipping into your marketing campaigns
As we mentioned earlier, free shipping is a decisive factor for many consumers, so using it as a hook in your promotional strategies will help you attract new customers, increase sales, and build loyalty among your audience.
Moreover, they often cost less than traditional marketing campaigns.
For example, instead of adding offers to products or investing in remarketing, you can offer free shipping. It's all about margins.
Here are some ideas that will allow you to offer free shipping and still make money:
- Create a sense of urgency: and exclusivity by offering free shipping for a short period on high-demand products.
- Attract new customers: with the promise of free shipping on their first purchase.
- Increase average order: value by offering free shipping on products that complement the main purchase.
- Highlight your new launches: by offering free shipping as part of the service.
7. Free shipping for returns
This free shipping strategy will prevent you from losing money when customers are dissatisfied with a product.
How to offer free shipping on returns?
It consists of using free shipping as an incentive to exchange a product instead of returning it, allowing you to retain the sale and avoid reimbursing the user in question.
The customer, seeing that they will not have to pay the shipping costs, is more inclined to opt for an exchange rather than a return.
This benefits both the customer and the company: the customer gets the product they really want without additional costs, and the company avoids losing money in the process of returning and shipping a new product.
Am I ready to offer free shipping without losing money?
Make sure your free shipping is profitable
The last thing you want is to offer free shipping to your customers but end up in financial trouble in the process.
To avoid this, you can test different e-commerce shipping strategies and evaluate which ones bring the most value to your customers while remaining sustainable for your business in the long run.
To evaluate your options, you will need to track your margins, profits, and losses, and then adjust your strategy accordingly. If you feel you could use some assistance in this area, check out our article on how to calculate shipping costs.
Free shipping can increase costs related to customer service and packaging. Don't forget to calculate these and include them as part of your expenses to be as accurate as possible.
Choose a consistent strategy
While it's not unusual to experiment with different e-commerce shipping strategies, constantly changing your shipping policy will confuse your customers.
For this reason, if you don't plan to offer free shipping in the long term, don't let your customers get too used to having this option. Their reaction if you start charging for shipping that was previously free may do more harm than good.
Customers may also detect a pattern in the dates or periods when you offer free shipping. This could affect your sales forecasting and stock management, as customers may choose to wait for certain dates or periods to make their purchases.
Be aware that free shipping can discredit your shop
Not all products or companies appear to benefit from free shipping. In fact, in some sectors, such as luxury goods or furniture, free shipping can be detrimental to your business for several reasons: the online shop may have to absorb very high shipping costs, or it may not be considered exclusive enough, something you definitely want to convey with high-end products.
That's why it's essential to know what your customers expect and what cost you can afford before offering free shipping.
Analyze competitors and markets
The lack of competitors with a free shipping strategy is usually a guarantee that you will continue to make money by offering them, as you will attract more new buyers.They are also very effective for positioning products in new markets. Watch and analyze your competitors to forecast the impact of free shipping on your market.
How to increase the profitability of free shipping
If you're turning your shipping into a marketing strategy, you'll want to personalize the delivery experience to maximize your profitability.
You can accompany free shipping with personalized notifications that reinforce the shopping experience and enhance your brand awareness.
Additionally, you should add promotions on other products to further increase your customers' repeat purchases.
A shopping experience consisting of free shipping and personalized notifications can significantly boost your revenue.
How to set up free shipping in your eCommerce
Let's say you have already designed a strategy that allows you to offer free shipping and make money.
But, how do companies technically offer free shipping?
It depends on the infrastructure of your online shop and the number of available carriers. It is not the same to offer free shipping if you sell on marketplaces like eBay, Etsy or Amazon as it is if you sell from an online shop on Shopify.
It is also not the same pricing when working with one carrier as it is when setting up multiple rates at the same time.
- If you do it from a CMS enabled like Shopify, the program already offers you price management features; you just have to configure it.
- In the case of marketplaces, it varies depending on the shipping policies of each one. We advise you to check them. For example, Amazon only offers free shipping to member buyers.
The best option is to use eCommerce shipping software with an automatic rules system that allows you to segment shipping methods according to order or customer requirements. This is especially important if you work with multiple carriers and need to evaluate different rates in real-time.
Consider free shipping as a marketing expense
Free shipping is effective; there's no doubt about it. That's why many companies consider it a marketing tool rather than just an operational expense. Instead of allocating budget to remarketing campaigns, you can channel those resources into offering free shipping, which in turn will attract and retain more customers.
In this article, we have shown you how to offer free shipping and still make money. However, free shipping is not the only factor that influences the buying decision. Therefore, if you are planning to offer free shipping, it is important to follow our advice and ensure that you can implement it without losing money and that your strategy is successful.
