How To Offer Free Shipping and Still Make Money
In the age of technology, owning an e-commerce store means keeping up with trends and staying ahead of the competition. E-commerce accounts for 40% of all Internet users’ activity, meaning there is a high demand for this convenient type of shopping. However, a high demand also means the market is saturated with competition, and those who own an e-commerce store understand this business hurdle.
Securing a competitive edge comes in many different forms. An effective way to gain and retain customers is to offer free shipping. Many businesses worry that they charge too much for shipping, and fear customers will abandon their carts at checkout. A few major retailers have conditioned customers on two-day shipping, and though many smaller e-commerce stores cannot offer shipping that fast because of cost, two out of three customers still prioritize shipping options when choosing a retailer.
For many small online retailers, free shipping can seem out of reach. The fear of losing money is all too common. However, there are strategic ways to offer free shipping without sacrificing profits.
Common Ways to Provide Free Shipping
There are several ways to offer free shipping without taking a loss, including:
- Changing the product’s price
- Encouraging larger orders to unlock free shipping
- Offering free economy shipping, which is less expensive than priority mail
- Offering free shipping on select products
- Imposing limited time offers with free shipping
- Offering free shipping on returns
- Encouraging membership by offering free shipping to members
- Rewarding members with free shipping by location
- And enticing holiday shoppers with free shipping during certain seasons
Testing different shipping offers will allow businesses to understand what strategy works best for them.
Free Shipping Strategy Considerations
While it’s true that free shipping won’t work for every business, it’s important to consider the different aspects of the offer before making a decision. Free shipping makes businesses competitive, which is why it is a desirable offer. A deeper look into all the considerations allows for more informed decision making.
THE COSTS OF FREE SHIPPING
Merchants absorb the shipping expenses, which can vastly outweigh the benefits, causing more stress and lost profits. A solution to this problem is to offer free economy shipping, which is significantly cheaper and can reduce shipping costs.
The costs of free shipping depend entirely on the parameters of the offering. For instance, if a business were to offer a free shipping threshold, they would need to make sure they are still making a profit off the sale. To find the minimum threshold, businesses should take their sales, or costs of goods sold, from the last year and find the average. This number will show where to mark the threshold, which is too expensive for customers to reach, and what is too cheap, which will cause a loss in profits. An easy way to find this number is to install inventory management software that can track items sold automatically.
FREE SHIPPING BENEFITS
There are many plus sides to offering free shipping. Benefits include:
- An increase in sales during a slow period
- Gaining a competitive advantage during the holiday season
- Immediately boosting sales in the short term
- Larger orders bought to reach the threshold
- And acquiring new customers who only buy from merchants that offer free shipping
Not to mention, many loyal customers will be thankful for free shipping offers and reward businesses with their continued patronage.
How To Evaluate Shipping Strategies
Before saying “yes” to free shipping for all products, businesses might want to evaluate shipping strategies that would better serve their business and their customers. Here are some considerations to keep in mind before following through with a strategy:
- Margins: A business’s profit margins are important to keep in mind when it comes to free shipping. Often, margins can vary by product which can also determine if a business will see a loss of profits. These margins could easily tell a business what type of shipping strategy to take.
- Products: Take into consideration the size and weight of the products. The larger a package is, the more it will cost in shipping. This is why many retailers put a limit or threshold on certain products.
- Orders: Retailers constantly try to increase their order value by offering free shipping. As stated above, once a business knows its threshold, it can experiment with different limits to see what will satisfy customers.
- Customers: Customers will have a large impact on shipping strategies. For example, if most of a business’s customers are far away, then that business could be losing out on money as they absorb more shipping costs. However, if the customers are local, then free shipping could fit into the overall business strategy. Businesses can also set pricing rules for certain groups of customers if they have both local and international clients. That way, they can still cash in on international shipping.
- Carriers: If a business is using an expensive shipping carrier, then it might be in their best interest to look to local shipping businesses. It could cut down on costs, as well as allow for more shipping options, such as one-day shipping, two-day shipping, and free shipping. Additionally, customers value timely and trustworthy shipping. If a business is getting complaints about packages not being on time, it could be time to find a new carrier. An asset tracking software solution can easily let businesses know if their packages are being delivered to their customers on time.
- Manufacturers: A business’s manufacturer could be hindering their free shipping strategy. One solution could be to find a manufacturer that sells less expensive materials. By installing automated manufacturing software, business owners can track orders to find where they can cut costs.
For some businesses, free shipping is not worth it. However, those that take the time to build a strategy around free shipping will find their customers delighted at the offer and more likely to reciprocate with more orders.