There are many reasons to shop online, the 24/7 availability of goods, the convenience of shopping from home in your pajamas, a wider range of stock than could reasonably fit into any storefront, etc. These are all driving forces behind the online revolution.
Above all though, many consumers like to shop online to save a few bucks. Removing overheads such as storefront rent, staff salaries, utility bills, and security staff help online merchants offer products at lower prices. These potential savings could be cancelled out by the addition of shipping charges.
Shipping can be expensive to a business, especially when sending items cross-country. It’s only natural that you’ll want to share that financial burden with your customers. Most consumers expect free shipping as standard from online stores though, only using websites that offer such a service.
You may not compare your own small or medium-sized enterprise with the corporate behemoth of Amazon, but your customers do. Prime subscriptions have set the tone for online shopping, and people expect a similar service from other sites. Loyalty only goes so far when a dollar value is ascribed, so it’s advisable to offer free shipping wherever feasible.
The question remains, though – how can you do so without causing terminal damage to your bottom line? Let’s take a look.
Utilize Minimum Spends
Free shipping is becoming increasingly commonplace, but it usually comes with caveats. Most online retailers have a minimum spend before free shipping can be activated. In the realm of e-retail psychology, this is a classic. It encourages the customer to look deeper into your product list and place additional orders to feel like they are saving money.
Given a choice of one item at $15.99 and a $7 shipping levy, or two items at the same price and free shipping, most customers will choose the latter. They will feel like they’re getting more for their investment, and you’re boosting your profit margin to the tune of $20. Pull off that trick a hundred times a day and you’re really cooking with gas – as well as ridding yourself of excess inventory.
Naturally, though, this means that you’ll need to think about your offering and the attached price tag. If you price individual units at $4.99 each, and you want a customer to spend $20 for free shipping, it can be a tough sell. Does a consumer really need five of the same item, or comparable products?
Aim for a little under double the price of your most popular products to activate free shipping. If you sell for $30, make $50 the minimum spend for complimentary delivery. This encourages people to double up on their original interest or look for peripheral purchases to pad out the order. Customers hate to feel like they are wasting money, and shipping fees can feel like a dead investment compared to an additional product.
Consider Speed and Prestige
How quickly your customer expects their items often depends on how much they are spending. If a consumer is laying down substantial sums for luxury goods, they expect VIP treatment. Anything longer than two days can feel like an interminable wait for such a consumer. They expect a level of service that befits their station.
This means that you’ll need to consider what you’re selling, and at what cost. If you’re offering an Hermès clutch for $500, your customer will likely be happy to wait days, even weeks, for their bargain. You’ll also be out of business in a couple of weeks, but that’s beside the point.
If you’re retailing the same product at closer to the MSRP, however, your customer will expect it at their door as quickly as possible, at no extra expense. They have already paid a substantial amount for their purchase and now expect to be catered to.
A lot of this stems from assessing your competition. What are businesses of a comparable size and offering providing in terms of shipping? You should be matching this at the very least – or better yet, taking a skyscraper approach to improving upon their service.
Undercutting product prices doesn’t always work. It can lead to losses and make a customer suspicious. If the competitor offers free shipping within three days, though, you could offer delivery of the same product, at the same price, in two.
Geography Matters
One of the great things about online shopping is the ability to harvest customer data. For a home delivery, any consumer needs to provide you with their address. This provides the ability to study the most popular locations for your products and consider whether you should be relocating your core warehouse or inventory.
If you’re handling the shipping yourself, however, you’ll need to think smart. If you notice that the vast majority of your products are being purchased from Colorado, it’s a false economy to keep spending big on shipping from New York. However, that isn’t always necessary. If you use a reputable 3PL like Ameriworld, you’ll be able to ship all over the country and negotiate a great and affordable price to do so.
Use Flat Rate Boxes
If your entire product range will fit into a flat rate box, you can make substantial savings on your shipping expenses. Analyze the size of your product, and the number that you sell in an average week or month. If these can fit into a flat rate box, you can enter into negotiations with USPS for a bulk-dispatch discount.
Reach a certain spending threshold and they may even work with you to create branded packaging. This will lead to an exciting and memorable unboxing experience for the recipient – which, in turn, will potentially lead to you building an army of brand ambassadors. Before long, this free advertising could repay the bills incurred by free shipping multiple times over.
You may not ship enough to convince carriers to negotiate rates with you, yet. If that’s the case, all is not lost. In such an instance, reach out to reputable order fulfillment businesses. These companies will still be able to offer you a preferential shipping rate based on how many products they are sending out as a whole.
Do the Math
Ultimately, any business decision comes down to a simple question – do the numbers add up? You’ll need to reach for your calculator and decide upon your break-even point for free shipping.
This involves working out the average spend of your customers, and the cost of shipping out to them. Let’s say the average order in your website totals $100. You spent $40 on purchasing the inventory, and $30 on variable cost, so you’re looking at a $30 profit pre-shipping.
If said shipping costs $15 and you offer it free, however, it doesn’t make economic sense. You’ll need to do a lot of business to make that a sustainable financial model, especially as we have not even considered the expense of your time and effort yet. You’d much rather pass that expense on to the customer.
Of course, the customer may be unwilling to spend $115. They want their item for the price advertised and not a red cent more. If you can’t offer that, they’ll look for somebody that can.
With this in mind, using the above example, consider setting the free shipping minimum spend at $125. Your customer will then start looking for something else to bulk up their order. If they purchase the same product twice, your profit margin just soared to $45 – and you barely had to lift a finger to earn those extra few bucks. Consider that larger orders can also result in cheaper shipping expenses for your business and you’ll really start to see the difference on your bottom line.
There isn’t a one-size-fits-all answer to the free shipping conundrum. As a business owner, you know your customers best. You’ll know how much of a deal breaker shipping costs are, and how economically viable it will be to offer such a perk. Just consider all the information and customer feedback at hand and make a judgment call.
If we can recommend one take-home, it’s this. Do not think of free shipping as an expense that you’ll need to swallow. Instead, use it as a tool for growing sales. By offering free shipping, you’re potentially selling goods to somebody that would otherwise purchase from elsewhere.
If you offer free shipping, especially after a spending threshold has been met, you can turn a profit while also boosting brand loyalty. Customers will feel like they’re getting more value, and you’ll receive more orders. Everybody wins.
