Small businesses face many challenges, including having to compete with larger organizations and the cheaper prices and free or low-cost shipping options they often offer their customers. In fact, even among larger businesses, many are struggling to compete with Amazon and their free shipping options—some of which deliver as quickly as same-day.
Whether you’re just starting a business or are looking for ways to boost your sales, you’ve likely considered how to offer free shipping and whether your business can sustain it. In this guide, we’ll explore how to offer free shipping, why you might want to, types of free shipping to consider, and more. Let’s get started.
Why Offer Free Shipping?
Before you consider how to offer free shipping, it’s important to think about why you might want to. When customers hear the word “free,” it changes their behavior. People love to feel as if they’re getting a deal, after all. Just consider these shipping statistics:
- 77% of customers view free shipping as the number-one incentive to get them to shop online more often.
- 63% percent of online shoppers abandon their cart due to the cost of shipping.
Here are some other benefits to offering free shipping to consider, as well.
1. Reduces Customer Friction
Customers view paying for shipping as a problem. If you get rid of that problem, they’re more likely to complete a purchase rather than abandon their cart. As you can see from the above stat, many customers view shipping costs as a deal breaker when shopping online. However, by offering free shipping, they’re more likely to shop and buy online.
2. Competitive Advantage
Free shipping is standard with many larger retailers. Therefore, smaller retailers need to offer similar incentives if they want to remain relevant in a competitive market. Of course, free shipping isn’t the only reason why people will choose to shop at your business, but it will certainly help attract new customers and encourage subsequent purchases.
3. Short-Term Boost to Sales
You may not be able to offer free shipping year-round, but making it a special offer will give you a short-term sales boost that you can leverage to help offset traditionally slower times in your sales cycle, or as a year-end incentive to help clear out inventory and finish the year strong.
4. Increased Profitability
If you’re looking to turn a profit, offering free shipping can seem counterintuitive. But, with all of the other benefits that come from offering free shipping, it just might be the thing that pushes your company over the profitability line.
5. Improves Search Results
If you’re selling your products on third-party marketplaces such as Amazon, Google Shopping, or Bizrate, offering free shipping can improve your standing within the search results. When your company appears higher on search results, you’re going to see an increase in sales.
6. Long-Term Gains
A short-term gain of free shipping is a quick sales boost. However, many companies that offer free shipping also see long-term gains in the form of new customers. An incentive like free shipping will often bring new eyes to your ecommerce store, some of which will become loyal customers.
Types of Free Shipping
There are two basic types of free shipping: unconditional and conditional. To figure out which type of free shipping is best for your business, you’ll need to evaluate a number of factors, including your competition, profit margins, planned sales, and channels through which you sell your goods.
1. Unconditional Free Shipping
Unconditional free shipping is pretty self explanatory. You offer free shipping on every purchase, no matter the order total, shipping destination, or time of year. There are no conditions on when you offer a customer free shipping.
For many brands, this may seem like too drastic an option, but there are benefits for those that take the leap and offer free unconditional shipping. For starters, it becomes part of your business’s brand—customers know they can depend on you for free shipping and may be more likely to shop with you because of it.
2. Conditional Free Shipping
The alternative to unconditional free shipping is conditional shipping. Conditional shipping is when you offer free shipping, but only in certain situations. There are a number of different ways to offer conditional free shipping. We’ll detail the factors that go into conditional free shipping in the next section.
How to Offer Free Shipping
For retailers looking to stand out from the crowd and offer special benefits to their customers, free shipping is an ideal solution. Luckily, there are a number of steps you can take to figure out how to offer free shipping to your customers.
Step 1: Choose Your Conditions
The first step to take in learning how to offer free shipping is to decide if you’ll offer conditional or unconditional free shipping.
For smaller businesses, it’s simply not feasible to offer free shipping on all orders, all the time. In this case, you’ll want to decide on the conditions customers will have to meet in order to qualify for free shipping, when you’ll offer free shipping, and more.
Minimum Order Amount
One of the most common conditions retailers place on free shipping is a minimum order amount. In most cases, this is to ensure the retailer doesn’t lose money on the sale. However, another benefit is that it encourages shoppers to spend more. Studies have shown that many shoppers will spend more money than they initially intended in order to qualify for free shipping.
Another condition is to offer customers free shipping on select items only. You may decide to offer free shipping only on items that have high profit margins or are easy and cheap to ship. Conversely, if you’re having trouble moving certain inventory, you may offer free shipping as an incentive to sell it.
Another condition you can place on free shipping is when it’s offered. You may choose to run a free shipping promotion during a holiday, or just a random time of year when your sales could use a boost or you’re trying to attract new customers.
Often, there are several shipping options to choose from: standard, express, two-day, same-day, etc. Most free shipping services are only offered for the most basic shipping (aka the slowest) method. Customers then have the option to pay for speedier delivery.
Many retailers will only offer free shipping on domestic orders, as international shipping is much more costly. You may choose to get even more granular and offer free shipping for customers in the state where you operate or where your warehouse is located. In this instance, you’ll want to be careful about how you communicate this free shipping offer to customers.
A free shipping tactic that Amazon has successfully used is the members-only free shipping condition. Amazon Prime members receive free shipping on every order. Similarly, you can create a members group for your business and offer them free shipping. Your membership can be limited to those who pay an annual fee or those who purchase a certain amount each year.
Another condition you might use to limit the orders that receive the benefit of free shipping is to create a loyalty program. Your loyalty program might require customers to create an account on your website or to spend a certain amount each year. If you do start a loyalty program, free shipping might be just one of many benefits they receive.
While most people think of free shipping when they order something online, they often forget about the returns. One way to offer customers free shipping and incentivize buying is by offering free returns.
If you sell products on Amazon, one of the best things you can do is offer free shipping and let Amazon take care of the order fulfillment through Amazon Fulfillment. When customers look for products on Amazon, they’re looking for the Prime Free Shipping designation. Using Amazon Fulfillment and offering free shipping can boost your search rankings and sales.
Step 2: Calculate Minimum Shipping Cost
If you’re planning to offer free shipping, you need to know that your business can absorb the cost and still turn a profit. Calculate how much shipping typically costs—this may be an easy number to find if you use a shipping service with flat-rate pricing—and the average order size based on historical sales data.
For instance, you may find that shipping is a flat $5 per order and your average sales order is $30, which may help you decide to offer unconditional free shipping. On the other hand, if your shipping costs are more variable and your average order size is $10, you may instate an order minimum before you offer free shipping to ensure you still make a profit on the sale.
Of course, some of this will be trial and error. Offering free shipping may drastically change your sales numbers, and you may have to adapt by setting more conditions on your free shipping policy.
Step 3: Lower Shipping Costs Where You Can
When you offer free shipping to your customers, that puts the cost of shipping directly on your business. Therefore, you’ll of course want to lower your shipping costs in any way possible. There are a number of shipping services that can help you to lower your overall cost.
Just like any other business service, it’s important to do your research and compare different shipping options. There are a number of different ways to ship your products, all of which have different benefits and costs.
While using one shipping service may have its perks, you may also find more success by using a third-party shipping software that works with several different shipping services and will automatically find you the lowest price possible.
Step 4: Assess Paid Shipping Options
Offering your customers free shipping isn’t the only way to attract people and dollars to your business. There are plenty of different types of incentives to offer to customers. If you’ve evaluated how to offer free shipping to your customers and you don’t think it’s right for your business, consider other shipping options that aren’t free but will still offer some value to your customers.
For instance, one way to continue charging for shipping and still offer a deal is to charge flat-rate shipping, which means you charge the same fee no matter the size of the order. For instance, you may charge a flat $5 for purchases, which still saves the customer some money without shifting the cost entirely on your business.
When you’re evaluating how to offer free shipping to your customers, there are a number of factors to take into account. And luckily, there are also numerous ways in which you can offer free shipping of some sort without losing money yourself.
Try a limited free shipping promotion and see how your sales are impacted, as well as what the overall cost to your business comes out to. Keeping a close eye on the data will help you make better decisions down the road and better market your business to new and existing customers.