[Updated post from March 9, 2021]
In ecommerce, there’s no such thing as free shipping. Somebody has to foot the bill, and increasingly it’s the merchant.
With 60% of consumers now choosing one ecommerce store over another due to better delivery options, free shipping is no longer seen as a desirable perk; it’s an essential ingredient to create a seamless customer experience.
As expectations for free shipping increase, it’s easy to feel like this is a race to the bottom. Yet it can be an exceptionally powerful marketing tool for online stores – so long as you know how to offer free shipping the right way.
In this post, we’re going to dive into how brands can take advantage of conditional free shipping offers to protect their profit margins and positively influence customer shopping behaviors.
But there are some key questions we need to start out with: Does offering free shipping work? Does it attract more revenue than it costs brands to pay for shipping?
Answer: It depends.
Choosing to offer free shipping comes with a mixture of pros and cons for ecommerce brands. Let's dive right in.
90% of consumers say that free shipping is their biggest incentive to shop online. Moreover, 74% of consumers say that being transparent about shipping costs is highly valuable when searching for and buying products online, according to the Shopify eCommerce Market Credibility Study.
Put simply, customers love free shipping. Prospective customers are far more likely to support your business when you offer this desirable perk, especially first-time customers who need a little something extra to sweeten the deal.
The demand for free shipping has only grown during the COVID-19 pandemic as shoppers flocked to ecommerce websites during periods of stay-at-home orders. With many consumers still unwilling to shop in stores, brands are increasingly expected to make up for this experience gap.
The so-called ‘Prime Effect’ has had a huge impact in shaping consumer expectations for free shipping. The more merchants that race to keep up with the shipping standards set by Amazon, the easier it is for your brand to fall behind.
Because as free delivery becomes the new normal, the more sensitive that consumers become to paying for it. In sum, choosing to offer free shipping isn't about gaining a competitive edge; it's about keeping pace with them.
Cart abandonment remains one of the biggest challenges in ecommerce. Out of the thousands of shoppers who put items in their shopping carts, only a fraction will actually end up purchasing. The average cart abandonment rate in ecommerce currently sits at 68.8% - over two-thirds of website visitors.
Why? Because new customers don't like surprises. Over half of consumers say that they've abandoned carts due to ‘unexpected extra costs’ at the checkout. The biggest of these? The cost of shipping.
By removing shipping as a line item on your customer's order summary, your conversions will increase.
However, brands should be aware that free shipping can come at a significant cost - and not just in a monetary sense.
Someone needs to shoulder the responsibility of paying for shipping, and the onus is increasingly on the merchant. With carrier fees having risen significantly due to the COVID-19 pandemic and the unprecedented demand for shipping services, online stores are currently taking on a major financial commitment by deciding to offer free shipping. Moreover, shipping doesn't cost a uniform amount throughout the year. Peak periods of demand such as the holiday season see the addition of surcharges that push up carrier rates.
Many merchants that offer free shipping are forced to stick to economy shipping speeds to avoid making a loss. However, this presents a difficulty when today's consumers expect shipping to be both free and fast. If customers have to wait several days for free delivery, this could persuade them to shop elsewhere - a significant opportunity cost for your business.
When free shipping promotions aren't sufficiently targeted, brands can end up paying for shipping for customers who would have purchased from them anyway. This is why indiscriminate free shipping policies can end up backfiring on businesses.
If first-time customers receive the same perks as existing customers, there's little incentive to make repeat purchases. Likewise, it's difficult to drive buyer urgency if free shipping is available all the time, rather than as part of a targeted campaign.
More sales? Higher Average Order Value? Better customer retention? All of the above?
The finer details of your free shipping strategy will be determined by what your business wants to achieve. For example, it's tempting to offer free shipping with no conditions in a bid to increase conversions. But not setting any limits will likely result in your Average Order Value taking a dive, as well as forcing you to say goodbye to high profit margins.
In sum, every free shipping offer has a mixture of pros and cons, and some of your goals can end up contradicting each other. Offering free shipping is not a panacea, so choose your KPIs wisely!
The success of free shipping isn't just about the promotion itself, but how it fits alongside the other shipping options that online sellers are making available for customers. Although free shipping is highly sought after when shopping online, it's not a one-size-fits-all strategy for securing customer loyalty.
As the desire for instant gratification grows, the tension between price and speed is increasing. In the interests of keeping shipping costs low, many free shipping timeframes simply aren't fast enough to meet the needs of customers with time-sensitive orders. This is why 70% of consumers say they would be willing to pay extra for expedited delivery options, such as two-day or same-day delivery.
With this in mind, offering a range of paid shipping options alongside free shipping gives your customers more choice and flexibility.
There's a huge difference between paying to ship orders to customers within your local metro area versus shipping domestically or internationally. Shipping costs will vary significantly between locations, so it's highly unlikely that your brand will be able to offer customers free shipping in every region. This may require you to coordinate multiple free shipping offers simultaneously for different locations, especially during promotion-heavy periods like the holiday season.
It's not just outbound shipping costs that brands need to think about when planning a free shipping offer. Ecommerce stores see return rates as high as 30% in some product categories, and someone needs to foot the bill to send the returned merchandise back to your warehouse.
Today's consumers expect the online returns process to be easy and seamless - and this doesn’t involve paying for return shipping. Nearly two-thirds (62%) of consumers say they are frustrated by having to pay for return shipping and packaging.
But covering both outbound and return shipping comes at a significant cost, so you need to consider carefully which shipping strategy will be most beneficial for your business.
For many retailers, especially in the footwear and apparel categories, free return shipping may be a better way to increase conversions. Return volumes are always lower than outbound order volumes, which means lower overall shipping fees. Plus, free returns are a major incentive for consumers to shop online for items that are difficult to evaluate without trying first.
Baking shipping costs into the final product price is the easiest way to offer free shipping without breaking the bank. All you need to do is work out your average shipping cost and calculate the necessary markup.
It's debatable whether this can be classified as a free shipping promotion, as the shipping cost is still being shouldered by the customer. But making the cost of shipping invisible does have a strong psychological effect; an item that costs $20 with a $10 shipping fee is less attractive than the item costing $30 with 'free' shipping included.
But this strategy runs the risk of your brand setting its prices higher than your competitors, which could end up costing you more customers than free shipping will gain.
A membership program, also known as a premium rewards program, is where customers pay an additional cost to access special offers and perks. Unsurprisingly, free shipping is one of the most sought-after perks. A survey by Clarus Commerce found that 64% of consumers cited free shipping as the perk they wanted most in a membership program
We only have to look at the likes of Amazon Prime to see how popular this model has become with online shoppers. The genius of paid programs is that your members get to enjoy 'free' shipping while actually footing the cost. Paying for a year's worth of shipping rates upfront is much more palatable than paying per order - especially if there's a discount attached.
Best of all, joining a membership program incentivizes customers to shop with that merchant more frequently to maximize their investment. Paid program members are 59% more likely to shop with your brand over competitors, and 62% more likely to spend more with each purchase.
Check out our full guide on how to set up your own membership program.
Using flat-rate shipping is a great way to simplify your shipping strategy and offer more transparency to customers. Flat-rate shipping refers to standardized pricing used by carriers for parcels of a certain DIM weight. This means that brands can advertise a flat-rate cost for shipping online orders, rather than giving customers a nasty surprise at the checkout when they enter their shipping address.
If your business is planning on shouldering the total shipping cost, low shipping rates are essential to offer free shipping while maintaining a reasonable profit margin. Flat-rate shipping keeps your shipping rates predictable. However, it's important to keep a close on where your customers are located to make sure you aren't over-paying.
Creating a sustainable free shipping strategy is a major challenge, especially for small businesses that can’t rely on high order volumes to offset the cost.
Partnering with an ecommerce fulfillment provider isn't just convenient for outsourcing the order fulfillment process; it also gives brands access to discounted shipping rates with major carriers. 3PLs also maintain teams that can implement sophisticated workarounds to reduce shipping costs, such as rate shopping during periods of peak demand and streamlining packaging blueprints to achieve lower DIM weight.
With our experienced parcel team and SmartRate Selection tool that enables merchants to shop for the best rate in real-time, Ryder is one such fulfillment provider that can make cost-effective free shipping a reality for your brand.
Conditional free shipping is when ecommerce stores offer free shipping to customers that meet certain criteria, as opposed to unconditional free shipping that sees all shoppers receive this perk.
Unconditional free shipping is a compelling value proposition, but it's rarely workable unless you fall into the category of big box stores like Target or Walmart, which can offset shipping charges with high order volumes.
Moreover, blanket free shipping policies can have unintended consequences, such as plummeting Average Order Value or rising return rates.
Offering conditional free shipping may seem less attractive to customers, but they offer a range of advantages to your brand. When fewer people are offered free shipping, the average shipping cost is much more manageable for a small business. Moreover, if shoppers receive free shipping as a reward for certain actions, you can shape customer behavior in ways that are positive to your business.
To offer free shipping in a sustainable way, brands should consider making customers spend a minimum amount.
Making online shoppers reach a minimum order amount to qualify for free shipping protects your bottom line and helps your business to increase your current average order value. In fact, nearly two-thirds of consumers have placed extra items in their cart to reach a free shipping threshold.
And because high AOVs are more likely to contain multiple items, this reduces Cost per Order (CPO) by allowing you to ship products together rather than as separate packages, a common problem for stores with unconditional free shipping policies.
But if you’re going to put a minimum order value in place, you need to do it right to avoid losing money. Your free shipping threshold needs to hit that sweet spot between protecting your profit margins and persuading online shoppers to spend a little extra. Otherwise, you can end up increasing cart abandonment or lowering AOV because free shipping feels inaccessible to customers.
Check out our full guide on how to set your free shipping threshold for a full rundown on the process.
Some items in your online store will be easier to offer free shipping for than others. Certain SKUs come with a higher profit margin or are cheaper to ship due to having a lower DIM weight.
But in other cases, free shipping doesn't make good financial sense. For example, bulky items such as furniture require an expensive shipping rate, so it's common practice for brands to exempt these product categories from free shipping offers.
Offering free shipping on select items is a valuable tactic when you’re trying to boost the movement of certain SKUs, especially for seasonal products after the holidays which have a limited shelf life.
However, ever-changing criteria for free shipping can be confusing for consumers. Good communication is vital to avoid customers from abandoning cart at the checkout.
When consumers are used to having free shipping available to them at any time, it can be hard to persuade them to take action and purchase online. Offering free shipping for a limited time or as part of a promotional deal is a great way to drive buyer urgency. Free shipping promotions your brand can use include:
Flash sales. A flash sale is when a brand offers an extremely attractive deal for a very short time period to drive selling activity, usually around 24-72 hours. If your brand doesn't usually offer free shipping, a flash sale with a shipping offer is a powerful way to boost sales.
Seasonal free shipping. Holiday free shipping is a no-brainer to compete effectively during the busiest time of the year. But thanks to peak season surcharges and higher shipping costs, you're going to have to go about your free shipping strategy a little differently. Check out our post on offering free shipping during the holidays for some fresh ideas.
For brands who have brick and mortar store locations, BOPIS (Buy Online, Pick-Up In-Store) services can offer an appealing alternative to free home delivery. Customers using BOPIS will receive their goods much faster and also have the opportunity to make free returns if they go in-store and find that a product isn't what they expected.
There's also a high chance that customers coming in-store to pick up online purchases may be enticed to purchase further items. According to Order Dynamics, 69% of consumers end up buying other items in-store when they come to pick up a BOPIS order.
If you don't have any physical stores, it's worth considering whether you can offer free shipping to customers who are located within a certain radius of your distribution center. This means a low cost for local deliveries, but make sure you state clearly the eligibility criteria.
Loyalty programs can make all the difference to the success of ecommerce brands. Rewards programs are a brilliant way to give customers an incentive to make repeat purchases and add an aura of exclusivity to supporting your brand.
There are a variety of perks you can include in your program to reward your most loyal customers, including exclusive discounts, a free gift on birthdays, early access to sales - and of course, free shipping.
By setting an annual spend that customers must reach to qualify for free shipping, it creates a major incentive for customers to commit to long-term support of your brand.
Online retailers can feel extreme pressure to offer free return shipping, especially in categories like apparel. But there is a more cost-effective alternative; offering free shipping for exchanges or to customers who are accepting store credit.
While many retailers offer the same conditions for returns and exchanges, this isn't to your brand's advantage. Exchanges mean retained revenue, so your return policy should give customers a clear incentive to choose an exchange over a refund.
So, why penalize customers who want to exchange an item? Free shipping on exchanges is a valuable tactic to encourage customers to follow desirable return behaviors. If customers know they will lose money by asking for a refund, they're much more likely to consider an exchange instead.
Free shipping can be a minefield to navigate for ecommerce brands. Balancing customer expectations against maintaining a strong profit margin can be a real headache. Our guide has uncovered numerous conditional free shipping strategies to offer free shipping to your customers without hurting your bottom line. This sets the scene for stronger sales, more compelling promotions, and better brand loyalty – one order at a time.
