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Is Free Shipping Worth the Cost?

It's one of the most popular buying incentives. Here, we offer free-shipping strategies that won't break the bank.

There’s no denying that today’s online buyers like free shipping. According to researcher comScore, shoppers like it so much that during the first quarter of this year, 47 percent of all online purchases included free shipping, and in the fourth quarter of 2010, even more orders included this buying incentive—49 percent to be exact. In the third quarter of 2010, 41 percent of online orders included free shipping buying incentives.

What might be even more interesting for online sellers is this little nugget: comScore also found that 61 percent of shoppers were “somewhat likely” to cancel an order if the item did not come with free shipping. Makes you wonder if you’ve lost some sales because of shipping costs, does it?

To help you with that worry, we’ve come up with a few “free shipping” strategies you can add to your business plan to help you appeal to free shipping seekers without obliterating your profits.

Free shipping is what encourages a customer to shop online, rather than in a store

Free is good for business

Plain and simple, free shipping is a big draw for buyers, says Simon Jobman, Web manager of FreeShipping.org, an online site where shoppers can find free shipping codes for more than 4,000 stores.

“I think free shipping is what encourages a customer to shop online, rather than in a store,” Jobman notes. “If you can get the same item for the same price—or usually lower—online, and you don’t have to pay shipping, then why drive to the store?”

He adds that some shoppers almost think it “unreasonable” for online merchants to charge for shipping. Some even think it’s unfair for merchants to do so.

“When customers see the shipping charges that a merchant applies to their order, they have the idea that the merchant is trying to make money off shipping costs,” Jobman adds. “People don’t think about the fact that the rise in gas prices makes it more expensive to ship packages.”

So how do you offer free shipping without taking a hit to your bottom line? Let’s take a look.

Fold in the cost of shipping

If you want to offer free shipping without having to cover the costs, you could always roll that cost into the price of the items you’re offering. However, this will increase the price of your product and could turn off some buyers, warns Auctiva Product Analyst and Top-rated seller Rebecca Miller.

“You have to research the market,” she explains. “On the surface, one would assume it’s always better for buyers to see ‘free shipping’ in search results, but if the price goes up, you might scare off buyers.”

She says sellers who do roll the cost of shipping into their prices need to do a lot of research to ensure competitors aren’t outdoing them. “You have to stay competitive,” she adds.

So before you finalize that price, look around at other listings and see what other sellers are offering, how much they’re asking for their items and see how their products compare to yours.

Set a purchase minimum

Now you could offer free shipping for orders that reach a given minimum. This can be a happy middle ground because it requires shoppers to buy more from you in order to get access to your free shipping promotion. However, since you have more items to ship in this one shipment, you will likely end up with a heavier package, and, as a result, a higher shipping cost.

This means that you may end up eating part of your shipping costs, but you’ll bring in a bigger order than you might have, had you not offered free shipping. The trick is to really take the time to consider your minimum-order requirement. Yes, you want to minimize the hit you’ll take, but you can’t make the minimum requirement too high. If you do, shoppers will go elsewhere.

“The amount of the minimum order will greatly impact whether shoppers view this as positive or negative. Place it too high and few consumers will qualify,” adds Jeffery Contray, managing editor of dealnews.com. “Amazon’s $25 minimum seems to be a good benchmark. It’s an amount that many would consider reasonable, while a large product selection at various price points encourages consumers to ‘pad’ orders more than $25 to qualify for free shipping.

A well-chosen purchase minimum is an effective compromise for a retailer unable to provide free shipping on small orders

“Free shipping with no minimum purchase required will always be the best offer from a shopper’s perspective,” he continues. “But a well-chosen purchase minimum is an effective compromise for a retailer unable to provide free shipping on small orders.”

So as you’re deciding your minimum, make sure you’re being reasonable and ask yourself if you would take advantage of your promotion given the minimum.

Make it a limited-time offer

You could opt to offer free shipping as a limited-time promotion. This buying incentive will give buyers the sense of urgency. If they don’t buy now, they may have to pay for shipping later. This approach also helps reduce the financial hit you’ll take since you’ll only offer free shipping temporarily. Then you can go back to charging a reasonable shipping fee.

Another great thing about this approach is that you can create a buzz about your listings if you let shoppers know in advance that you’ll be waiving the shipping costs soon. You can blog about it, tweet it, include a handout about the upcoming free shipping in your packages, etc. to draw more buyers to your listings and/or store.

Let buyers choose

Now, just because you offer free shipping, doesn’t mean it has to be universal. You could limit your free shipping promotion to certain items you sell, i.e., those that won’t cost much to ship, such as smaller or lighter items you would ship with lower-cost services.

“Offer free shipping for one of the less-expensive services like USPS First Class or Parcel post, but also give the option of an ‘expedited’ service such as Priority Mail, for a small fee,” Miller advises.

This way, buyers feel like they have more of a say in the matter. It’ll be up to them to decide if they are willing to wait a few days to get their item for free, meaning you will have to cover the cost, or if they need the item now, and want to pay for shipping. You’re leaving it up to them, and doing your part making shoppers happy by giving them that option of free shipping. You might not have to take a hit to your bottom line at all.

We know free shipping isn’t an incentive everyone can afford to offer. In the end, the cost may be too great. But keep in mind that free shipping can draw in a lot of buyers, so even if you only offer it occasionally, under certain conditions, or for a brief period, it could be very profitable.

Have you incorporated free shipping or other buying incentives into your online selling? Please share what’s worked and what hasn’t in the comments below.

About the author

Olga Munoz
Olga Munoz is editor of TheOnlineSeller.com. In addition to writing news and feature articles about e-commerce, selling trends, online marketing and other topics of interest to online sellers, Olga manages the site's social media efforts. A journalism graduate of Chico State, Olga says her favorite part of being a journalist is learning interesting facts that help put stories into perspective, attending industry events and meeting interesting people "that leave you smiling, even in tough situations." Opinions expressed here may not be shared by The Online Seller and/or its principals.



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