If you’ve ever wondered, “Should I offer free shipping to customers?,” there’s only one answer: yes, you should.
Free shipping is always worth it. A 2022 Statista survey found that 68.2% of global consumers are more likely to make an online purchase if it comes with free shipping.
What is Free Shipping?
Free shipping is an ecommerce marketing strategy where the seller covers the costs of shipping a product to the customer. This lets customers get their orders without paying any delivery charges on top of the price paid for the products.
Whether or not you offer free shipping can make or break a sale.
Literally.
The global shopping cart abandonment is at 70.19%, up from 68.07% in 2014. Most shoppers abandoned their carts because of extra, unexpected costs.
Like shipping.
Free Shipping and Shopping Cart Abandonment: A Mini Case Study
A few years ago, I decided to order a bicycle from Guardian Bikes for my then-7-year-old, who was struggling to learn to ride his “normal,” non-Guardian brand bike. Guardian’s ads about its safe and easy-to-ride bikes convinced me to check product reviews, which were overwhelmingly positive.
Even better, the company was running a free shipping promo.
I was ready to drop almost $400 on a bike with all the (literal) bells and whistles for my kid to experience the joy of gliding down the street without training wheels.
And then I entered my shipping address. My Alaska shipping address.
This tacked on a fee of over $300 additional dollars, which I was not prepared to pay. Confused and hoping this was a fixable typo—there was a free shipping promo, after all—I messaged the company via Facebook.
Turns out, the company couldn’t include states like Alaska and Hawaii in its promos because of how much it costs to ship bikes here.
This was a bummer, because I’d already had my kid pick out his favorite colors for a bike. I couldn’t justify paying almost double the price of the bike just for shipping.
I’m sure Guardian Bikes said something like “continental US states only” on the free shipping promo’s fine print, but I didn’t see it.
Long story short?
I did not purchase a Guardian Bike.
I’m sure their bikes are great, and I know it costs a lot to ship stuff up here to the 49th state. But it’s unfortunate the company couldn’t figure out how to offer free shipping in a way that made sense for its bottom line.
Because I’d been fully committed to hitting that buy button.
Is Free Shipping Worth It?
Yes, free shipping is worth it because it drives conversions and profit.
Anecdotally, my own experience with not-so-free shipping supports this.
But hard, cold research backs it up too: online stores with free shipping make more money.
A 2018 Walker Sands Future of Retail Report found that 80% of customers consider free shipping a factor that makes them more likely to buy from online stores.
In a 2022 study published in the peer-reviewed journal, Applied Economic Letters, researcher Chinonso Ezenwa Etumnu’s findings support this narrative, too. Products with free shipping tend to experience higher sales on average. Specifically, Etumnu studied ground coffee products on Amazon.ca.
Etumnu found that coffee products eligible for free shipping moved up 435 places in their best sellers rank.
This (very) notable uptick in sales creates a reinforcing cycle: Amazon customers want to avoid shipping fees, free shipping often coincides with lower prices, lower prices contribute to higher average ratings, and higher ratings drive greater product demand.
In short, free shipping almost always pays for itself. But you do have to do it right.
How to Offer Free Shipping While Growing Profit
There are several ways you can offer free shipping without sacrificing profit.
Let’s explore each one, step by step.
1. Incorporate Shipping Costs into Product Prices
The most obvious way to offer “free” shipping to customers is to include shipping expenses in the price of your products.
This isn’t as simple as just slipping full shipping costs into every product price, though. You’ve got to do it carefully and strategically.
First, analyze what your competitors are charging for the same or similar products. Especially competitors that also offer free shipping. You’ll want to aim for a price that stays competitive while still covering your shipping costs.
If your adjusted price is a lot higher than competitors, consider these next steps to keep your pricing attractive:
- Lower profit margins slightly. If raising prices makes you uncompetitive, accept a smaller profit per item and sell more to make up for it.
- Bundle products. Aim to sell or at least ship multiple items together to spread out shipping costs, drive up order value, and offer your customers better deals.
- Get better shipping rates. Work with carriers to lower shipping costs so you can keep prices competitive and still offer free shipping. (We’ll explore this strategy further in a moment.)
2. Set a Minimum Order Threshold
You’ve probably visited more than one ecommerce store that offers free shipping but only if you spend a minimum of $50 on items. Or $75. Or $99.
Old Navy offers free shipping for rewards members who spend $50 or more on items. An easy threshold to reach when you’re buying clothes!
And since you have to be a rewards member to get the free shipping, Old Navy gets access to your email and can send you coupons, deals, and promos.
This encourages brand loyalty and repeat purchases, which makes the shipping costs a worthwhile investment for Old Navy.
You can also do a no-strings-attached version of a minimum order threshold. People might be more likely to bite if they don’t have to sign up for an account to get the free shipping. Especially if your brand isn’t as well-known as Old Navy.
Many Etsy sellers offer free shipping if you buy at least $50 worth of products from their store, for example. You don’t need an Etsy account to buy products.
Set yourself up for success by making your shipping policies crystal clear. Rifle Paper Co., for example, outlines exactly what qualifies for free shipping and what doesn’t.
This reduces the likelihood of unpleasant surprises in the checkout process.
Minimum Order Threshold Formula
To calculate your minimum order threshold, use this formula:
Minimum Order Threshold (MOT) = (Average Shipping Cost per Order ÷ Target Profit Margin) + Average Order Value (AOV)
Let’s break down the variables here:
- Average shipping cost per order: The typical shipping cost for an order.
- Target profit margin (%): Your desired profit percentage after covering costs.
- Average order value (AOV): The current average amount your customers spend per order.
Example calculation:
- Average shipping cost: $8
- Target profit margin: 30% (0.30)
- Current AOV: $40
According to the formula, MOT = ($8 ÷ 0.30) + $40
So, MOT = $26.67 + $40
Which means: MOT = $66.67
Round it up to $67 and you have a profitable minimum order threshold.
3. Offer Free Shipping to Rewards Program Members
If you can’t quite offer free shipping to every single customer who walks through your virtual doors, consider offering it for those who sign up for a rewards program.
Of course, this means you must build a rewards program as part of your ecommerce conversion funnel, which is a whole ‘nother task entirely.
You could make it simpler by offering free shipping to anyone who signs up to receive email and text promos (and stays signed up).
This way, you reduce costs while also growing your marketing list. Now the door is open for you to lock in future sales with targeted deals, coupons, and promos.
As you grow, you can expand this into a full-fledged rewards program. Look to Walmart, Amazon Prime, and Wayfair for examples of rewards programs that offer free shipping with no minimum order threshold.
How to Keep the Costs Down on Free Shipping
The last thing you want when you offer free shipping is for that very perk to undercut your profits.
The good news is there are a few key ways to keep your shipping costs down. They include:
- Negotiating better rates with carriers. Shipping providers like UPS, FedEx, and USPS offer volume discounts. If your business ships orders and items frequently, you can negotiate lower rates based on your shipping volume.
- Working with third-party logistics (3PL) providers. 3PL providers like ShipBob, ShipStation, and EasyPost can save you lots of cash. They have pre-negotiated bulk rates so you don’t have to do the back-and-forth with the major carriers yourself.
- Using a fulfillment service. Amazon FBA, Shopify’s Fulfillment Network, and Flexport offer competitive shipping rates for ecommerce brands. They also handle warehousing and fulfillment for you. If you want to keep logistics costs (and frustrations) low, these fulfillment services are your BFFs.
- Choosing regional parcel carriers. Regional parcel carriers deliver packages inside a set geographic area, like a specific region, state, or city. Lone Star Overnight serves the state of Texas and the Southwest. Spee-Dee Delivery ships within the Midwest. These low-cost shipping carriers aren’t just cheaper than the big guns like UPS and FedEx. They’re usually faster, too.
Consider using a combination of these strategies to help you keep your shipping costs down, if it makes sense.
You might negotiate better rates with major carriers like UPS for international packages while also using regional parcel carriers for orders closer to your warehouse or fulfillment center.
Or, to keep things simple, just focus on one strategy at a time. Try starting out with a fulfillment service through Shopify or Amazon.
As your business grows, pivot to a 3PL provider for better scalability.
