While the term free often carries a positive association, some business owners I’ve spoken with cringe at the phrase free shipping. Those in the e-commerce industry understand its increasing importance and prominence, but covering the cost of shipping while keeping prices low can seem challenging. Yet I don’t view free shipping as an all or nothing approach. Instead, I think of it as a malleable tactic businesses of all sizes can use to give their customers what they want and still encourage sales in the process.
In recent years, I’ve seen more businesses than ever switch to a free shipping model based on customer feedback. According to a 2013 study by Retention Science, free-shipping offers convert twice as often as price discounts.There are various ways to make free and/or reduced shipping costs work for your business; here are a few strategies to help offset the cost:
1. Bump up your free shipping threshold to increase orders. Estimate your average order value and average shipping cost. Then, offer free shipping on your average order value plus 10% (or an amount that covers your average shipping cost and provides enough of a profit to slightly increase your average order value). The theory here is that a percentage of your return customers may be willing to spend more on each transaction in order to trigger the free shipping option. You can then increase the minimum order value required for free shipping over time and test the improvement in margin.
2. Use flat-rate shipping. Consider using flat shipping to quickly get your products out to customers, especially during peak seasons. This strategy simplifies the shipping process by allowing businesses to have items pre-packed, boxed and ready to send. There is no complicated fulfillment system or hardware needed to start shipping. All you’ll need to do is add the invoicing to the label on top of the package. This can be a great strategy for when you have promotional and/or seasonal items.
Poshmark, an online destination for women to sell their clothes and shop other closets, is a
good example of one of our customers implementing a custom flat-rate shipping program. Prior to 2014, Poshmark buyers would pay a range for shipping depending on the weight of the product, box, etc. The company collaborated with us to create their PoshPost shipping label, which allows fashion items of under five pounds to be shipped for $5.95 with 2-3 day Priority Mail shipping.
“Fashion is a unique thing; the sizes and shapes are quite different. By keeping things simple with a low flat-rate shipping fee, we’ve seen positive enthusiasm from our community for this easy shipping solution, and sellers on Poshmark are able to ship at speeds that can rival even the largest e-retailers,” says Manish Chandra, Poshmark’s CEO and founder.
3. Raise product prices. This may seem like an obvious choice, but remember you can set restrictions by offering free shipping on select products where it’s profitable. You can also split the difference and charge a low price for shipping and nominally raise product cost. As in any case, it’s important to study your conversions rate before and after altering product price and shipping fees to determine if the changes are successful.
Adjusting to customers’ expectations of free shipping doesn’t have to harm your bottom line. Choosing the right cost coverage strategy can help to mitigate or ease your costs associated with providing free shipping.