Free shipping is an effective but sometimes costly sales tool. Is it possible for companies to offer free shipping and still make money?
The short answer is “yes,” but getting there can be difficult. So, it’s important to revisit why your eCommerce store may want to provide free shipping. Multiple studies show that free shipping increases sales, order volume, and conversion rate. Since 88% of shoppers will choose free instead of paying for shipping, and 81% research multiple websites before purchasing, this perk can be the determining factor between buying from you or your competitor.
We initially published this article and infographic in April 2018. We’ve updated it on June 11, 2021, with new information and customer preferences. You can get a link to the full infographic at the bottom of this page. And read this blog on eCommerce accessibility to understand why we’re using smaller images with related text in new sections.
Free shipping options
Free shipping sounds great, but unfortunately, it isn’t free for you. Rising shipping costs mean you can quickly lose a lot of money. The challenge is how to offer free shipping in an attractive way that doesn’t harm your profitability.
Retailers have five tried-and-tested shipping strategies to strike this balance:
- Free but slow ground shipping
- Free shipping with minimum order amount
- Raised prices that include free shipping
- Free shipping with strings attached
- Fast and free shipping when product values ensure margin protection
While these strategies can be profitable, there is no one-size-fits-all approach. You will need to consider your costs, products, and customers. To help you evaluate these factors and select the best free shipping strategy, we’ve taken another look at our survey of 1,000 shoppers and put together 22 actionable tips.
Free shipping is great for customers, but it can be effective for businesses as well. You enjoy the benefits of increased sales, higher conversion, and better competitiveness while still achieving your bottom line. Those are big promises, but they’re backed by what customers say to eCommerce shops just like yours.
Shipping costs are a threat to you and the sale. The reason you want to strike a balance is that more than half of shoppers say they’ve abandoned a car due to shipping costs — other surveys have put this higher than 70%. On the other hand, making an offer for free and/or fast shipping has caused roughly the same number of people to increase their order value. And 39% have changed eCommerce store purchase decisions because of shipping offers.
When done right, a single shipping focus can help you avoid cart abandons while boosting overall orders and their value.
People are willing to wait
Customers know that free shipping comes with a tradeoff, and many are happy about that choice. In our survey of 1,000 shoppers, a few clear patterns emerged about their thoughts on products, pricing, and patience.
There are significant opportunities to control costs while offering free shipping, especially if your audience is predominantly women or older shoppers. While the average wait time on free shipping is seven days, 88% of shoppers still prefer this over paying for shipping. Other key takeaways include:
- Women are twice as likely to wait longer than men for products to arrive
- Half of the people buying large products will wait more than seven days
- Just 33% of shoppers for small goods want to wait more than a week
- Shoppers aged 45 and older are much more willing to wait compared to younger shoppers
Perhaps best for your eCommerce business is that you can still meet these speeds when choosing slower or more affordable options. Switching to USPS services saves some businesses up to 50% while still having orders delivered in seven days or less.
Maximize with shipping minimums
One of the more eCommerce-friendly ways to improve sales and afford to provide free shipping is to set a minimum order value for the offer. According to our survey, this practice can help you reach a more lucrative audience, and you can tailor your offer based on shoppers. We found:
- Men are twice as likely to spend a minimum of $150 for a free shipping offer
- 12% of young shoppers (ages 18 to 24) are willing to reach that $150, which is a higher percentage than other age groups
- If you’re focused on small products, one-third of your audience is willing to spend a minimum of $50
- Reminding people of your free shipping minimum and displaying potential add-on products during checkout can raise average order values by up to 30%
Research your specific shoppers and test what minimums will entice them to spend or if you’re asking for too much based on your products.
Limits are okay
Some eCommerce business owners are worried that placing a minimum order value or other limits on free shipping offers will drive customers away. The good news is that most customers understand these limitations and may expect them, especially during the holidays. Evaluate your business and test what you’re comfortable offering.
When limiting free shipping, there are a few key takeaways:
- Most of your competition sets limits, and 60% say it is their most effective marketing tool
- Consumers spend an average of 20% more during the holidays, providing a safer time for you to set limits
- Limiting free shipping to products with higher margins can generate an 8% lift in profit
- 31% of people are willing to join your loyalty program if it means earning free shipping
- Pre-pandemic, more than one-third of customers prefer free ship-to-store options. This has since grown significantly for some markets
- Or you can recoup as much as 27% of shipping costs by switching to flat-rate shipping prices
Build free shipping costs into pricing
If the above has you considering offering free shipping, here’s a handy way to afford it. Include shipping expenses in the prices you set for products. This has been shown to increase company margins by as much as 26%. Still, you’ll maintain a positive shopping and shipping experience.
The best products to include shipping costs in the price are those with low competition. Your significant sales drivers, unique offers, and custom options can be even better money-makers. Raising the prices of these goods while promoting free shipping can double your conversion rate. Remember to proudly display your “free shipping” offer on the home page, sales pages, and throughout the checkout process.
What about fast over free shipping?
Some eCommerce businesses will experience higher sales by offering multiple shipping options. Consider using a slower, free default option paired with a faster option the user pays for directly. Generally, about 12% of your audience will choose faster shipping. However, this survey was finalized before the COVID-19 pandemic, and many more consumers are now willing to pay for faster shipping due to general uncertainty in delivery times and speeds.
Other key findings from our surveys and data sources note that men are twice as likely to pay for faster shipping than women. Millennials are more likely to select this upgrade than any other generation. And the amount someone will pay is relative to the value of the product. So, clothing shoppers are willing to spend up to $5 more (on average) for one-day shipping, while this climbs to $20 for larger goods like furniture.
Final thoughts for your operations
Our findings make a compelling case for offering free shipping. However, it’s not recommended to use just one shipping strategy. It’s essential to continuously test your options and see which yields the best margins. You’ll want to consider:
- Your products: Do you sell products that face a lot of competition and “price hunting”? What are your competitors offering?
- Your profit margins: How much profit do you make from your products? Free shipping on products with lower profit margins will differ from one with a higher profit margin.
- Your shipping costs: How easy is it to ship your product? Heavier items are generally more costly to ship.
- Your target audience: What is the demographic of your audience? Are they male or female, young or old?
You may find that a combination of shipping methods works together to bring you the highest return while keeping customers happy. You can also combine your strategy with other initiatives, such as partnering with a 3PL.
By providing your customers with a desirable yet profitable perk, you set your business on the road to establishing valuable customer relationships. For you, this means more profit in the long run.