“Free” is a word with immense power, especially in the world of ecommerce.
Customers understandably get excited when they see the word “free” show up in your online store, whether in the form of freebies, free product offers, or — most importantly — free shipping.
Free shipping in one form or another has become so common (not to mention compelling) in ecommerce that every ecommerce retailer must grapple with the decision of how to handle it. Do you offer free shipping and potentially eat some or all of those shipping costs? Or do you miss out on customers who walk away when they see a flat-rate shipping charge?
If you’re considering offering free shipping or looking for the best strategies for doing so, this guide has everything you need to get started.
Reasons to consider offering free shipping to your ecommerce customers
By now you’ve probably heard from one source or another that free shipping isn't just a best practice; it's practically required in ecommerce these days. While that might be a bit of an overstatement, some form of free shipping makes good sense for many businesses in the ecommerce space. It could even be the differentiator that leads customers to you instead of your top competitors.
Below are four compelling reasons to consider offering free shipping to your ecommerce customers.
Free shipping encourages customers to become repeat buyers
When a customer buys a product, it's a victory but not a finish line. A post-purchase experience gives first-time shoppers a reason to come back to your store. Free shipping is one of the best ways to product repeat buyers.
This is because there’s something psychologically powerful about the word free. Customers associate it with both convenience and value, and they keep coming back time and time again for both of those reasons. Every single time they get free shipping, they perceive that they’re receiving value or getting a bargain — and those are powerful motivators for many consumers.
How can we be so sure? For starters, our clients have seen this first-hand. Beyond that, there’s plenty of data backing it up. One survey finds that 90% of consumers consider free shipping to be the primary factor driving them to shop with online retailers more frequently.
Even though “free” shipping costs are typically passed along to the customer in other ways, your buyers still have the perception of lower overall costs. They may assume that your competitors are charging more for shipping than you are, for one. This gives customers the perception that your prices might be slightly higher, but their total expenses could be lower when shopping with you because of the additional value you offer through free shipping.
Free shipping has been shown to increase revenue
Not only does free shipping encourage repeat customers, it also helps businesses like yours increase revenue. First, there’s the obvious connection: more repeat customers equals more revenue. But there are other ways that free shipping increases revenue, too.
Take the minimum order value model (what you might call the Amazon not-Prime model), where shipping only becomes free once the cart reaches a certain subtotal. Depending on which study you prefer, at least 84% — and perhaps as many as 93% of customers — have added items to their cart to qualify for free shipping, increasing average transaction value and potentially total revenue per customer.
Free shipping sways your customers away from your competitors
Next, when you offer free shipping and a competitor doesn’t, that single difference can pull new customers your way — and away from the competition. When 90% of consumers consider free shipping their top incentive and a full 60% of them expect free shipping no matter what, offering it when your competitors don’t is a huge differentiator.
Most of us have experienced this ourselves as consumers. Love them or hate them, Amazon makes it incredibly easy to buy most things, and the experience is consistent and reliable. It’s why so many of us generally choose Amazon over buying direct from brands of all sizes — especially when buying direct means long or not-free shipping.
In other words, Amazon made shipping reliable, fast, and “free,” and it’s enough to sway many customers.
Free shipping decreases cart abandonment
Cart abandonment is an ever-present threat for ecommerce companies, so anything that can decrease it is a strategic move worth considering. One firm determined the overall rate of cart abandonment in ecommerce stores is north of 75%, and unexpected charges (including shipping charges) at checkout are the top culprit.
In other words, offering free shipping — and keeping other unexpected fees out of the checkout process — will measurably reduce cart abandonment and thus increase conversion rate for the typical ecommerce business.
Worthwhile considerations before deciding to offer free shipping
By now you’ve seen the importance of offering free shipping in ecommerce. But making the decision to implement free shipping isn’t as simple as flipping a switch. It takes careful planning and even more careful execution.
Consider these questions before you implement free shipping for your business.
Can you afford to offer free shipping?
First, it’s crucial to understand exactly how much free shipping truly costs your business. From there, ask the question: Can you afford to offer free shipping?
If you’re operating on razor-thin margins and you’re already struggling to be price-competitive, it might not be quite as simple as just deciding to add free shipping.
Even if your margins are healthy, for many smaller ecommerce retailers, blanket free shipping isn’t sustainable or feasible.
That said, most ecommerce outfits can find a way to offer some form of free shipping, but that isn’t true for everyone (and there may even be certain industries or product types where free shipping wouldn’t likely ever make sense).
Amanda Mull at The Atlantic reveals in a powerful article how free shipping priorities (and algorithms preferring vendors that offer it) have hurt numerous small sellers on Etsy. Additionally, recent pandemic-related shipping surcharges have put even heavier price pressures on retailers and ecommerce businesses, making logistics an even heftier piece of the budgetary pie.
Are there better ecommerce differentiators you can offer customers?
The next question to ask is what differentiators truly matter for your specific market. Ecommerce is a wide field, and your business is competing for only a small slice of the market (both in terms of dollars spent and people spending those dollars). Look for differentiators with lower cost pressures and high levels of impact — and know that these may be unique to your industry or market.
For example, consider that “free” isn’t the only thing that matters. Fast delivery also makes a difference in many industries and markets. Can you outmaneuver your competition by offering next-day shipping, even at a premium price? Perhaps your customers will be willing to pay for faster service if that service isn’t available elsewhere.
Here are a few other areas you might explore in search of better ecommerce differentiators:
- Unique services
- Ecosystem effects (think Apple: “Our products all work better together, so stick with us across our catalog”)
- Value-adds (freebies, discounts on future orders, etc.)
- Brand affinity
- Eco-friendly shipping or packaging approaches
Can you offer a hybrid option instead?
For many companies, offering blanket free shipping isn’t sustainable. You can’t build enough margin into a product that should only cost two or three bucks, for example.
But even if you can’t order free shipping on everything, you could consider other types of shipping deals that will entice your customers.
We’ll get into specific types of hybrid options later on, but here are a few approaches some retailers have used successfully:
- Free shipping over $xx (Amazon, Walmart, most clothing retailers)
- Free shipping for loyalty members (free, data-generating loyalty programs)
- Free shipping for VIP programs (paid services like Amazon Prime or Barnes & Noble’s paid Member program, where “free” shipping is one of the perks of the program)
How do you determine your free shipping limit?
If you’re leaning toward a hybrid free shipping option that’s based on a condition or limit, you first need to figure out what that limit can be in your business context.
The most straightforward choice is to set a minimum order amount. But in terms of your bottom line, this minimum threshold needs to be high enough that you aren’t losing money on most transactions.
Here’s a formula for calculating your free shipping threshold (courtesy of Fit Small Business) and a hypothetical example:
Free shipping threshold = (Average shipping cost per order / gross profit margin percentage as a decimal) + average value of an order
Free shipping threshold = ($10 / .30) + $50
Free shipping threshold = $83.33
The result you get from this formula is the average amount at which free shipping won’t create a loss for you.
Now in some cases that figure will be too high to be all that relevant. “Free shipping on orders $350+” can make sense for some retailers, but not those with an average ticket of $50.
Fit Small Business gives additional formulas for calculating a minimum threshold that still operates at a loss. Check those out if you’re interested.
5 strategies to offer free shipping in the short- or long-term
If you’re ready to take the plunge and start offering some form of free shipping — whether as a limited-time or short-term free shipping offer or as a new pillar of your ecommerce strategy — check out our list of the best shipping software for ecommerce. Once you've chosen your tool, here are five strategies to consider.
Use one or more of these in combination to craft a free shipping program that’s enticing to your online shoppers without destroying your bottom line.
1) Increase product prices but include free shipping
Perhaps the most effective free shipping strategy that doesn’t harm your bottom line, increasing product prices to absorb the cost of shipping is a proven path that has worked for countless businesses. It works best for businesses that sell moderately priced goods with few to no items with very low price tags (it’s impossible to build in shipping costs to a sub-$1 piece of candy).
There’s just something psychological about it — so much so that it’s even spawned a popular Drake meme. People like the comfort and simplicity of seeing just one price and not getting surprised by anything extra.
Speaking generally, most customers would prefer paying $30 for an item that ships free than spending $25 on the same item, only to discover an additional $5 charge for shipping. Seeing those extra shipping fees show up in their shopping carts leads to cart abandonment and customer frustration.
Calculating exactly how to build this price premium into products is another discussion entirely, one best left for the accountants on your team. But other than crunching those numbers, this strategy requires little else from your team.
2) Provide free shipping on orders over a selected dollar amount
We’ve already explored this strategy a bit from the business owner’s perspective in that it allows you to provide a buffer so you aren’t losing (too much) money on shipping. But there’s another angle here, too: Offering free shipping when a customer reaches a minimum price threshold can be a powerful strategy for raising ticket value.
Customers already committed to buying will frequently add more items to reach that threshold, increasing that coveted average order value as well as overall revenue.
3) Offer free shipping on select items
Stores with wide product catalogs including many low-dollar items may not be able to offer blanket free shipping. But they can still explore offering free shipping with certain high-dollar product categories, or even specific items within those categories.
By limiting free shipping to items with higher margins built in, you can use free shipping as more of a marketing tool, something that gets customers in the (virtual) door. Then, as long as customers have already qualified for free shipping, they’ll often be more prone to adding those small-dollar items that wouldn’t have qualified for free shipping on their own.
4) Create a limited-time free shipping offer
There’s nothing quite as powerful as a ticking timer.
We see these all the time in ecommerce, whether it’s a 15% off coupon that’s only good for the next 10 minutes or a sale that only lasts for the weekend.
Discounts are powerful, of course, but free shipping can be just as powerful — even more so when it’s combined with another discount or promotion.
Consider adding free shipping promotions (or hybrid ones like we’ve described above) to existing promotional events such as holiday sales, store anniversary sales, Black Friday and Cyber Monday, and other seasonal events pertinent to your industry and market.
Time-limited holiday sales can be effective, but they also tend to be some of your busiest sales windows in any given year. If you could use some additional help with your logistics this upcoming Black Friday and Cyber Monday, check out our Complete Guide to BFCM Logistics.
5) Include free shipping when buying two or more products
Last, consider adding free shipping as a pot-sweetener when a customer adds additional products to their shopping cart. This strategy can be especially effective for ecommerce businesses with small product portfolios (such as stores selling a new or unique product or concept) or where the average consumer typically buys a single item (like coffee roasters or other perishable consumables).
Obviously, this strategy is pointless if your typical loyal customer buys something like eight items in an average transaction. But where people tend to buy just one item every few months, this kind of incentive can drastically increase your average order value.
Looking for even more strategies than the five we’ve given here? Check out 8 Tips to Minimize Shipping Costs and Maintain Quick Delivery.
Provide world-class customer service with Gorgias
Free shipping is often one key to a world-class customer experience in ecommerce. But whatever you choose to do with your shipping policies, you absolutely must pair it with world-class customer service and support. Customers will appreciate your free shipping, but they’ll love you (and show it through repeat business) when you outpace the competition in terms of customer service.
Gorgias is an all-in-one customer service and helpdesk platform built for ecommerce businesses like yours. We operate at the speed of ecommerce, empowering you to serve and scale like never before. We also offer support for logistics like free shipping and order management, largely thanks to our many ecommerce integrations.
Ready to see what Gorgias can do? Get started for free right now!