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How to Offer Free Shipping and Lift Revenue

Jordan Miller
Jordan Miller
Last updated on 
November 11, 2022
June 7, 2022
How to Offer Free Shipping and Lift Revenue

Free shipping has become so ubiquitous in ecommerce that shoppers now expect it. 

According to a survey conducted by Forbes, 77% of respondents abandoned their cart because they were unhappy with the shipping options. 84% made a purchase because it qualified for free shipping. 

Free shipping isn’t always an option for ecommerce stores though, especially for those with small margins or where shipping is expensive for every order. 

These are the best strategies for how to offer free shipping, even if you’re unsure it’s something your business can afford. 

Is offering free shipping in ecommerce worth the cost?

Free shipping has become a key differentiator in a very crowded ecommerce ecosystem, with 75% of customers now expecting it on all orders. 

Offering free shipping can drive more revenue for your business, encourage repeat business, decrease cart abandonment, and even pull customers away from your competition. 

Let’s be clear: Offering free shipping for all products is not sustainable for most businesses. But free shipping is not all-or-nothing. Below, explore why providing free shipping in some capacity is worth the expense for your business. 

Benefits of free shipping for ecommerce companies

Encourage customers to become repeat buyers

One survey found that 90% of consumers consider free shipping to be the primary factor driving them to shop with online retailers more frequently. And, according to Gorgias, repeat shoppers generate 300% more revenue than first-time shoppers, on average.

Repeat customers generate 300% more revenue than first-time shoppers, on average.
Source: Gorgias

When customers are online shopping, they remember easy experiences, which includes not having to pay for shipping when they find something they love. A stress-free experience (without unpleasant surprises at checkout) creates loyal customers who want to shop with your business long term. 

📚 Recommended reading: Learn why customer experience is a largely untapped revenue stream for most ecommerce brands. 

Incentivize higher average order volume (AOV)

On top of that, some free shipping models encourage customers to place larger orders, generating more revenue per customer.

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.

Sway customers away from competitors

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 is a huge differentiator for your customer base. 

📚Recommended reading: 7 Strategies for Creating a Customer-Centric Post-Purchase Experience

Decrease cart abandonment

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.

Reasons for cart abandonment during checkout.
Source: Baymard

In other words, providing free shipping — and keeping other unexpected fees out of the checkout process — will reduce cart abandonment and increase conversion rate for typical ecommerce businesses.

Is your online store ready to offer free shipping?

Making the decision to implement free shipping isn’t always as simple as flipping a switch. It takes careful planning and even more careful execution. Consider the following factors to help you understand the cost of free shipping for your business and decide if it’s the right move for you.  

Understand how much shipping costs your ecommerce business

The demand for free shipping has changed the way that small businesses choose to operate. For example, writer Amanda Mull at The Atlantic reveals how free shipping priorities (and algorithms favoring the vendors who offer it) have hurt numerous small business owners on Etsy. 

If you’re operating on razor-thin margins and you’re already struggling to be price-competitive, pivoting to an always-free shipping model might not be feasible. Even if your margins are healthy, for many smaller ecommerce retailers, blanket free shipping isn’t sustainable or feasible—nor are the extra costs that come with it.

Next steps: How to calculate shipping costs for your business 

On a spreadsheet, compile the shipping costs for every product you sell — from the smallest and lightest to the largest and bulkiest — to all four corners of the US (if you’re a US-based store) and anywhere you ship internationally. 

This cost will differ based on your preferred shipping carrier, too. Compare rates between FedEx, UPS, and USPS to see who has the most affordable option — we’ve linked shipping calculators for each above. Once you have these numbers, calculate your average shipping cost. Then, multiply it by the average number of orders you get in one month. 

You’ll also want to look at your best-selling items and calculate how much it costs to ship them, as you’ll likely be sending these out more often than other items in your catalog. 

Don’t worry about exact numbers here. The goal is to get a ballpark number to compare with your monthly revenue. If your estimated shipping costs will put you in the red, free shipping may not be the best option (even with the bump in orders). If this is the case, consider qualified or flat-rate shipping instead — more on both below. 

📚 Recommended reading: Our list of shipping best practices for ecommerce businesses.

Consider flat-rate shipping instead

Offering a flat-rate shipping charge is one way to give customers a low-cost shipping option without absorbing the entire cost yourself. 

Even if you can’t afford free shipping, charging one flat shipping cost for all orders on your site incentivizes larger orders. And, if you can keep the flat rate low, it can convince customers who just want to make a small order to convert. 

Set up flat rate shipping in Shopify

Setting up flat rate shipping is quick and easy if you use Shopify: Here’s how to do it.

Determine your free shipping limit

Most brands can’t support universally-free shipping. That’s why a qualified free shipping option based on factors like order size or location is such a good option. 

The most straightforward way to offer qualified free shipping 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:

The formula to calculate your free shipping threshold.

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. 

Consider free shipping for returns

Customers hate paying for return shipping. If you can afford it, letting shoppers return an item for free is a great way to avoid driving them away. It also can create repeat business, low-effort experiences, and encourage loyalty. 

Of course, free returns leave you vulnerable to expensive spammers and order spikes. So, tighten up your return policy and try to incentivize exchanges over returns to protect lost revenue.

Find other ecommerce differentiators besides free shipping

Ecommerce is a wide field, and your business is competing for only a small slice of the market. Look for differentiators with lower cost pressures and high levels of impact that may be unique to your industry or market.

Free shipping 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 it isn’t available elsewhere.

Here are a few other areas you might explore in search of other 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.)
  • Multiple shipping and delivery options, including fast or flat rate
  • Eco-friendly shipping or packaging approaches

Similarly, you may not be able to prioritize free shipping until you figure out other logistics like inventory management, order management, order fulfillment, order tracking, and returns management.

How to offer free shipping on a budget

If you’re ready to put together your free shipping strategy, use these tips to craft a program that’s enticing to online shoppers without destroying your bottom line.

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1) Increase product prices to absorb the cost of shipping

According to research from the Baymard Institute, 48% of shoppers abandoned their cart because the extra costs were too high. People like the transparency of seeing one price without getting surprised by additional fees at checkout. 

Speaking generally, most customers would prefer to pay $50 for an item that ships free than spend $45 on the same item, only to discover an additional $5 charge for shipping in their shopping carts. Even though you’re passing shipping costs onto the customer in other ways, you still give buyers the perception of lower costs overall. 

Consider raising your prices to include shipping costs to limit surprises at checkout and increase transparency. 

2) Offer a “free shipping for orders over” model to incentivize higher AOVs

Offering free shipping when a customer reaches a minimum price threshold can be a powerful strategy for raising ticket value.

Customers will frequently add more items to reach that threshold, increasing average order value (AOV), overall revenue, and your business’s order volume as a whole.

To make it easy for customers to see how close they are to free shipping, add an app to your ecommerce store (like the Essential Free Shipping Bar for Shopify stores) that shows progress visually. For example, Gorgias customer OLIPOP makes it easy for folks to see how many more packs of soda they need to purchase to get free shipping. 

 

Offer a subscription product to increase customer lifetime value (LTV) and offset the cost of free shipping.
Source: OLIPOP

This is also a great way to build upselling into your strategy. When customers are looking for additional items to meet the free shipping threshold, consider showing items that pair well at checkout. This automation is easy to add via the app store if you’re on Shopify, and you can see how OLIPOP sneaks in suggestions in the screenshot above.  

If you’re going to offer completely free shipping, make sure you use it as a marketing tool and make it very clear to shoppers. For example, Woxer uses a banner at the top of its site to announce that it offers free shipping across the US no matter the order total.

Advertise free shipping on your ecommerce website to increase conversion rate.
Source: Woxer

A cohesive and realistic shipping strategy is highly valuable to any company that ships products to people because it is part of your brand image.

📚 Recommended reading: Our guide to creating an ecommerce shipping and fulfillment strategy. 

3) Offer subscription-based products to increase LTV

In a survey conducted by Salesforce for CFO, more than half of survey respondents said that 40% of their revenue was made up of subscriptions. 

A subscription format is powerful because it ensures repeat purchases and raises the overall lifetime value (LTV) of customers who opt in. If you choose to become part of the subscription economy, you could choose to offer free shipping on subscriber orders only. That way you limit the amount of free shipping you give, and further incentivize shoppers to sign up for a subscription. 

4) Limit free shipping to certain items, customers, or locations

Stores with wide product catalogs that include many low-dollar items may not be able to offer blanket free shipping. But, you can limit free shipping to certain high-dollar product categories, select items within those categories, people who live within a certain distance, or VIP customers.

How to offer free shipping affordably as an ecommerce brand. 5 strategies (listed below).

Here are a few approaches you can use to limit free shipping: 

  • Shoppers must reach a designated spend threshold
  • Free shipping is limited to members (like Amazon Prime or Madewell Insider) 
  • Free shipping is limited to shoppers with a certain number of points in a loyalty program (a service like LoyaltyLion can help you manage this) 
  • Shipping costs are location based (For example, US only if your store is located there) 
  • Products that cost over a certain dollar amount automatically qualify 

5) Partner with a third-party logistics company to offer free (sometimes two-day) shipping at scale

Partnering with a third-party logistics company allows you to split inventory across multiple fulfillment centers throughout the nation. That means they’ll end up closer to customers’ homes, which reduces shipping costs because of location proximity, and means that you can offer faster shipping for less cost. 

ShipBob is a great option for this, as they’re a trusted global fulfillment company.  

Take care of your shoppers with the Gorgias + ShipBob integration. Sync shipping data with your helpdesk, reduce tab-shuffling, and help you improve customer experience during fulfillment. 

6) Optimize your packaging for cost

Shipping fees are calculated based on item weight, size, speed, and distance to destination. And the size and weight of your packaging contribute to that cost. Cutting down on the dimensions of your packaging where possible and using lighter-weight mailers can lower the cost of each package. 

📚Recommended reading: 8 Tips to Minimize Shipping Costs and Maintain Quick Delivery

7) Create a limited-time free shipping offer

There’s nothing quite as powerful as a ticking timer, whether it’s a 15% off coupon that’s only good for the next hour or a sale that only lasts for the weekend. Discounts are powerful, but free shipping can be just as enticing.

Consider adding free shipping promotions 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.

📚Recommended reading: The 12 Best Shipping Software Tools for Ecommerce Stores

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. It integrates with a variety of different apps, like LoyaltyLion, Attentive, and Klaviyo. 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.

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