In today’s constantly fluctuating e-commerce environment, it’s important to do everything you can to build customer loyalty. One of the most underrated and overlooked aspects of building customer loyalty is found in the shipping experience. Today’s consumer is trained to expect their online orders to arrive almost instantly, so the question becomes, how can you offer free shipping? This article is based off of the ‘Tee Up: Logistics Insights’ podcast episode ‘The Behind the Scenes of Abandoned Shopping Carts’, which you can listen to on Spotify here.
What free shipping is and how to offer it
Let’s start with the obvious: free shipping isn’t really free. It isn’t free to ship a package, and any sustainable business needs to determine how they will pay for the costs of shipping a package “for free”. There are a variety of ways to offer free shipping. We’ll go over a few methods, but there are doubtless others out there. Let's dig in!
Building the cost of free shipping into your product prices
A common way to make free shipping sustainable for your business is to build the costs of shipping into the cost of your product. It is also important to truly understand what your customers are hoping for in terms of shipping experience. Perhaps they are satisfied with the package arriving in 3-5 days if the shipping is free, or maybe an aspect of the product demands that it be delivered more quickly. Regardless, understanding your customer’s expectations will help you determine how to build the cost of free shipping into your pricing strategy.
Using free shipping as an incentive to increase average order value
Another way to make free shipping feasible for your business is to offer free shipping on orders with a specific order value. If you know your average order value and you want to increase it, free shipping can be a great incentive. A generally accepted rule to determine at what order value to set free shipping is to increase your average order value by 35%. For instance, if you know you want to offer free shipping and use it as an incentive to increase your order value, and you know your current average order value is $40, you would offer free shipping on orders above $54. With this strategy, along with any other strategies on how to offer free shipping, it is important to carefully examine the pros and cons and how you can make free shipping work for your business.
Using free shipping as an incentive during a given time period
To increase the number of customers during a given time period, a good incentive can be free shipping. Before implementing this strategy, it is important to determine the average value of a new customer and to carefully consider the benefits and drawbacks of offering free shipping during a set time frame. You may end up acquiring a lot of new customers, but it may not be worth it if the cost of shipping is cutting too deeply into your margins.
Offering free shipping as a benefit of a membership program
A good example of the benefit of offering free shipping as part of a membership program is Amazon Prime. Customers pay a yearly subscription fee, and, in exchange, get free shipping on many products. While you may not be Amazon regarding what you’re able to offer in terms of free shipping and shipping time, memberships can be a great way to offer free shipping to customers, although there are some obvious downsides to this strategy as well that should be carefully considered, like if customers are willing to pay for a membership and how you can make free shipping work if members buy lots of products.
What works for you?
In the end, determining your shipping strategy is completely specific to your business. Whether or not you decide to offer free shipping to customers, it is clear that consumer expectations are rapidly changing. If you do decide to go the free shipping route, doing your research is key to determining what approach will work best for you—we've laid out a few here, but there are many more out there. And, if you need some help figuring out what the best option is for you, don’t hesitate to reach out!