How Any Retailer can Afford to Offer Free Shipping
- Sales and Use Tax
- May 26, 2016 | Nathan Joynt
The pressure to offer free shipping is all too real. If for no other reason than to drive volume and attempt to compete with the likes of Amazon - particularly around the holidays.
But what's the real cost of offering free shipping? Basic economics tells us there's no such thing as a free meal. While some retailers feel it's necessary to eat into profit margins, I fear other retailers are ignoring the problem all together. They stop asking, “How much is it going to cost to offer free shipping?” Instead they ask, “How much is it going to cost not to offer free shipping?”
Figuring out the answer to the first question is more important. Examining distribution methods is good place to start for many retailers. What is the business doing to optimize distribution? Where are the opportunities to save money?
Consider Raising Your Free Shipping Threshold
The free shipping threshold marketing tactic is nothing new, but retailers need to clearly understand their median order value in order to maximize it. This may or may not be the actual value needed to substantiate offering free shipping long term, but this figure at least provides a good place to start free shipping tests. Read this RJMetrics article for more info.
The goal is to get your free shipping offer to meet this value as close as possible. If you set the threshold too low, there’s the potential you’re not maximizing order value. Set it too high and you’ll likely see more exits and more abandoned carts. But if you can get more customers to purchase just above that median order value, you may be able to sustain your free shipping offer, indefinitely. For many retailers this is a least worth testing.
Other Tactics to Consider
Buy online, pickup in store or BOPIS. According to a consumer study by Parago, 64 percent of the respondents said they already buy online and pickup in store. If you're already paying to ship product to retail locations consider offering customers the option to pick up their items at a store for free. Advertising this form of free shipping correctly on the website is important. Consumers are more inclined to use BOPIS for particulars like clothing, electronics and appliances.
Think Inside the Box
Returned products are part of the business. To lower shipping costs and therefore afford free shipping, consider reusing returned shipping boxes. Consumers will forgive you for sending them an ugly box, as long as the item(s) inside is not damaged of course. Think of it as part of the corporate responsibility initiative to protect the environment. Hand this initiative over to the marketing team to create a story on the website. I don’t really recommend this if you’re selling expensive or luxury items because there’s a certain perception to uphold.
Think Outside the Box
Working with your marketing team to determine campaigns to offer free shipping is one thing. However, if your business has a goal to earn email addresses, consider offering free shipping to users who opt-in, but don't advertise the free shipping offer on your website. Instead, surprise the subscriber with the free shipping offer when they get their first email.
Take this tactic one step further and allow them to share the free shipping offer with their friends and family. This element of surprise can have a wonderful viral effect. Customers will remember this special treatment. It’s a great way to earn new customers, build email subscribers, increase social and word-of-mouth engagement and an even better way to create loyal customers.
Make Some Items Non-returnable
Consider the route of Jet.com and offer some items as non-returnable. Consumer packaged goods, and certain apparel items may qualify for this. This tactic can often help you offer a lower-than-Amazon price as well.
Continue to Optimize Distribution Methods
I began the article with this. There’s always something to optimize with distribution channels and there are always ways to negotiate costs. Analyze your data to better understand average cost by carrier. Evaluate how different carriers impact your customers’ experience and order margins. Consider modern technology to help you automate your distribution options at the most affordable rates. ShipHawk for example offers end-to-end shipping automation from rating through delivery. It can connect to modern ecommerce platforms like Oracle Commerce Cloud through an API call.
For more information and ideas on running a lean ecommerce operation consider this article, 22 Tips for Ecommerce Shipping and Fulfillment.