If there’s one thing we all enjoy as consumers, it’s getting something for free. Whether this takes the form of a two-for-one offer or free subscription package, freebies offer a tremendous incentive to customers and even encourage us to change our behavior as part of a wider emotional trigger.
The same rule applies to free shipping, which can compel customers to spend more than they otherwise would with a particular brand.
According to statistics, some 90% of consumers view free shipping as the primary incentive that would encourage them to shop more frequently online, while a staggering 86% of shoppers will abandon their carts if the shipping costs are too prohibitive.
While customers demand free shipping though, the question that remains is how can your ecommerce venture deliver this in a cost-effective manner? Here are some ideas to help you on your way!
Getting Started – Covering the Cost of Free Shipping
Let’s face facts; unless you sell high end or expensive products, offering free shipping will come at a financial cost that needs to be managed and minimized where possible.
Fortunately, there are several ways to do this. The first and simplest is to include the cost of free shipping in the retail price, with this a viable option when selling relatively low end items that are valued competitively.
However, not only are customers increasingly savvy to pricing and how this may give the illusion of free shipping, but even a modest hike in prices is likely to deter customers who are in the midst of a cost-of-living crisis.
If you do increase your pricing, it’s important to strike a balance between covering your additional costs and establishing a price point that the market can bear. You certainly shouldn’t look to make a profit from shipping, as this may encourage you to set too high a valuation and price even willing customers out of the market.
Currently, a more viable alternative is to adopt a longer-term approach and increase each individual shopper’s customer lifetime value (LTV).
This will trigger a hike in the amount that customers spend with your ecommerce venture over time, with this strategy built on a high rate of retention that drives consumer loyalty and repeat purchases.
There are various elements that comprise an effective retention strategy, including the deployment of free shipping as an incentive for loyal customers. These include discounts for repeat customers through tailored loyalty programs and effective email marketing, the latter of which plays a key role in improving your customers’ experience and cultivating relationships over time.
Of course, this doesn’t directly offset the cost of free shipping, and may not be ideal for startup ventures that typically struggle to optimize cash flow and working capital from the outset.
However, it helps to increase turnover and recover a higher amount of money in the longer-term, while creating an incrementally generative business model that can comfortably accommodate the advent of free shipping.
Consider Outsourcing Ecommerce Fulfillment to a Third Party Specialist
If you’re like most ecommerce ventures, your speciality probably lies in developing and manufacturing items or sourcing products to sell directly to consumers.
As a result, you’re unlikely to list elements such as warehousing or shipping as core competencies, and this can make it hard to create a functional logistics operation (nevermind one that delivers products for free).
However, a potential solution to this issue lies in the form of third party fulfillment centers. Embodied by suppliers like Salesupply, this type of service enables you to comprehensively outsource the management of your online orders, from the moment that they’re placed to their delivery at the customer’s front door.
But how does this translate into free shipping? Well, ecommerce fulfillment specialists can often process a much larger volume of orders than small or medium sized businesses, offering access to volume discounts that can dramatically reduce the individual cost per order.
Through the use of multiple distribution centers in different locations (we operate 15 outlets in three different continents here at Salesupply), third parties can also reduce the distances that packages have to travel while expediting the average time of delivery.
In some cases, these savings create additional margin that your ecommerce brand can use to offer free shipping to customers, while potentially driving bulk orders as shoppers are incentivised to spend more of their cash.
Of course, much will depend on your product offerings, volume of sales, margins and the profit generated through selling a single item and you’ll need to calculate this in detail before determining whether outsourcing can enable you to offer free shipping.
Create a Minimum Order Value for Free Shipping
The latter point is interesting, as even if your improved margin enables you to offer free shipping, you may not be able to make this universally available to every order.
For example, free shipping may only make financial sense for your business in instances where customers spend a certain amount of money. In this case, creating a minimum order value will make free shipping available to a selection of customers, while providing a clear incentive for individuals to increase their average spend.
Ideally, the minimum threshold to qualify for free shipping should exceed an amount that target customers would usually spend with your brand. However, it shouldn’t be set too high, as customers may be unwilling or unable to spend this amount regardless of the savings on offer.
As a general rule, you should aim to increase your average order value by around 30% when looking to offer free shipping, before setting the minimum order value accordingly. Don’t be afraid to round the number up either, as this can create additional margin on each individual sale.
The most important thing is to calculate your margins precisely and determine the level at which free shipping becomes financially viable.
You can then begin the process of establishing a qualifying minimum order value for free shipping, which should ideally increase your customers’ average order value and incentivise shoppers to spend more.
The Last Word
So, there you have it; a brief guide to making free shipping a financially viable option for your ecommerce venture and its customers!
At Salesupply, we’re well versed in how efficient ecommerce fulfillment can underpin commercial success for online stores, which is why we offer a comprehensive third party service that optimizes delivery speeds while minimizing costs.
This can certainly help you to embrace concepts such as free shipping in some instances, enabling you to offer a much improved service to customers across the board.
