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How free shipping can increase your online sales

01 Dec 2015

The cost of shipping plays a big part in how desirable your online store is to your customers - especially now that Christmas is looming.

Is free shipping actually free?

In most instances no.

Businesses typically recover the cost of free shipping by building the cost into their prices and even though most customers on some level understand this is the case, the good news is that most don't negatively link 'free shipping' with higher product prices. They do make this connection when they see the words 'shipping included' so that's a phrase that you should avoid using.

The most important goal for your online shop is to ensure that you are not losing profit, so before you rush out to include free shipping, take a look at the five most common ways of offering online shipping to work out which one might suit your business best:

1. Free shipping

This one is the most appealing to customers because they know no matter how much they spend there are no courier fees to pay. The upsides are that it is very easy to promote on your e-commerce store and it's an easy drawcard, especially if your competition don't offer it. The downsides are that if you have small margins on your products then you are going to lose money, if you build the cost in and you are not using a cut-price courier company your prices will be a lot higher, and that there is no real motivator for your customers to purchase a lot from your store because they will qualify for free shipping even if they add one low cost item to their carts.

2. Free shipping over $x

This approach is quickly becoming a standard offering on many e-commerce stores with 60% of customers saying they have added additional items to their cart in order to qualify for free shipping. (UPS and comScore survey of 5,000 online shoppers). The upsides is that this approach works well to help boost profit margins, as customers adopt the mindset that they would rather get an extra item or two for themselves than paying a courier to deliver a parcel. Because you can split the cost of the courier over a greater number of products it doesn't impact on your product pricing in the same way that offering straight out free shipping does.

The downside is that if you get the limit wrong then you won't see any additional increase in spend from your customers. Ideally you should be setting the limit at 3-4 average items for a cheaper priced product range or 2-3 average items for a higher priced product range. Standard limits tend to be over $50, $75, or $100 - try and keep to an amount easily divisible by $25; for some reason it is easier for the brain to process.

3. Free store pickup

This approach isn't quite as common as the two approaches above, but if you also have a physical location it is a great option to provide. 48% of customers surveyed in the UPS and comScore survey said that they had used store pickup with 45% of them making an additional purchase when they turned up to collect their item. This approach also nicely caters for those customers who are hesitant about having items delivered or who want to avoid rural delivery surcharges, as they are able to guarantee their desired product is available for collection before they come into the store.

It should go without saying that you need to withdraw any online orders from the shop floor when orders are received to avoid customer disappointment.

4. Flat rate shipping

Flat rate shipping works on the approach that part/the majority/all of the shipping cost is built into a product's cost. The idea is that the times where more products are ordered gives a profit which is then used to cover the times where less products are ordered. Flat rate shipping can be one figure for a whole country, or on a region by region base - which is handy for New Zealand customers where the cost to send inter-island can be quite different. Some New Zealand courier companies offer a flat-rate courier charge with no rural delivery surcharge, so choosing to work with these companies can make flat rate shipping easier for a business to offer.

5. Calculated shipping

Despite all of the customer enthusiasm for free shipping, don't despair if you don't want to provide it. There are plenty of e-commerce stores which provide flat-rate or calculated shipping and they still have plenty of sales! The upside to calculated shipping is that your business doesn't have to cover the delivery costs so any profit you make is all yours. The downside is that because customers won't know what their shipping cost is going to be up-front they will often experiment with adding products to their cart just to see what shipping will cost. This can result in a higher number of abandoned carts than with the above 4 approaches, so we would strongly suggest having an abandoned cart follow-up process in place.