4 Guidelines to Follow When Offering Free Shipping to Customers

by Rachel Hartman on December 26, 2013
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When it comes to shipping, the word “free” can be a deal maker.

Eight in 10 Americans who bought an item this year that required shipping said shipping options — including free delivery — were an important factor in their overall shopping experience, according to a survey commissioned by Pitney Bowes and released in November.

“Free shipping is a competition hot spot,” notes Debra Ellis, president of Wilson & Ellis Consulting, which specializes in integrated marketing, customer care, and growth strategies. “Every company needs to review [its] shipping policies to ensure that the business will remain competitive.”

Before plastering “free shipping” signs on your website, however, consider the financial implications of your offer. If your expenses skyrocket with sales, your company could lose more than it gains by having to pay excessive shipping costs.

Here are four general guidelines for knowing when and how to incorporate free shipping options into your online sales strategy.

1. Calculate the costs involved. “This can be done by using an average order weight or analyzing orders individually over a period of time,” Ellis explains. Doggyloot.com, which sells pet treats, toys, and accessories, started offering free shipping in 2012. “We did an analysis of the average weights of the products that we sold,” explains Jeff Eckerling, the company’s CEO. “We realized that we were able to offer free shipping while still making a strong margin on the products.”

2. Test your offer. If you lack experience with free shipping, start with an option that’s tied to an order total, Ellis suggests. For example, you could offer free shipping on orders of $75 or more, monitor sales and shipping costs for a few months, and then evaluate the results. Another option: Offer free shipping to your most frequent customers. Doing so provides recognition for their loyalty, notes Ellis, and also can help you analyze your offer and response.

3. Best the competition. “If all of your competitors offer free shipping at $99 and you offer it at $125, consider matching — or better yet, beating — this minimum price,” suggests Brian Nickerson, co-founder and CEO of Chippmunk.com, a savings search engine for consumers. It’s also beneficial to know how other companies are sending products like yours. “If [comparable] items are readily available with free shipping from competitors,” Ellis notes, “it is hard to convert prospects and keep customers without a similar offer.”

4. Set a threshold. “If the average order value is $40 and you set the free shipping value at $49, odds are consumers will look for another item or two to add to their cart before checking out,” Nickerson says. This can be a win-win scenario: Consumers avoid shipping fees, and your business may be better able to cover the added cost of free shipping and still turn a healthy profit.

As you weigh your options, keep expectations reasonable. “People do not expect small businesses to match Amazon,” Ellis says. “They do expect reasonable pricing and delivery.”

Rachel Hartman is a writer who frequently covers topics related to small businesses. Her work has appeared in The Costco Connection, Wells Fargo Conversations, Pizza Today, Bankrate.com, InsuranceQuotes.com, CreditCardGuide.com, and many other outlets.

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