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For ecommerce merchants, the idea of free shipping likely raises concerns. But you can offer free shipping without hurting your bottom line by building shipping costs into product prices, setting minimum order thresholds, using third-party fulfillment services, and running strategic promotions.
Free shipping is a purchasing incentive where customers pay no delivery fee — and it matters. According to the Baymard Institute, 40% of online shoppers abandon their carts due to unexpected costs like shipping.
Let’s dig a little deeper.
While some sellers add a credit card fee on card sales, most businesses accept credit card processing as a cost of doing business. Those transaction fees of 2 percent to 3 percent of each sale are unavoidable for online businesses.
We live in an on-demand economy where you can order countless products with an app on your phone and have them delivered in a snap. Amazon, Walmart, Target, and other online retailers have made free shipping the norm.
The easiest way to add free shipping without losing a dime of profit is to build shipping into your product cost using this simple formula:
For example, if you sell a $50 product and the average shipping cost is $7, you can just charge $57 for the product and offer free shipping.
Key takeaway: Calculate your average shipping cost per order and add it directly to your product prices to maintain your profit margins while offering free shipping.
Many ecommerce businesses choose to use a third party for shipping. In this case, you might be able to pay a company a flat fee to handle shipping and packing orders on your behalf. There are two popular ways to sell with a third party today:
With a drop shipper, this partner handles all order fulfillment on your behalf, saving you time and effort on shipping. While this isn’t free, drop shippers might have access to discounted shipping rates. Again, you can build this cost into your sales price to maintain the same profit margins when you offer free shipping.
The most popular is Fulfillment by Amazon, or FBA, your orders leave an Amazon warehouse and offer product sales with free Prime shipping when selling on Amazon.com. Like other options, Amazon charges fees that can be built into your product’s price. It’s important to understand that these fees can add up fast, however, and there is a risk in building your entire business on another company’s platform.
Key takeaway: Partner with a third-party fulfillment service to access bulk shipping discounts and reduce your per-order shipping costs.
Customers like control over costs, and one way to offer that with shipping is to give your customers the option to decide how to receive their product. You can offer basic shipping for free or let the customer pay more for expedited shipping.
Like the above options, you’ll want to price in the cost of basic shipping to maintain margins. But you can then give customers faster access to products when they want or need them. If you sell something people regularly need at the last minute, those expedited shipping options may be worthwhile to some shoppers.
Key takeaway: Offer free standard shipping while charging for expedited options to satisfy both budget-conscious and time-sensitive customers.
While you’re in the process of pricing out a plan to offer free shipping, make sure to check with all shipping vendors to find ways to save money. You might get the best deal with the United States Postal Service (USPS), but you don’t know if FedEx or UPS may be cheaper for your products until you do your research.
Don’t forget about other shippers like DHL, OnTrac, and bulk discounts from online and self-service shipping tools. While there are three primary vendors used in product shipments in the United States, don’t feel restricted to that short list.
Key takeaway: Compare rates from multiple carriers quarterly, as the cheapest option varies based on package size, weight, and destination.
Setting a minimum order price helps you manage risk in a free shipping program, as low-value products won’t qualify for free shipping on their own. This is how many large retailers handle shipping policies.
For example, many online stores offer free shipping for orders of $35 or more. Others might offer free shipping using different minimum order sizes to reflect the shipping cost relative to the product’s cost.
If you have a standard margin on your sales, you can quickly calculate the minimum order price you need to maintain healthy profits while giving your customers an offer for free shipping.
Key takeaway: Set your free shipping threshold slightly above your current average order value to increase cart size while covering shipping costs.
If you are hesitant to change prices or offer free shipping, test it out with a few promotional items or compare the results after a short period of time. Once you’ve completed a test, you will have the data you need to make the best decision regarding free shipping.
To get good results, here are two methods to conduct a free shipping test:
Key takeaway: Run a 2-4 week free shipping test on select products to gather data before committing to a permanent policy change.
While you might resist offering free shipping, keep in mind that virtually all of your competitors are offering this perk. Modern business owners and managers are wise to take time to do the math and fully understand your costs, choose the right pricing strategy, and protect your bottom line while giving customers the free shipping they want.
A good minimum order threshold is typically 10-20% above your current average order value. For example, if your average order is $45, set your free shipping threshold at $50-$55 to encourage larger purchases while covering shipping costs.
How do I calculate shipping costs to build into my pricing?
Add up your total shipping expenses over the past 3-6 months and divide by the number of orders shipped. This gives you your average shipping cost per order, which you can then add to your product prices.
Should I offer free shipping on all products or only select items?
Start with select items—particularly your best-sellers or higher-margin products—to test the impact on sales and profitability before rolling out free shipping across your entire catalog.
Does free shipping really increase sales?
Yes. Studies show that 48% of shoppers abandon carts due to shipping costs, and offering free shipping can increase conversion rates by up to 30% and average order values by 15-20%.
Can small businesses compete with Amazon’s free shipping?
Yes, by using strategies like minimum order thresholds, building costs into pricing, or offering free shipping on select items. You don’t need to match Amazon’s speed—just eliminate the shipping cost barrier for customers.
The post How to offer free shipping without hurting your bottom line appeared first on GoDaddy Blog.
Continue reading...
Free shipping is a purchasing incentive where customers pay no delivery fee — and it matters. According to the Baymard Institute, 40% of online shoppers abandon their carts due to unexpected costs like shipping.
Let’s dig a little deeper.
Add free shipping to your base price
While some sellers add a credit card fee on card sales, most businesses accept credit card processing as a cost of doing business. Those transaction fees of 2 percent to 3 percent of each sale are unavoidable for online businesses.
We live in an on-demand economy where you can order countless products with an app on your phone and have them delivered in a snap. Amazon, Walmart, Target, and other online retailers have made free shipping the norm.
The easiest way to add free shipping without losing a dime of profit is to build shipping into your product cost using this simple formula:
For example, if you sell a $50 product and the average shipping cost is $7, you can just charge $57 for the product and offer free shipping.
Key takeaway: Calculate your average shipping cost per order and add it directly to your product prices to maintain your profit margins while offering free shipping.
Use a third-party shipping service
Many ecommerce businesses choose to use a third party for shipping. In this case, you might be able to pay a company a flat fee to handle shipping and packing orders on your behalf. There are two popular ways to sell with a third party today:
Traditional drop-shipping service
With a drop shipper, this partner handles all order fulfillment on your behalf, saving you time and effort on shipping. While this isn’t free, drop shippers might have access to discounted shipping rates. Again, you can build this cost into your sales price to maintain the same profit margins when you offer free shipping.
Third-party platform
The most popular is Fulfillment by Amazon, or FBA, your orders leave an Amazon warehouse and offer product sales with free Prime shipping when selling on Amazon.com. Like other options, Amazon charges fees that can be built into your product’s price. It’s important to understand that these fees can add up fast, however, and there is a risk in building your entire business on another company’s platform.
Key takeaway: Partner with a third-party fulfillment service to access bulk shipping discounts and reduce your per-order shipping costs.
Give your customers shipping options
Customers like control over costs, and one way to offer that with shipping is to give your customers the option to decide how to receive their product. You can offer basic shipping for free or let the customer pay more for expedited shipping.
Like the above options, you’ll want to price in the cost of basic shipping to maintain margins. But you can then give customers faster access to products when they want or need them. If you sell something people regularly need at the last minute, those expedited shipping options may be worthwhile to some shoppers.
Key takeaway: Offer free standard shipping while charging for expedited options to satisfy both budget-conscious and time-sensitive customers.
Evaluate your shipping vendors
While you’re in the process of pricing out a plan to offer free shipping, make sure to check with all shipping vendors to find ways to save money. You might get the best deal with the United States Postal Service (USPS), but you don’t know if FedEx or UPS may be cheaper for your products until you do your research.
Don’t forget about other shippers like DHL, OnTrac, and bulk discounts from online and self-service shipping tools. While there are three primary vendors used in product shipments in the United States, don’t feel restricted to that short list.
Key takeaway: Compare rates from multiple carriers quarterly, as the cheapest option varies based on package size, weight, and destination.
Set a minimum order threshold
Setting a minimum order price helps you manage risk in a free shipping program, as low-value products won’t qualify for free shipping on their own. This is how many large retailers handle shipping policies.
For example, many online stores offer free shipping for orders of $35 or more. Others might offer free shipping using different minimum order sizes to reflect the shipping cost relative to the product’s cost.
If you have a standard margin on your sales, you can quickly calculate the minimum order price you need to maintain healthy profits while giving your customers an offer for free shipping.
Key takeaway: Set your free shipping threshold slightly above your current average order value to increase cart size while covering shipping costs.
Test out free shipping promotions
If you are hesitant to change prices or offer free shipping, test it out with a few promotional items or compare the results after a short period of time. Once you’ve completed a test, you will have the data you need to make the best decision regarding free shipping.
To get good results, here are two methods to conduct a free shipping test:
- Offer free shipping on select items only, and look for a bump in sales on those products. If you can offer free shipping on a very similar product without free shipping, it will give you the best insights into how free shipping impacted your sales.
- Offer free shipping during a promotional event. Just make sure to make the promotion long enough to give you a good test. A short promotion period might give you a boost in sales due to the promotion artificially inflating the number of sales from the free shipping offer.
Key takeaway: Run a 2-4 week free shipping test on select products to gather data before committing to a permanent policy change.
Free shipping method comparison
| Method | Pros | Cons | Best for |
|---|---|---|---|
| Build into pricing | Simple to implement; maintains margins | May make prices appear higher | Businesses with consistent shipping costs |
| Minimum order threshold | Increases average order value; reduces risk | May deter small purchases | Stores with varied product prices |
| Third-party fulfillment (FBA) | Access to Prime customers; bulk discounts | Fees can add up; platform dependency | High-volume sellers |
| Promotional/limited-time | Low risk; good for testing | Temporary boost only | New stores testing free shipping |
Don’t let shipping costs sink your product
While you might resist offering free shipping, keep in mind that virtually all of your competitors are offering this perk. Modern business owners and managers are wise to take time to do the math and fully understand your costs, choose the right pricing strategy, and protect your bottom line while giving customers the free shipping they want.
Frequently asked questions
What is a good minimum order threshold for free shipping?A good minimum order threshold is typically 10-20% above your current average order value. For example, if your average order is $45, set your free shipping threshold at $50-$55 to encourage larger purchases while covering shipping costs.
How do I calculate shipping costs to build into my pricing?
Add up your total shipping expenses over the past 3-6 months and divide by the number of orders shipped. This gives you your average shipping cost per order, which you can then add to your product prices.
Should I offer free shipping on all products or only select items?
Start with select items—particularly your best-sellers or higher-margin products—to test the impact on sales and profitability before rolling out free shipping across your entire catalog.
Does free shipping really increase sales?
Yes. Studies show that 48% of shoppers abandon carts due to shipping costs, and offering free shipping can increase conversion rates by up to 30% and average order values by 15-20%.
Can small businesses compete with Amazon’s free shipping?
Yes, by using strategies like minimum order thresholds, building costs into pricing, or offering free shipping on select items. You don’t need to match Amazon’s speed—just eliminate the shipping cost barrier for customers.
The post How to offer free shipping without hurting your bottom line appeared first on GoDaddy Blog.
Continue reading...
